by Alex Ho
(Image source: vector_corp )
Table of Contents
- North Star Metric Intro
- Backgrounds of creating a North Star Metric for product teams
- What is the North Star Metric (NSM)
- How North Star Metric can help product teams
- Key points of a good NSM
- North Star Metric vs. One Metric That Matters
- Example North Star Metrics from tech firms
- References
North Star Metric Intro
Backgrounds of creating a North Star Metric for product teams
- While building a product, we might use multiple
metricsto measure things such as - How serious a problem is
- Estimate the impact
- Design the success metrics in an experiments
- Monitor the performance of a product or business
- We can easily list down a bunch of metrics that are important to our product and business, but the long list might overwhelm our team and in the end we still don’t know
what to focusto help theproduct growth. - Customers pay money to us (directly or indirectly, depends on our business types) if they feel they get
valuefrom our product or service. The money is therevenueof our product or business.
What is the North Star Metric (NSM)
NSM
- Represents the number that we should keep improving in order to achieve the
long-term growthfor our product / service / business. - Reflects the values we created for our customers and is tied to our business growth.
- Should be able to cover both
user engagementandmonetizationinitiatives of our product - Can drive some other relevant secondary metrics (often called One Metric That Matters, OMTM ) which help the product grow as well.
How North Star Metric can help product teams
NSM helps us to
- Focus on one single metric that contributes to the product growth
- Make sure we are brining correct and enough
valueto customers - Make all members in a team (or various teams in a company) aligned and clearly understand the ultimate goal (even though each team might have different sub-metrics to work on)
Key points of a good NSM
- A good NSM should cover both user engagement and monetization initiatives of our product.
- Example of a not-so-good NSM: “e-commerce orders placed per month”. It simply emphasizes too much on monetization or marketing KPI (e.g. ), and there can be no way to judge if customers are satisfied with the orders they placed or not.
- Example of a better NSM: “the number or e-commerce orders fulfilled without customer complaint tickets”. It covers both customer satisficaion and business monetization. p
- NSM should be tied to the business growth.
- NSM should be measurable quantitatively.
- Example: To measure if customers are satisfied or not, we might use metrics such as “number of customer service tickets raised”, “length of time that customer wait in the customer service phone call”, and etc.
- NSM can be measured over a short period of time such as one hour, one day, one week, or one month. But not “one year” as it will take too long before we know if we are all good or not.
- NSM should not be easily falsified.
- Examples: “5-star rating” can be easily falsified if a restaurant prizes customers to do so.
- NSM should not be changed from time to time.
- NSM should not be easily impacted by external factors that we can not control, such as weather, mood of customers, and etc.
Notes: “Revenue” might not be a good North Star Metric
- Regardless of the product or service we build, we all purse getting reasonable revenue. And we expect the revenue to continuously grow. Therefore, the revenue should be an ultimate outcome based on the value that we deliver to the customers, instead of the NSM.
North Star Metric vs. One Metric That Matters
It is true that a NSM helps us focus. But it’s also true that there is definitely not just only one important metric in your product. Besides one NSM, we might need to closely look into other metrics that emphasize areas such as quality, efficiency, and etc.
So here comes the OMTO (One Metric That Matters).
We can consider OMTM as
- An input of a NSM (then you can consider NSM as the output of your product system)
- A sub-metric that is very import as well (besides the NSM).
Therefore, practically we can set up one NSM together with several OMTMs to monitor if the product is on track with both business growth, quality, efficiency, and any other important aspects.
Comparison between NSM and OMTM
North Star metric (NSM) | One Metric That Matters (OMTM) | |
For whom | For the entire company | For each department in the company (or each features under one single product) can have different OMTMs to focus on |
OMTM is the sub-focus of the NSM | When the NSM is enhanced, it often means that the relevant OMTMs are improved | Each OMTM contributes to the company’s NSM. |
Length of focus | For long-term growth
Only changed when the entire company changes the business direction. | Can be relatively short-term
Because a OMTM can be changed when each team decides what-to-focus in the coming month, quarter, or year (in order to meet the NSM in the long run) |
Example North Star Metrics from tech firms
Company | North Star Metric | Explanation |
Facebook | MAU | One-sided platform |
AirBnB | Number of nights booked | For a “two-sided platform”, a good NSM should connect both sides in the platform.
The NSM combines the value both the booker and the landlord.
(After booker sends the application for a room, landlord should approve and thus the room is “booked”) |
Uber | Completed rides per week | Two-sided platform
Customer requests for a ride. Driver picks up and drops off the customer. Then it’s a “completed ride”. |
Spotify | Time spent listening | Lots of OMTMs contribute to this final NSM. For example:
Increase time spent per user session
- Number of playlist created
- Times that user use “Discover (new song)” features
Times that user comeback to use Spotify over a period of time
- Number of clicks on the push notification of “new album realized from an artist you followed” |
Amazon | Number of purchases per month | |
Linkedin | MAU | Similar to Facebook |
Quora | Number of answers to questions | If it is “number of questions asked”, then it cannot ensure “the user satisfaction they get after their questions are answered by other users”. |
Leverage | LTV / CPC | LTV (user lifetime value)
CPC (a.k.a CaC)
Cost to acquire a customer. E.g. Marketing spending and sales expenditure
( LTV / CPC ) can represent how much value the users can generate for $X that we invest in the customer acquisition cost. In short, it means the ROI of customer acquisition cost. |
WhatsApp | Number of messages Sent | |
Slack | Messages sent within the organization | Some said it is DAU actually.
We might prefer “lots of users send at least one message in one day” rather than “small amount of users send lots of messages in one day” |
Shopify | Customer’s GMV | |
Salesforce | Average records created per account | A “record” is the system or data repository of an organization. |
Zoom | Number of weekly hosted meetings | |
DocuSign | Number of signed envelopes |
References
About Alex
- Software Product Manager. Work experiences in Taipei, Singapore, and Shanghai.
- Currently based in Taipei City, Taiwan.
- Contact me via: alex.ho.helloworld@gmail.com
