In this article, the editors of Smart City Enterprise will tell you what the “north star metric” is, why to use this metric, and most importantly, how to find your “polar star”.
What are north star metrics?
The north star metric (NSM) is the metric that best reflects the core value of a product to users. The right polar star metric can provide the company with stable and sustainable growth in the long term.
In other words, NSM is a key measure of success for the product team.
The NSM indicator should include three main parameters:
Profitability – the metric shows how much the company earns.
Value to users – the indicator reflects the main value of the product for customers.
Measurability – the indicator is easy to measure.
Let’s say your main indicator – is registered users, that is, the more users registered in the service, the better. This metric is easy to measure, and it shows how much the company earns.
This metric is of no value to customers. It does not show how often already registered users visit the service and whether they like your product. This metric does not allow you to assess whether the release of a new feature, onboarding users, or a redesign was effective. Even though it is measurable and reflects the profitability of the company.
Directing all your efforts to the growth of correct NSM, you will be able to provide the company with the growth of income, you will understand what value users see in your product, and correctly measure your actions.
With such a metric, you can become a company that knows in advance what it needs to do to improve, and most importantly, how those improvements will affect future growth.
Why do you need north star metrics?
- Helps the product team see what needs to be done to improve NSM metrics, and which features can be moved to the backlog or canceled.
- Allows you to see company-wide progress in numbers and accelerate the implementation of product initiatives.
- Enables you to see concrete results for the work you’ve done.
What different companies can have NSMs
- The number of users who make their first order per week.
- The value of daily purchases.
- LTV (lifetime value).
- Number of trial accounts with three or more users in the first week.
- Retention rate after one year.
- MRR (Monthly Recurring Revenue).
- MAU (Monthly Active Users).
- Registrations and retention.
- Number of active users per day.
- Total duration of reads.
- a Total number of views.
Can the north star metric change over time?
Yes, but keep in mind that the metric is calculated for the long term. This is the essence of the strategy. If you change the main metric frequently, you are likely choosing the wrong metric and cannot achieve meaningful results.
Can there be more than one NSM?
Yes, if you have a complex product or a large company with a complex ecosystem, one metric may not be enough. But having more than three key metrics is also bad, the idea of a key metric is lost and you can easily lose focus.
How to find your metric
The company’s global goal
To find your “pole star,” you need to identify what serves as the key to the company’s business, what delivers true value to customers, generates revenue, and drives progress.
But how do you determine what is key?
First, try to figure out what your primary goal is out of the three suggested below:
- Engagement -how much time users spend on the product.
- Transactions – how many payments go through the platform.
- Productivity – how many tasks users can complete in the service.
North star metric examples
Consider several companies with the same global goals, but completely different north star metrics.
Facebook and Netflix are platforms in which user engagement plays a key role, but their business models are completely different.
Facebook’s main metric is the amount of time users spend in the feed. And Netflix monitors the number of views with subscribers and the number of hours of content watched per month.
Amazon and Walmart work with transactions, but they have different north stars.
At Amazon, it’s probably the number of purchases per subscriber because their subscription model gives users benefits and likely extends their LTV. And at Walmart, it’s the number of purchases per user session.
Salesforce, the CRM for sales, aims to be a source of immutable truth for its users.
So its NSM will not be the number of actions users take in the service, but the amount of data users store in their accounts. Adobe Creative Cloud, on the other hand, aims to increase the number of subscribers involved in an account.
Input and output metrics
A north star metric is always an output metric. Output metrics are metrics that show a specific result from the work done, while input metrics reflect the actions performed.
Output metrics help you set long-term goals for the sustainable growth of your business. Examples of such metrics: 100 thousand active users per month; 6 million rubles in revenue, and 10 million rubles in MRR.
Input metrics are actions that affect output metrics: 10,000 views, 1,000 registrations, 700 clicks on paid subscriptions.
Output metrics are lagging indicators; you cannot see by them how the company is doing at the moment. For the output metrics to start signaling any problems, a sufficient amount of time must pass and by this point, it may be too late to change anything. Input metrics, on the other hand, are the leading indicators, and they reflect what is going on inside the company.
You should not focus only on one output metric. It is too general, and it can be difficult to assess everything that is going on, and it is impossible to quickly track a decline or other problems.
Let’s look at the example of the Apple Music service. Users get the most value from a product when they listen to music. Consequently, their main metric is the time spent listening to music, and that’s the output metric.
We need to figure out how to increase this indicator and make users listen to as much music in the service as possible. These will be the inputs.
To get users to listen to music longer, you can increase their session time, and you can bring them back to the app more often.
You shouldn’t stop at just these inputs. You can break them down into specific actions:
- Notifications of new album releases,
- creating playlists,
- searching for new tracks.
Choosing Input Metrics
Once you’ve determined which of the three areas is most important to your business, you need to determine which KPIs (input metrics) will help improve and grow that area.
If, you are working on creating a social network and you need to be most active in attracting users. What KPIs can influence engagement metrics? It’s advisable to define these metrics at this stage and fix them for the teams that will be working on them.
Choosing an output metric (or metrics)
Once you’ve selected the main KPIs that will impact user engagement, it’s time to decide on the main metric that will embody all of these KPIs.
It is this metric that will be your “polar star.” Don’t forget the three metrics we talked about at the beginning: Value to users, Profitability, and Measurability.
Pyramid north star
You have chosen the metric, but that is far from the end. Now it’s time to build a hierarchy of metrics, with the main metric at the head, and below it, the KPIs you selected that will affect it.
Don’t forget to assign responsible teams responsible for achieving the KPIs.
The four dimensions of NSM
Each such metric has four dimensions: depth, breadth, frequency, and effectiveness. That is, each KPI can work on one of these dimensions.
In our case, the “polar star” metric is the number of orders delivered on time per month. The breadth is answered by the number of new and returning users, and initiatives to increase this KPI would be the activation of new users, the return of departed users, and free subscriptions.
KPI for the number of items in order works with depth, and initiatives to increase this KPI will be recommendations from the service, creating a shopping list, and discount coupons.
The number of orders per month is responsible for frequency, and this KPI can be improved with reminders, surprise discounts, and notifications.
The last dimension is efficiency. The metric that works on efficiency is the percentage of orders delivered on time, and chat and proper logistics can help improve it.
Hopefully, we were able to clarify what a “polar star” metric is, and soon it will be able to light your way.