Companies often don’t have a clear vision of their future focus, and initiatives contradict each other. It all drifts companies away from meeting their plans, objectives, or OKR. Today, we’ll elaborate on the North Star metric that will help you choose your path and follow it.
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The North Star Metric (NSM) is the one that best demonstrates your product’s value. The right North Star can guarantee sustainable long-term growth. It means that the NSM is a key success indicator of the product team.
The NSM should imply three major parameters:
Let’s say your major metric is the number of registered users. The more users signed up for your product, the better. This metric is easily measured and demonstrates how much the company is making. But in fact, this metric bears no customer value. It doesn’t say how often customers use your product or whether they like it. This metric doesn’t show whether the new feature release, user onboarding, the updated design performed well, despite its measurability and the company’s rate of return considered.
If you grow the right North Star metric, you’ll grow your company income. You’ll see your product’s value appreciated by users and measure your initiatives right. With this metric, your company will know what improvements need to be implemented and how they will impact future growth.
The North Star metric:
Yes, but remember that the metric is calculated for a longer term. That’s the strategy. If you change your North Star often, you probably pick the wrong metric and it’ll be hard to achieve tangible results.
If you run a complex product or a large company with a complicated ecosystem, one metric may not be enough. However, having 3+ North Stars is bad, too. The idea of a key metric becomes vague and you risk getting your focus blurred.
Before we dive deep into the dark debris looking for the North Star, we should set the record straight.
Define what’s key in your business, what is the true customer value, what generates revenue and determines your progress to find your North Star. But how can you determine what’s key? First, see which goal out of the three below is your key one:
Focusing on one big objective you develop a clear strategy to see clearly where you should go.
Let’s look at the companies with similar global objectives and completely different North Stars. This will help you navigate and see those big goals don’t tie your hands, but rather set your direction and help you stick to it.
Facebook & Netflix are products where acquisition is key, though they have completely different business models. For Facebook, the time spent in the feed is the North Star. Netflix, in turn, tracks view count and the content viewed per month in hours.
Amazon & Walmart are passionate about transactions but with different North Stars. For Amazon, order count per user is the most important, because their subscription model offers user benefits and probably extends their LTV. For Walmart, the order count per session is a potential North Star Metric.
Salesforce is aiming to be a source of indisputable truth for users because it’s an advanced CRM for sales reps. Their North Star is not actions done within the product, but rather data volumes that users store in their accounts. As for Adobe Creative Cloud, they strive for growing the number of account users.
The North Star metric is always an output. Output metrics demonstrate your outcomes, while input ones consider actions taken.
Output metrics help you set long-term objectives for the sustainable growth of your business. For example 100k of MAU; the revenue of $6 mln, the Monthly Recurring Revenue of $10 mln.
Input metrics are actions that influence output metrics: 10k views, 1000 signups, 700 plans purchased.
Output metrics are usually delayed as they don’t let you see how your company is doing right now. It takes some time for output metrics to alarm you about issues, and by that time, it may be too late to change it. Input metrics are leading indicators as they reflect exactly what’s going on in your company.
Don’t just focus on one output metric. They are too general and it’ll be hard for you to evaluate what’s going on and capture declining trends or other issues quickly.
Let’s consider an example of Apple Music. Users get the most product value when they listen to the music. So, their major metric is the time users spend listening to the music. That’s an output metric.
Now let’s see what we can do to improve this metric so that users listen to as much music in the product. These are our input metrics. Probably we can increase the time of user sessions and get them back to the product more often.
Don’t just stop on these input metrics. Move one step further and divide them into more precise steps: notifications on new albums released, recommendations, playlist creation, finding new music, etc.
After you define which of the three directions is key for your business, it’s time to determine the KPIs (input metrics) that will help you enhance your chosen direction.
Let’s say you’re developing social media and at that moment you should mostly work on user acquisition. What KPIs can impact your acquisition performance? Define them at this stage and assign them to relevant teams.
When you choose major KPIs influencing user acquisition, it’s time to set your major metric that would embody all these KPIs. This metric is going to be your North Star. Don’t forget the three parameters we discussed before: user value, rate of return, and measurability.
You selected your metric, but it’s hardly the end. Now it’s time to build the hierarchy of metrics where you’ll have your major metric at the top and the KPIs you selected below.
Don’t forget to distribute them across relevant teams that will be responsible for these KPIs.
Each North Star metric has 4 dimensions — depth, width, frequency, and performance. So, each KPI can impact one of these dimensions.
Look at the table below. This is the metric hierarchy for a food delivery service. You’ll see what initiatives match the selected KPIs and how, and they, in turn, influence the NSM in different ways.
In our case, the North Star Metric is the number of orders delivered on time per month. Width means the number of new and returning users. The initiatives enhancing this KPI are new user activation, returning gone users, and free subscription.
The KPI of the number of goods in an order deals with depth. The initiatives are recommendations, creating shopping lists, discount coupons, etc.
Monthly order count impacts the frequency and this KPI can be improved with reminders, flash sales, and notifications.
The last dimension is performance. The rate of on-time delivery can greatly impact it. You can improve this KPI by a live chat and well-built logistics.
Hopefully, we explained the concept of the North Star Metric well, and soon it will illuminate your way.
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