This article guides you through a three-step process for identifying a product's North Star Metric (NSM). Before delving into the methodology, it's essential to grasp why finding the right NSM presents a significant challenge. In my view, there are three common reasons:
- Product teams may be disconnected from the organization's mission and its NSM.
- Falling into the trap of focusing solely on numbers. Product and Data science teams often prioritize boastful but superficial metrics to highlight success. For example, as an author of this blog, I can boast about views or likes, etc., but they do not tell me if the content is useful to the reader.
- Prioritizing sales over feedback metrics. While supporting the organization's bottom line is crucial, solely focusing on revenue or conversion metrics overlooks understanding why customers appreciate or dislike products.
As product managers, we're often pressured to present a clear NSM or key performance indicators (KPIs) that reflect a product's success, build product roadmaps, and continuously pivot to achieve the right outcomes.
By the end of this article, you'll be equipped to create an effective NSM for your product and make informed decisions using your KPIs. You'll learn to leverage this metric to shape your roadmap and address the most significant problems based on NSM data.
Why are North Star Metrics important?
North Star Metrics, or NSM, is the only unifying element that binds the teams involved in the launch of a product. Marketing, Sales, Engineering, and Products teams rally around NSM as a measure of success. The North Star serves as a framework that aligns the language of the customer, product, and business, ensuring cohesive communication and effective execution.
It is a leading indicator, connecting the product to broader business goals. A good NSM captures the customer and value delivered to them, highlights the business strategy, and is a leading indicator of growth. A lot of buzzwords, huh!
A three-step guide towards building your product’s NSM
Let me propose a three-step process to identify your North Star Metrics. I am going to use a live example from Wayfair (where I work as a product manager) and how I built my product's North Star vision.
- Understand what value your company delivers to its customers
At Wayfair, our focus is on delivering the "Perfect Order" experience to our customers, which is a combination of top-notch products, seamless shopping, and flawless delivery. While revenue is important, it's a result of our commitment to excellence.
When customers have a perfect experience, they tend to buy more frequently. The figure below illustrates how I've utilized various input metrics to calculate an output metric, showcasing the value Wayfair provides to its customers, i.e. “perfect orders”.
Figure 1
- Understand your company’s strategy and North Star Metric
As a home furnishing company, Wayfair's revenue generation hinges on providing customers with a perfect order experience, encouraging them to return for future purchases. Data plays a pivotal role in shaping Wayfair's business strategy.
By analyzing input metrics that contribute to the single North Star Metric (figure 1 above), we gain insights into the underlying factors driving our platform's success. This approach informs company-wide initiatives, guided by the products developed by PM teams. The figure below illustrates how your work influences the company's North Star Metric through
- The initiatives you drive,
- Organizational KPIs you impact and,
- The business outcomes your product enables.
Figure 2
- Understand the key characteristics of an NSM
Unlike other metrics, North Star Metrics (NSMs) adhere to specific principles that define their effectiveness. I've provided a framework or checklist for reference when determining your NSM. This framework serves as a guide to ensure that your North Star accurately reflects the desired outcomes.
While there is ample material available online to delve deeper into these characteristics, this checklist offers a starting point for crafting a meaningful NSM.
Figure 3
How I built my product‘s North Star using these 3 steps
As a product manager, my primary goal is to enhance the shopping experience by enabling customers to easily assess delivery options across products. Aligned with Wayfair's strategic objectives, I contribute to two outcomes: Brand Value and Volume of orders (see measure section in figure 2).
This leads to the formulation of my product’s North Star Metric: “Increase shipping badging saturation.” (NOTE: A badge on a product highlights its key attributes. In my case, it highlights the delivery speed of the product).
My product hypothesis asserts that items with badges effectively drive shopper conversions, directly influencing the organization's "number of customers converted" metric. Moreover, badging highlights faster products in the catalog, providing customers with the option to select items that offer expedited delivery—a significant moat in the e-commerce landscape.
The following example illustrates how I applied the three-step approach to identifying my product's North Star Metric. I aligned Wayfair's priorities and desired outcomes with my KPIs and metrics to arrive at my product's NSM.
Figure 4
My North Star Metric (NSM) revolves around the hypothesis that expedited delivery commitments will significantly enhance the shopping experience for customers. By providing clear insights into when and how their products will be delivered, we aim to boost conversion rates.
Our primary objective is to offer customers faster delivery, with conversion naturally following as a by-product that contributes to our NSM. This approach offers several benefits:
- Team focus: Aligning the NSM with our product and organizational strategy ensures that everyone on the product team shares a common direction for motivation and overall progress.
- Clarity: The NSM provides clear visibility into the performance of our product, allowing all team members, including engineering and design counterparts, to understand the value they contribute to the organization. Additionally, it helps to identify gaps in our product, prompting the development of new features to address these gaps.
- Customer focus: By emphasizing delivery attributes, our NSM adds value to the customer experience. It enables customers to make informed shopping decisions based on their preferred delivery timeframes, ultimately enhancing their overall satisfaction.
Some bad but intriguing options for NSM; in my case
- Creating cost-effective routes: Although it captures the efforts of my team and demonstrates value to the organization, this NSM does not directly impact the customer experience. Customer concerns regarding the supply chain's cost are typically minimal. Moreover, this metric primarily emphasizes the technical solutions developed by my team and does not serve as a direct measure of success.
- On-time deliveries: My team is responsible for creating delivery dates, which is a measurable outcome and significant for customers. Wayfair also places importance on flawless deliveries, and accurately predicting delivery dates consistently would align with organizational goals.
However, it's important to acknowledge that my team doesn't oversee supply chain operations entirely, and various external factors can affect product delivery. Despite this, it's a key performance indicator (KPI) I aim to measure and integrate into our optimization efforts to enhance capabilities, although not as the sole measure of my team's success.
Wrapping up
As product managers, we often face trade-offs between speed, quality, and cost. However, having a North Star Metric (NSM) helps maintain focus on the product vision without compromising. Once you define your NSM, it's crucial to identify the key performance indicators (KPIs) and metrics that influence it.
Understanding the relationship between these variables enables you to uncover opportunities for Product growth. Your NSM plays a pivotal role in setting up your team for rapid and sustainable growth.
These steps can be used in your daily functioning role as a PM or during an interview process to identify the north star of a problem.
