Business strategists and financial professionals talk about using metrics and KPI’s to measure the future success of a business. At Crescendo Accounting & Consulting, we see the value of these indicators and go one step further to help our clients identify their North Star Metric.
What is a North Star Metric?
A North Star Metric is a metric related to a guiding principle that a company follows. It’s not a line item on your finances like revenue or profit, but rather it’s an indicator that, when achieved, provides value to the company AND to its clients.
The key is in the last part of that sentence: “..and to its clients”.
When a metric has value to the business AND its customers, everyone in the business can rally around it, and the business will be more likely to hit its targets.
This is why metrics like sales per hour or profit margin don’t quite hit the mark. Sure those numbers are important to management, but employees who aren’t involved in sales or whose hourly wage doesn’t change if profits increase (let’s say your receptionist or your IT department) won’t be engaged with the goal because it simply doesn’t matter to them. They’ve got no skin in the game.
How do you find your North Star Metric?
Getting your whole team on board and pulling together toward a single goal isn’t an unreasonable thing to achieve – it just requires a little creativity, and time.
Most businesses have a lot of moving parts, so if the whole operational machine isn’t working toward the same outcome, it will be at best inefficient, and at worst grind to a halt.
For instance: let’s say you’re a car dealership. If your marketing people are doing a good job of bringing people through the door, it doesn’t matter if your sales guys aren’t interested in closing the sales. Conversely, if you have the most effective sales team, they can’t do their job if marketing isn’t bringing people through the doors.
But who else works at a dealership? Service and parts specialists, receptionists, finance managers, receptionists, and administrators.
A North star metric should be multifaceted and bring all of these departments together to focus on the clients they serve.
It’s not about us: Self discovery
The power in this metric is two-fold. Helping your customers get what they need will create happier clients, and happy clients tend to stick with the companies who made them happy.
So what matters to a client?
Let’s look at two companies who have very different offerings.
Case study: Spotify
Spotify, the popular music streaming app has a brilliantly simple North Star Metric: Time Spent Listening.
It’s not the number of sign ups, or revenue per listener – those are important financial metrics, but those numbers don’t speak to the value Spotify provides to its customers. By measuring the time spent listening, Spotify can easily see if customers like the platform. The more hours listened, the better. This translates internally into everyone at Spotify working together to provide the best listening experience possible – from playlist curation, to app usability, to graphic design, to the designers of the algorithms that suggest new artists.
Case study: a flooring company
We worked with a flooring company to discern their North Star Metric. This business has a long sales cycle, and since flooring is usually a large purchase with long periods of time between one purchase and another, they had to look hard for a metric that was value-based, and that every person in the company could get on board with.
They decided on: How many installations can we deliver on time every month?
This goes beyond the more obvious metric of “how many installations per month” by holding themselves to a higher standard that provides actual value to their customers. On-time installations indicate that the business is operating efficiently and providing great service. This gives their business credibility and reliability, and leaves customers feeling good about their choice, and more likely to refer this business to their family and friends.
Happy customers mean success.
What have you noticed about these two case studies?
Both of these North Star Metrics measure something that defines a business’ path to success. You can measure profit or revenue as an after-effect of that success, but the North Star Metric should be a leading indicator that tells you ahead of time if those numbers will be going in the right direction.
It can be hard to sort through the metrics that are meaningful to your business, but no matter what product you sell, or what service you provide, focusing on what value your offering provides to your customers will help you discern your North Star Metric.
Think back to the car dealership from earlier. What do you think their North Star Metric should be?
Here are the three key aspects of a North Star Metric.
- It is multifaceted.
- It provides value for the business and its customers.
- It determines a business’ path to success.
If you’re struggling to find or measure your North Star Metric, we’d love to help.
Get in touch with us at [email protected].