The Lighthouse of Product Management: Unraveling North Star Metrics

From Definition to Application: How the North Star Metrics Shape Business Direction

Co.Lab Team
February 9, 2024

Ever found yourself wondering what is the higher purpose of the work you’re doing? In a multi-layered company, someone has to do the grunt work - but how do they impact the organization you’re working for?

Let’s talk about the Product Managers’ favorite metric: The North Star Metric (NSM). They are like compasses, guiding the entire company towards the right trajectory. And it’s not just about picking a fancy Key Performance Indicator (KPI); it’s about understanding the factors that make the product’s heart beat into a profitable rhythm.

How do you know if your product is genuinely making an impact, resonating with customers, or driving profitability? That's the magic of the NSM.

In this article, we'll unpack this critical metric, showcasing its real-world applications, especially in tech giants like Facebook and LinkedIn.

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What is a North Star?

A North Star Metric (NSM) is the ‘most critical, measurable, and actionable business outcome for your product’. It’s the key data that basically gives you the conviction: ‘Yes, we’re going at the right velocity’.

Picture of a gold star: North Star Metric - you can forget everything .. but never this

It should answer this trifecta of key questions:

  • Is our product solving a customer’s pain point? (effectivity)
  • Are our customers satisfied with our product? (satisfaction)
  • Is this a sustainable business model? (profitability)

Your ability to measure NSM is crucial because it helps you understand whether your product strategies are bringing you closer to organizational goals. If not, it gives you the opportunity to zoom back out and reorient your resources and initiatives. At the same time, it also allows you to evaluate the other metrics that you capture (or unable to capture), and prioritize which are actually important.

Picking the Right Metrics for your Product

Finding out your North Star Metric can be difficult. You have to consider the relevance and connection between your overall organizational goals vis a vis your product market fit, unique value proposition, and what ‘success’ means for your product, business, and customers.

person thinking about product metrics questions: "how about the number of installs?"

A good way to identify your NSM is by working backwards. List all the critical metrics that will contribute to your customer’s satisfaction. Then connect how these feed into your current business model. The adage, ‘follow the money’, works great here. Ultimately, this is most often a group activity with your team and something you review with management. Your metrics should holistically track short-term goals and how they translate to high-lift investments.

Comparing Facebook & LinkedIn North Star Metrics

Now let’s look at the NSMs of these social media companies:

  • Facebook & Instagram: “daily active users”
  • LinkedIn: “monthly active users”

Notice how Facebook (Meta) and LinkedIn are both tracking active users, but differ in usage frequency. Let’s find out why.

Comparing NSM for Facebook and LinkedIn. Daily Active Users vs. Monthly Active Users

Meta is primarily running an ads-based business model. This means that Meta earns revenue each time an advertisement is shown to a user. Thus, it is incentivized to maximize the number of times a user comes to the platform.

Each day a user logs on, an ad can potentially be shown = Meta ad revenue earning potential

On the other hand, LinkedIn earns its revenue through marketing and networking solutions gated behind a premium monthly subscription. It does not need to measure daily active users because a single instance of utility in a month is all it takes for a user to make a purchase (subscription = earning potential).

That is why LinkedIn will often tell you:

  • How many times you’ve appeared in searches
  • Which jobs are available in your area
  • Which job postings you are a top match in

They are incentivized to keep you on the platform, but only in sporadic high-ticket circumstances. In this case, monthly active users will be the best metric for LinkedIn to measure.

Relating back to ESP Framework

ESP Framework: Effectivity vs. Satisfaction vs. Profitability

Let’s go back to our trifecta and analyze: Daily/Monthly Active Users

Is our product solving a customer’s pain point? (effectivity)

  • Facebook - users are getting news and entertainment.
  • LinkedIn - users are getting job updates and networking opportunities

If not otherwise satisfied, why are they coming back? (active users)

Are our customers satisfied with our product? (satisfaction)

  • Facebook - repeated log-ins (daily) is a good indication of satisfaction
  • LinkedIn - repeated log-ins (monthly) is a good indication of satisfaction

If not otherwise satisfied, why are they coming back? (active users)

Is this a sustainable business model? (profitability)

  • Facebook - daily active users = higher chances of ad revenue
  • LinkedIn - monthly active users = higher chances of subscription

Wrapping up our Learnings

Navigating the waters of product management requires a blend of strategic vision and actionable metrics. The North Star Metric (NSM) stands as a testament to this balance, acting as a barometer of your product's health.

As illustrated by platforms like Facebook and LinkedIn, the true essence of NSM lies not in its universality but in its adaptability.

It's about asking the right questions: Are we delivering value? Are our customers happy? Is our business model sustainable? By finding your unique NSM and staying attuned to its readings, you ensure that your product management journey, no matter how turbulent, always has a guiding star. Your company will never be lost again.

Are you an aspiring Product Manager? The Co.Lab program is the perfect place to gain real-world, cross-functional experience that you wouldn’t get anywhere else.

If you want to shift to tech, especially from a non-tech background, you need to either have good domain knowledge, lots of transferrable skills, or have something to bridge the skillset you have currently and the requirements of the roles that you are looking for.

One of the programs that provide those is Co.Lab's 8-week Product Management Bootcamp, where you can get real-life work experience by building a live product of your own with a cross-functional team in an agile environment. Learn how to build your tech skills with a supportive community and pre-vetted industry mentors to carefully guide you along your tech journey.

Want to test out the waters first? Dip your toes into Product by joining the 4-week Product Management Sprint instead.

It may be difficult to make the shift into tech, but that’s precisely why you don’t have to do it alone. Be part of the community! Follow us on on Instagram, Twitter, and LinkedIn for the latest updates.

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