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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.

This strategic alignment becomes increasingly vital as companies scale. As products evolve and teams expand, the risk of divergent objectives grows. Different teams within the company might work on different topline metrics. The NSM helps bring all these metrics under one overarching measure and make sure all efforts contribute to the company’s unified vision of growth and value creation.

Here is how Alex Schultz, VP of Growth at Facebook, describes the role of the NSM in coordinating team efforts:

“The reason this matters is, the second you have more than one person working on something, you cannot control what everyone else is doing. I promise you, having now hit 100 people I’m managing, I have no control. It’s all influence. It’s like I tell one person to do one thing, but the other 99 are going to do whatever they want. And the thing is, it’s not clear to everybody what the most important thing is for a company. It would be very easy for people inside eBay to say, ‘you know what? we should focus on revenue,’ or ‘we should focus on the number of people buying from us’ or ‘we should focus on how many people list items on eBay.’”
Alex Schultz, VP of Growth at Facebook

Criteria for NSM

Selecting an effective North Star Metric (NSM) hinges on several critical criteria. First, you must choose a metric that is accurately measurable. If the metric can’t be measured accurately, you will end up making decisions that are not grounded in real data and facts.

The second criterion for the NSM is that it must genuinely reflect the value users derive from the product. This ensures that the metric aligns with user satisfaction and long-term engagement, rather than superficial or misleading indicators of success.

Third, an NSM should be straightforward and carry practical implications. For instance, Monthly Active Users (MAU) is a clear metric with direct implications for user engagement. Conversely, composite metrics, which combine various growth indicators, can obscure more than they reveal, making them less effective as NSMs.

Fourth, the NSM should be resistant to manipulation. Metrics that can be gamed, such as ratio metrics, may incentivize actions that artificially inflate the NSM but ultimately hinder genuine growth. For example, narrowing growth channels to boost a ratio can temporarily raise the NSM while damaging long-term expansion prospects.

And the fifth criterion for the NSM is sensitivity to product changes. Ideally, any alteration to the product should be promptly mirrored in the NSM, providing immediate feedback on the impact of those changes. It is worth noting that if you can’t meet all the criteria, you can compromise on sensitivity.

Examples of NSM

Airbnb: Nights Booked

Airbnb’s core value proposition is connecting travelers with unique accommodations. Nights Booked reflects the company’s success in not only attracting guests but also in ensuring that listings are appealing and trustworthy enough to secure bookings. It cannot be gamed and is also sensitive to changes made to the product and business model.

E-commerce Platforms: Gross Merchandise Value (GMV)

GMV represents the total sales value of goods sold through the platform over a certain period. It’s a strong indicator of how much buyers and sellers are deriving value from it. A high GMV suggests a vibrant platform with a robust user base and significant transaction volume.

Ride-Hailing: Rides Completed

This metric signifies the fulfillment of the service’s primary function—transporting users from point A to point B. It’s a direct reflection of the service’s value and, by extension, its ability to meet customer demand and maintain a reliable network of drivers.

Messaging Apps: Messages Sent

This metric is a clear indicator of user engagement and the app’s effectiveness in facilitating communication. A high volume of messages sent signals a sticky product that has become embedded in users’ daily routines and interactions.

Social Media: Monthly Active Users (MAU) or Daily Active Users (DAU)

Social media platforms often use MAU or DAU as their NSM. These metrics gauge the active user base within a specific timeframe, reflecting the platform’s reach and engagement level. A growing MAU or DAU indicates that the platform is fulfilling the needs of its users.

Example of a bad NSM

Consider a dating app like Tinder. The ultimate goal of the product is to set up dates between users. However, “number of dates” is not a suitable metric because it can’t be measured precisely.

For example, you might consider users as having dated if they ended up being within a certain distance of each other. But that would require the user to have their phones turned on and location permissions enabled for the app, which is not guaranteed.

Alternatively, you might consider the users as having dated if they exchanged certain words in their messages. However, users might use other messaging apps to communicate and schedule their dates.

Number of dates is also insensitive to product changes. Dates usually happen days or weeks after two users communicate for the first time. This makes it a bad choice for NSM because there will always be a lag between changes you make to the product and the feedback you receive.

As an alternative, you can choose a proxy metric that is a leading indicator of the ultimate goal. For example, you can measure the number of quality chats, characterized by chats that surpass a certain number of messages and indicate users are interested in each other.

Is revenue a valid NSM?

Most organizations want to generate revenue from their products. But revenue, while important, often falls short as an NSM. First, it does not accurately represent the value users gain from the product and can act as a lagging indicator. Second, for some business models, such as subscription-based products, the impact of changes on user value may not be evident until renewal periods, delaying critical insights. Third, for products offering free tiers, revenue does not capture the value provided to non-paying users.

Moreover, a revenue-centric NSM can encourage short-sighted strategies, such as price hikes, which might boost immediate revenue but could damage user trust and retention over time. Therefore, the NSM should be chosen from a growth metric that clearly reflects and tracks the product’s value to the users.

For example, consider Microsoft 365, a suite of creativity and collaboration tools that are paid for through monthly or yearly subscriptions. If the company uses revenue as its NSM, it might miss some very important details.

For example, Company X, which has subscribed to 365, decides to use Slack as their main communications tool. As a result, they use Microsoft Outlook less often. But they continue to pay for the subscription because they’re using other 365 apps.

Gradually, the employees of Company X begin using Google Docs and Google Sheets when collaborating on the same documents online. As a result, they use Microsoft Word and Excel less often. But the company still continues to pay for Office 365.

Over time, Company X realizes that Microsoft 365 is no longer a critical tool and will decide to cancel its subscription. It is only at this moment that the revenue metric will decline. In this case, revenue was a lagging indicator.

This is why you should choose your NSM from leading indicators that reflect the value customers are getting from the product. For example, it can be the amount of usage of the 365 apps (e.g., number of messages sent in Outlook, number of documents created with Word).

Pitfalls to avoid when using NSM

It’s crucial to recognize that while the NSM guides overarching goals, it doesn’t encapsulate every facet of a product’s performance. To gain a comprehensive understanding, it’s necessary to break down the NSM into its contributing factors, analyzing how various product elements influence these components and, consequently, the NSM itself.

Developing a growth model that integrates these factors is essential for consistently enhancing the NSM. This model should map out how each component contributes to growth, providing a framework for systematic improvement.

Take, for instance, an online marketplace. Beyond the NSM, it’s imperative to monitor the balance between the supply and demand sides of the market. Focusing solely on the NSM could lead to short-term tactics that temporarily inflate growth, potentially causing long-term instability if the underlying metrics are neglected.

It’s also important to differentiate the NSM from the One Metric That Matters (OMTM). The OMTM is a tactical gauge, often a product metric, that captures the immediate priority of a team at a particular development stage. It’s a dynamic focus, shifting as the product evolves and different challenges arise. For example, a team might initially concentrate on user retention, then transition to emphasizing Lifetime Value (LTV) to refine growth channel strategies.

In contrast, the NSM is a strategic, enduring measure that embodies the company’s vision and sustained growth. It’s the metric that aligns all teams and initiatives, providing a consistent long-term focus. While the OMTM may change as the product and market conditions evolve, the NSM usually remains constant throughout the life of the product, reflecting the value the product creates for its user base.