Different metrics can gauge various facets of a product’s success. But one metric is the quintessential indicator of the product’s value generation—the North Star Metric (NSM). This pivotal metric not only encapsulates the core value that the product delivers to its users but also serves as a unifying beacon for the team developing the product.

The NSM clarifies the “why” behind the team’s efforts and aligns separate teams under a single, overarching goal. The NSM helps develop a cohesive strategy to bolster the organization’s primary mission. It also helps product teams detect when changes to the product are detracting them from their main mission.

Sustained growth in this key metric is a sign of the product’s—and by extension, the company’s—trajectory towards generating more value and, by extension, success.

The purpose of NSM

There are generally two types of metrics when working on products: product metrics and growth metrics.

  • Product metrics measure how individual users interact with the product, such as how much time they spend on an app or how much money they spend in an online store. 
  • On the other hand, growth metrics measure the total value that the product creates, such as how many people are using the product or how much merchandise is being sold on an online marketplace.

The North Star Metric (NSM) must be chosen from among growth metrics because it measures the total value a product creates. For example, retention rate, while insightful, focuses on user-specific value and thus falls short as an NSM. You can increase the retention rate without necessarily increasing growth (e.g., by focusing on smaller and more relevant segments of users). On the other hand, Daily Active Users (DAU) is a growth metric that measures how many people are using the product. It can serve as an NSM, capturing the expansion of value across the entire user base.

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The NSM serves a dual purpose.

  • First, it unites the product team toward a shared objective that mirrors the product’s value. This alignment is crucial for coherent and focused product development.
  • Second, the NSM helps in the assessment and prioritization of new projects. It provides a clear benchmark to evaluate how new initiatives will affect growth, ensuring the company’s efforts conform with its business strategy.