Why every Product Manager needs the North Star Metric
Yes, such a metric can illuminate the path to success.
If a company can’t focus on further development, and initiatives contradict each other, it moves the company away from meeting their plans, achievement of goals and OKR (objectives and key results). I’ll clarify another metric the North Star, that helps define a company’s path.
The North Star Metric (NSM) is the one that best reflects the product value. A well-chosen North Star metric can provide stable and sustainable growth over the long term.
In other words, the NSM is a key success for the product team.
For Facebook the NSM is daily user activity; for Airbnb, total # of bookings; for e-commerce, weekly first-time buyers or daily order value, etc.
It is important to consider three major parameters while choosing the NSM:
- rate of return
- user value
- measurability
A metric which major goal is to make a profit while ignoring audience values will ultimately fail. As it is with a company whose customers are happy, but the whole business process suffered losses. A similar case: your major metric is “registered users”: the more users registered in the service, the better. The thing is, this metric doesn’t consider any customer values and it doesn’t show retention rate. In a nutshell, this metric ignores fast everything.
Why do you need the North Star metric?
Investor Sean Ellis, who coined the metric, hoped to cut business costs, simplify meetups, and make teams come to a common goal. Companies with complex business models may have several North Star Metrics, each of these can be divided into smaller-scale ones. However, focus on only one metric over others, such as revenue, leads to failure.
The NSM is an attempt to simplify the company’s strategy.
By focusing efforts on the growth of the correct NSM, you will provide the company with revenue growth, understand user’s value and correctly measure a team’s actions.
How does the NSM work
The metric is into smaller metrics, each of which rests with the various departments of the company, so team members can see a clear link between their routine tasks and the NSM.
Let’s take an e-commerce company that has chosen CRR as the NSM. The company buyer can increase sales. The developer can reduce the page load time. Both are on track to reach the goal, but each in its way.
In addition, the NSM should reflect the customer’s journey map. In the case with e-commerce, metric tied up in purchase shows that customers have completed this journey.
How to find your NSM
Input / output metrics
The NSM is always an output metric. Output metrics show outcomes of work done, while input metrics reflect the actions taken. Output metrics help you with setting long-term goals for stable growth.
Let’s take an example with Amazon. The major metric is order count per user.. This is their output metric. What should Amazon do to increase this metric?
It might offer suggestions to get users to make purchases and return them to the app more often. It doesn’t have to stop on these inputs. You may go further and divide them into even more specific actions: recommendations, new item notifications, sales, etc.
I hope you are clear about the North Star metric, and soon it will illuminate your path to success.
Explore more on my Telegram channel: https://t.me/productmonkey.
Take my new course of the Product Management: Introduction to the Product Management Process | Udemy
