North Star Metrics: Finding your Startup’s “True North”
Successful startups don’t just emerge out of the blue; there are many elements involved in growing a startup– along with a lot of preparation and pivoting along the way.
Previously we dug into Cap Table Tips, which focus on your company’s ownership, but North Star Metrics ensure clarity around revenue and scalability. North Star Metrics are the primary metrics around which all companies’ strategies and priorities revolve. All tactics should point to your North Star.
What can North Star Metrics do for your business?
North Star Metrics are one of the most critical measurement tools for keeping your startup on track. They measure how effectively your product solves your target customers’ problems and how much revenue your solution can unlock. Essentially, they predict your company’s chance for longevity and long-term success. To determine your North Star Metrics, you’ll have to:
- Deduce the lead indicator of revenue
- Demonstrate the customer value, and
- Measure your product strategy’s effectiveness.
These three steps will help your business unlock key growth.
Choosing Your North Star Metric
Every startup has a unique revenue model, so the way to evaluate metrics for each company shifts slightly. Here are a few examples of how different business models across verticals would assess their North Star Metrics.
For SaaS startups, take a look at:
- Monthly recurring revenue
- Monthly active users (and what activities they’re doing)
- Rate of trials converting into monthly or annual accounts.
- Churn of existing customers (or cancellations)
For B2C platforms, dig into:
- Daily or monthly active users
- Engagement activities (e.g. messages sent, videos watched)
- Signups and subscriptions
- Shares from active users that turn into new signups
- Cost per acquisition of new users (from paid media)
For eCommerce startups, evaluate:
- Number of customers completing their first order in a week or month
- Number of daily purchases
- Frequency of repeat purchases of one customer
- Average cart value
- Average cost per acquisition
As you can see, North Star Metrics vary for each industry and company. For Airbnb, the key North Star Metric might be total booked nights, whereas at Meta it might be daily active users. Tracking these metrics over time will help you focus and scale up faster regardless of your unique model.
The guiding star to keep your company focused
Defining a North Star Metric sends a clear signal about the metric that should be improved above all others when setting company strategy. This way, your entire team remains aligned on which metric is most important for the business’s future success. In essence, a North Star Metric is your company’s guiding star. You’ll know which metric matters, how to monitor it, and how to improve your product and company as you scale.
If you want to dive deeper into North Star Metrics and understand them more in-depth, here are a few steps to take:
- Check out this in-depth North Star Metrics discussion. It’s a 30+ minute chat between successful leaders who have been in their industries for years. The video talks about Lifetime Value, Customer Acquisition Costs (CAC), and the CAC Payback Period. It’s a valuable chance to see how high-growth startup executives take stock of how they’re growing and optimize accordingly in an ongoing way.
- Read this helpful post on Net Revenue Retention (NRR) – in it, we discuss NRR as a critical North Star Metric that reflects how customers are really finding value with the product, how to calculate it, when to start calculating, benchmarks for SaaS companies, and ways to improve your NRR.
Get in touch! There’s nothing more effective than having your own seasoned airCFO Fractional CFO to take the pulse on how your startup is doing. Schedule a discovery call, and let’s see if we can help.