How to identify your North Star Metric

How to identify your North Star Metric

In this guest post, tenured Product Manager, Vignaraj Gadvi delves into identifying your North Star Metric, and how it is an important value for your customers.

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Before we talk about how to find your north star metric, let’s take a moment to define it. Your north star metric is the one metric that captures the core value that your product delivers to customers.

You may have heard the term “north star metric” before, but what does it mean? North star metrics are one of the most critical elements of a data-driven organization. A north star metric is the one metric that captures the core value that your product delivers to customers. For example, your north star metrics might be average order value (AOV) and customer retention rate if you sell a meal delivery service. If you are trying to grow awareness for an online course, sign-ups could be your north star metric because they indicate interest in learning more about a topic or issue. Listen to this podcast episode on when not to use a North Star.

To understand the importance of your north star, imagine you are building a business, and every day someone gives you all the answers to a test. How likely would you be to study? Probably not very likely.

A north star metric is an essential tool for navigating your business. It’s a number that allows you to measure how successful or unsuccessful you are in achieving your goals. In addition, it lets you know if you are moving towards success or away from it.

It’s also important because it helps keep things in perspective when evaluating the other metrics and data points that come from running a business. For example, sales numbers, customer satisfaction scores, and employee engagement surveys are all valuable metrics—but they can be misleading if they’re not tied back to an overarching goal (i.e., the north star). If those metrics aren’t linked to an overarching goal, then it’s easy for them to become self-serving rather than focused on helping achieve those goals.

The same goes for your product. If you have no clear way to measure success, you don’t have anything to aim for. It’s like trying to win a game without knowing the score. That’d be pretty demoralizing, wouldn’t it?

A north star metric is a key performance indicator (KPI) that you use to measure the progress of your business. It has one purpose: to keep you focused on what’s important.

A metric shouldn’t be something obscure or abstract, like “more customers” or “higher engagement.” Those goals can be helpful and can be used as input into your north star metric, but they don’t make great KPIs themselves because they don’t provide any information about how well you’re meeting them. For example, if I tell my team that our goal is to generate more customers for an online booking service this year than we did last year, there’s no way for us to know if that happened until after the fact. In other words, it’s too late then! The key is figuring out what data point(s) will help you stay on track throughout the year so that when December comes around and we need to look back at our progress so far—and make decisions based on whether or not things have gone according to plan—we’ll have data points available right when we need them most (e.g., while making sales forecasts).

That’s why the north star metric is so important. It gives your team something to rally around and focus on.

Why is this so important? The north star metric is crucial because it gives your team something to rally around and a clear direction to focus on in their work. Everyone on the team should understand the north star metric and how they’re contributing to it.

While defining your north star metric may sound simple—and it can be—there are a few key things that separate a great choice of metric from an OK one. So let’s dive into five characteristics of an effective north star metric so you can get started finding yours today.

A north star metric is one metric that captures the core value that your product delivers to customers, ideally in a single number. It should be specific to your business and easy to understand and measure.

Your north star metric should also be accessible for all your team members to understand and communicate, even if they don’t work in data science or analytics. Having a clear north star metric helps everyone in the organization stay aligned around what matters most when making decisions about new features or products — which will ultimately make them more successful by bringing them closer to their users’ needs.

Your north star metric is like your compass. It will guide you towards a destination and keep you focused on what matters most. However, it’s not just about figuring out what it is; you must also know how to use it. You can use the framework below to identify your north star metric and put it into practice to help guide your company through any changes or challenges that might come along the way (because they will).

Recently, I came across an article by Shivaprasad H about how you can frame your thoughts to identify your North Star Metric. The author states the following:

Align yourself with one of the business models outlined below:

Product managers working in established companies have this figured out, but if you’re a founding product manager or an entrepreneur, here’s what it means for you (via Neel Mehta).

So, let’s say you were the founder of an online store selling vegan products. Your North Star Metric would be Average Order Value – defined as the total amount spent per order over a specific period. It is calculated using the following formula.

Revenue/Number of Orders=Average Order Value.

Business Model	Example	North Star Metrics
User Generated Content + Ads	Facebook, Quora, Instagram, Youtube	MAU, Time on Site(ToS)
Freemium	Spotify, Mobile Games, Tinder	MAU, % who upgrade to paid
Enterprise SAAS	Slack, Asana	MAU, % who upgrade to paid
2-sided marketplace	Airbnb, Uber	MAU, monthly active riders/drivers, MAU buyers/sellers
Ecommerce	Amazon, eBay, Flipkart	Average order value (AOV) ; basket size

Identify intermediate metrics

As a product manager in a large organization, it cannot be easy to impact the North Star metric directly. In these scenarios, you’ll have to identify intermediate metrics that can be defined at the product/feature level, eventually moving the North Star metric in the right direction. Returning to our example of an online vegan store-if, I was the product manager for the recommendation platform; below are some intermediate metrics I would measure because to increase average order value (AOV), there are other factors such as quality of products, inventory levels, distribution capabilities, and last-mile delivery, shipping costs which will impact our North Star Metric.

Feature/Product	Intermediate Metric	North Star Metric
Recommendation Platform	% of customers who added the recommended products  to their basket; % of customers who bought the recommended products ; % of customers who clicked on the recommended products;  % of customers who visited the site based on emails that showed the recommended products	Average Order Value

Prioritise your intermediate metrics and set ambitious goals for them

After identifying your intermediate metrics, you can then start to optimize through the funnel. Prioritize your metrics accordingly while being mindful of what factors are affecting them. Set audacious goals so that your team is motivated to solve for them.

Wrapping up

To sum up, North Star metrics can be an effective strategy for aligning all teams around a singular goal if they’re not taken too literally, are supported by a flexible culture, and measured with analytics tools that keep track of how the team is doing. Remember that your product’s ultimate goal is growth and success, so sometimes you will need to pivot and change which metrics you focus on- otherwise you may find yourself chasing the wrong star!

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