Sprint 68 :: North Star Metric, A Guide for Product Managers
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I know ok.. steering your product toward success can often feel like sailing through uncharted waters. Every decision made by your cross-functional teams impacts the trajectory of your product's growth. The key question that often arises is: How do you ensure everyone is moving in the same direction and even more important - how can you measure your progress effectively?
A North Star Metrix can guide Product Managers through the tumultuous seas of decision-making, experimentation and adaptation.
In this article, we will delve into the essence of the North Star Metric, debunk common misconceptions, explore practical tips and shed light on its crucial role in the success of your product and your company (actually).
1. Unveiling the North Star Metric
1.1 Understanding the Essence
The North Star Metric, a concept popularized by growth marketer Sean Ellis, addresses a recurring issue in product management. While a product's revenue may soar, the value provided to customers doesn't always follow suit. The consequence? A potential crash in revenue over time.
Imagine you run a Substack newsletter, gaining new paid subscribers each month. The surface success might be misleading if only a fraction of them finds value in your content. The true North Star Metric, as exemplified by Netflix, focuses on customer engagement - in their case, the number of weekly viewing hours. This ensures sustained revenue growth by aligning with customer value.
1.2 Defining the North Star Metric
The North Star Metric is not just a metric; it's a powerful tool for driving your product's growth.
Here are key characteristics:
Simplicity: It's a single metric, fostering focus.
Customer-centricity: Reflects how customers derive value from the product.
Sustainability: Aims for habits, ensuring long-term value.
Quantitative: Relies on numbers, not opinions.
Actionable: Prompts action based on changes, driving continuous improvement.
Leading Indicator: Signals long-term business success.
2. Dispelling Misconceptions
2.1 What the North Star Metric is Not
To grasp the true essence of the North Star Metric, it's crucial to understand what it isn't:
Few Metrics: It's not a collection of key metrics; it's a singular guiding star.
Business Value Focus: Unlike metrics like Monthly Recurring Revenue, it's customer-centric.
OKR or Strategy: It's not an Objective Key Result or a strategy; it aligns with them but is distinct.
3. Recommended Classification
Amplitude proposes a comprehensive classification based on the games companies play:
Attention: Measures time spent in the product, indicating value.
Transaction: Tracks customer transactions, simplifying product discovery.
Productivity: Assesses how effectively users can perform tasks, enhancing efficiency.
4. Why the North Star Metric Matters
4.1 Key Parameters
The North Star Metric serves as a key success indicator, implying three critical parameters:
Rate of Return: Reflects how much a company will earn.
User Value: Indicates the product's value for customers.
Measurability: Ensures the metric is quantifiable.
5. Identifying Your North Star Metric
Choose a metric that resonates with your product's value and aligns with the long-term strategy. Metrics vary across industries:
E-commerce: Focus on weekly first-time buyers, daily order value and lifetime value.
Digital Products: Consider metrics like weekly trial accounts, yearly retention rate, Monthly Recurring Revenue and Monthly Active Users.
Media: Metrics can include signup count and retention, daily active users, total reading time and total view count.
Evolution of the North Star Metric
While the North Star Metric can evolve, it should be a long-term strategy. Frequent changes indicate a potential mismatch, making it challenging to achieve tangible results.
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