North Star Metric
In the world of analytics a lot of people are searching for their 'North Star Metric'. North Star Metric is only an exercise that is helpful for a company's team to focus on a goal, instead of multiple goals. This article will simplify the process of finding your North Star Metric with a simple guide and examples. Let's start with a definition and some common misunderstandings.
What is the North Star Metric?
The North Star Metric (NSM) is essentially another name for the one metric that matters - it's a specific metric that best captures the core value your product delivers to the customers. Startup investor Sean Ellis coined the term “North Star Metric,” to reduce administration, simplify meetings, and align teams around the singular goal of growth. NSM comes from Polaris, sitting directly above the North Pole, which acts as a navigational tool if you find yourself lost on a clear night without a compass. NSM is the compass of the product team. It keeps them on track to maximize customer satisfaction and it focuses both on the product and the core value it delivers to the customers. This definition might be a little difficult to understand but with real-world examples, the a-ha moment will come to you.
In its early days, Facebook chose "Number of users adding 7 friends in the first 10 days" as their NSM. They analyzed user behavior and came to a conclusion: "Users who added 7 friends in the first 10 days are more likely to use Facebook daily and recommend it to their friends". This metric allowed the product team at Facebook to work and think to make the new users add 7 friends in their first 10 days. This metric also combines the core value of Facebook with long-term growth.
Spotify's core value is offering high-quality music to its users. People are coming back to the app to discover new songs and Spotify often sends push notifications involving new releases. Spotify's NSM: Time spent listening to music.
Our core value is to offer people a no-code analytics experience with AI-powered solutions to their conversion problems. Tractific's NSM: Number of businesses increasing conversion rate with recommendations in the first week (after gathering enough data).
Quora is a social media platform where everyone can ask and answer questions. If you want to know something, you can ask it to people who know the answer. Quora's NSM: Questions answered per user.
Airbnb enables people to rent homes or rooms. Hosts can earn money with their properties and tourists can make their travels affordable. Airbnb's NSM: Booked nights.
Amazon is an online store where you can find everything. Its core value is a refund guarantee without needing a reason. Their monetization strategy aside from purchases made on the store is selling prime subscriptions. Amazon's NSM: Purchases per Prime customer.
SaaS North Star Metric Examples:
- Number of trial accounts with over 3 users in their first week
- Percentage of users that came back after a week
- Monthly-recurring revenue (MRR)
Questions to Find The North Star Metric: Dating App Example
What is your core value as a company?
Defining your core value is the first step to find your north star. If you have a dating app it might be finding the right partner for your users. Brainstorm with your team to find it and complete the first step.
What is your monetization strategy?
Most dating apps have in-app purchases such as premium subscriptions that enable people to date more people. Monetization strategy is important for the NSM because value alone cannot make your success long-term.
What leads users to come back to your product?
This step is essential because knowing things that make people come back to your product will enable you to increase those things thus increase retention. If your users at your dating app come back to your app after their first date, then try to make them go to their first date in their first week of using your app. You can do this with an explore section where users can randomly match and talk.
A common misunderstanding:
A lot of people think that a company can only have a single NSM. But this is a misconception. Companies with complex business models can have multiple North Stars, and any given North Star metric is composed of multiple metrics anyway. Any company that literally ignores all metrics in favor of just one, such as monthly revenue, will almost certainly fail.
NSM is just a simplification of metrics to enable the product team stay on track and maximize long-term customer satisfaction with core values. Keep in mind that you shouldn't ignore all metrics and just focus on NSM.