Product Numbers series: The North Star Metric
Product Number Series, Episode 1, The North Star Metric
We’re kicking off our Product Number Series with a deep dive into one of the most powerful concepts in the game: the North Star Metric.
In this first episode, we’ll be going over the North Star Metric — what it is, why it’s important, and how it can transform/align your product organization.
But before we get ahead of ourselves, let’s start with the basics: what exactly is the North Star Metric.
What is the North Star Metric
Sean Ellis, the person who helped forging this concept, defined the North Star Metric (NSM) this way:
The North Star Metric is the single metric that best captures the core value that your product delivers to customers.
Some key traits of a North Star Metric are:
- Be easy to measure
- Have a high correlation with success and performance of the company
The North Star main goal is to align the whole company on one specific direction, that is expressed in the Metric, making sure everyone has a clear understanding on the actions to prioritise and decisions to make.
Breaking this down, it is the single metric that:
- provides your organisation with clarity and alignment, guiding the product team on what to prioritise and on what can be sacrificed in pursuit of the overarching goal.
- communicates the impact and progress of the product organization to the entire company, facilitating the acceleration of strategic product initiatives.
- holds the product team accountable for delivering tangible outcomes, ensuring that efforts are directed towards achieving measurable results.
The North Start Metric helps the product organisation to be aligned towards a clear goal.
Some North Stars examples
Since you are all wondering now, here are some NSM from top tech companies:
I’m sure you know some of these companies. Now, based on your knowledge on the company and on their business try to connect the dots and think if the NSM makes sense to you or not.
Take Spotify. Why Time Spent Listening?
On top of my head, I think this metric highlights two important aspects: supply and demand.
One one side, this is of course related to the Demand side of things. The Time Spent Listening focuses on the time users spend on the App listening to something. This underlings having a cool platform that fulfils users’ desires and bring them back to it.
But on the other side, we have supply. This related to the quality of contents, the type of contents and the variety of contents. I am thinking of several teams in charged of keeping Spotify aligned with market trends and desires. Potentially not product teams.
With just this example I think it is getting clear what a NSM is and how it pushes the whole company in the same direction.
If all the company is pushing forward, we should expect that NSM to improve. At the end of the year that number must improve.
Next, we see the breakdown of the North Star.
How the North Star Metric will guide your product
In this paragraph let’s think together how, from a single North Star, we can break down the scope of a whole product organisation. Consider only product teams for the sake of this example.
The step to do now is to break down the NSM in a Top Down manner. From the NSM itself to all of its components.
The assumption for this mental exercise, is: you have a company, you have a NSM, you have a product team. Now you have to decide how to align the single teams and make them working together for the same goal.
Back to Spotify
What do you think are the drivers of Time Spent Listening?
We can agree on:
Users Listening X Time Spent per Session X N. sessions
Eg. you have 100 users and spend 5 minutes per session and do 10 sessions a month. You have 5.000 minutes per month.
Without having contest on the business or insights, we agree that to push the NSM we need to:
- Acquire new users
- Increase time spent listening
- Increase the number of session
From these three areas a CEO or CPO could begin drill down and make a full tree of scopes.
Look at this graph that clearly breaks down the NSM into ‘sub’ NSM and then into potential domains for teams.
NOTE: As you can see, in the graph, the North Star Metric is linked to some KPIs to measure the results. We will cover this in the following posts in the series.
That’s the power of the NSM.
From the company’s NSM, we identified four team with “four different NSMs” to move. All of them aligned with the company North Star.
Takeaway; yes the NSM is at company level. But every product team should have a clear metric in mind to scope down and guide its work and actions.
Finding your North Star
Depending on the business type of your company the North Star Metric may take different shapes and focus on different aspects.
To provide you with some insights here are the most popular ones:
Marketplaces and E-commerce
- Lifetime Value
- Percentage of Repeat Purchases
- Number of Purchasers Per Month
SaaS
- Number of Paid Users
- Retention
- Customer Interactions
Social medias, Media stream platforms, etc.
- Monthly Active Users (MAUs)
- Daily Active Users (DAUs)
- Number of Actions Per User
- Total Hours Streamed
- Average Revenue Per User (ARPU)
One issue with the North Star Metrics
Having a clear NSM has always helped me a lot, not only to focus my activities but also to drive product discovery and understanding what to build next.
One potential issue with North Star Metric?
By focusing too much on the long term vision and on the numbers to move, teams could lose short term opportunities in improving other areas of the product.
Rather than an issue, I would say it is more a company decision on the degree of flexibility teams can have over the activities in a specific year.
Yet, something to take into consideration.
Hope you enjoyed this post. I put a lot of effort into it.
If you wish, leave a comment to make sure I can do better next time.
Here is my previous post on Deep Work: What is it and Why you must ace it
— Fred
