The 5 key ingredients of an effective NSM (North Star Metric)
Inspired by Michael Dubakov's 100 posts challenge, I’ll be writing 100 posts about product management and product thinking. A minimum of one post every week. This is post #1.
When it comes to your product, business, and other related projects it is important to have a way of measuring success and failure so as to discard or double down on a certain plan and this is why the North Star Metric (NSM) is important.
The North Star Metric was developed in business to provide companies with a concentrated focus on a specific purpose. Instead of being sidetracked by day-to-day issues or particular initiatives, everyone can constantly define success in terms of whether or not they are progressing towards one measure.
Identifying the right NSM can sometimes be hard or companies might decide on the wrong one. In this article, I will briefly highlight the 5 key ingredients of an effective NSM.
[I’m going to write a detailed guide about how to define and nail your NSM in the coming days)
1) A leading indicator not a lagging measure
A good north star metric must predict future success, and every product should have one. While other critical data, such as monthly sales, provide insight into what has occurred in the past rather than projecting future income.
An example of a leading measure is the current number of prospects in your sales funnel since it gives you a sense of how many new customers you’ll acquire in the future. If the current number of prospects is very small, you’re not likely to add many new customers. You can increase the number of prospects and expect an increase in new customers
On the other hand, a lagging measure, such as churn (which is the number of customers who leave in a given time period) gives you an indication that there’s a problem. But by the time you’re able to collect the data and identify the problem, it’s too late.
2) Adds value to your customers
The NSM should not only benefit the firm; it should also benefit your consumers. For example, if your NSM is the number of orders placed, you are not concentrating on service quality. As a result, the number of orders fulfilled without complaints is a superior NSM to the number of orders placed.
Customers who are pleased with your product or service will always recommend it to their friends, resulting in the company’s long-term success.
3) Time-bound
Your NSM should be quantifiable over a certain period, such as an hour, day, week, or month, to allow you to show the increase over time clearly. For example, the number of orders fulfilled without complaints in a week statistic might be used to compare data from prior weeks. Therefore, the comparison factor would be absent from the above NSM if the week parameter was not included.
Never use a year as a period since you should observe growth statistics regularly. Your NSM should ideally expand on a weekly, or monthly basis.
4) Reflect on your growth
Your NSM should be precisely proportionate to the growth of your business; if the NSM is rising (positive), your business should increase as well.
5) External variables should not impact your NSM
Your NSM should only be influenced by your clients and no other external considerations. External variables in the tourist business, for example, include weather, aeroplane delays, and locals. These elements can impact the customer’s travel experience and, as a result, the star rating they give to the entire trip. As a result, the number of 5-star ratings received every month is a poor NSM for the tourist business.
The North Star Metric measures your product’s tipping point, ensuring growth. When nailed, it is the one measure that demonstrates success with your product by displaying a retention rate larger than your current retention rate of onboarded users.
