The 2-step process companies like Airbnb and Facebook use to find their North Star metric

I'm a big fan of metrics. Before starting my own business, I spent eight years working as a high-frequency trader where literally everything I did was based on metrics. I would create algorithms that would trade stocks at microsecond speeds for fractions of a penny based solely on financial data. I couldn't care less about the individual stocks I traded, as long as the numbers made sense.

I've adopted the same mindset for my business, using numbers whenever I can to support my decisions and analyze our performance. I understand that metrics aren't something everyone enjoys, but I recently came across a simple metrics-based concept that I think every entrepreneur should think about.

Essentially, if you could only track one metric across your entire business, this would be it.

The North Star Metric

I first heard about this concept in Liam Martin and Rob Rawson's recent book, , although it's by no means a new idea. In the book, they talk about the importance of metrics for remote businesses and explain that every business should ideally have what's called a "North Star Metric." It's the one number that will align your entire team around a common goal while telling you how the business is performing.

Many companies have used the North Star measurement with great success. Airbnb, for example, uses "reserved nights" as the north star. Facebook measures the number of customers who connect seven friends. These measures give everyone in the company something to rally behind. And instead of having to sort through a variety of different stats, this one tells you all you need to know: are we improving or not?

It's not just a way to measure progress, it's also a way to boost your entire team's progress (without confusing calculations).

Find your North Star

Martin and Rawson say your North Star metric falls between engagement and monetization. If you can find a metric that shows how engaged your customers are and how much money you're making, that will tell you a lot about the health of your business.

These are also the two things your employees should be most concerned about. Regardless of departments and roles, the vast majority of a company's employees are either focused on increasing revenue or creating happier, more engaged customers.

Therefore, combining these two factors into a single metric is the best way to find your North Star metric.

The Golden ratio

At my company, Leverage, we track many metrics. And while we don't have a formal North Star metric at this time, we've long focused on this combination of revenue and engagement.

We track it using a ratio of two metrics. The two metrics are customer lifetime value (LTV) and customer acquisition cost (CaC). Essentially, we ask ourselves, "How much does it cost to acquire a customer?" then, once we have that customer, "how much revenue can we expect to generate from them?"

By combining them in a ratio - LTV: CaC - we can predict the expected ROI of every customer we acquire. If it costs an average of $1,000 to acquire a customer and the average lifetime value of each customer is $10,000, then our LTV:CaC ratio is 10. This basically means we get a return of 10 times on our marketing and sales expenses.

But beyond money, a high LTV:CaC ratio means great things are happening in our business.

When the CaC is low, it indicates that marketing and sales are working well, as we acquire customers with minimal expense. And when the LTV is high, it shows that the delivery is working well, because we clearly have satisfied and engaged customers who want to pay for our services.

Most company employees focus on one or another of these metrics, so combining them...