North Star Metric - The secret to smart KPIs

2 minute read

We track metrics to measure progress. From a specific feature within a product to an entire business, metrics help us make quantitative sense of performance. So the secret is to identify the Key Performance Indicators (KPI) to track.

So what KPI should I track?

NPS? CSAT? Customer tickets?

They are all good metrics in their respective contexts. The ‘key’ to a good KPI is mapping it to a specific goal. Spend more time defining the goal.

If I’m looking to understand how likely an existing customer is to refer new customers, I want to see NPS and actual referrals data.

If I’m looking to understand how well my support desk team is performing, I will look at the customer tickets - resolution time, conversation ratings, etc.

During Product Development, A/B testing is commonly conducted to test out additional product features and changes. Here, I’m trying to decide whether to roll out a product feature (to achieve a certain business/product goal) to all my customers. So I should define and track a metric that best captures progress towards that goal. For example, if I have a web app and I introduce a new button on my homepage to download a free ebook, I will track number of clicks and downloads from this new button.

While such metrics are helpful to optimize local performance, a business must always have sight of their North Star metric. I would think of the above secondary metrics as helpful to track only if they influence my North Star metric.

North Star metric

A north star metric must reflect customer value and revenue. This is the one metric you judge your business/product success by. So depending on the product, your north star metric will be (one of): revenue or usage numbers.

Michael Seibel, CEO of Y Combinator explains this concept well in this short clip.

For most companies, revenues indicate success - monthly recurring revenue (MRR), annual revenue, etc.

Typically, for advertising-based and social companies, usage and engagement numbers matter the most, viz. daily active users (DAU), WAU, MAU etc.

So fix your North Star metric that tells you how you are doing overall. Then identify the contributing metrics based on your business strategy that you believe influences the North star metric.

Good Practice

  • Use the data from secondary metrics like NPS, CSAT etc. to inform your hypothesis, but do not underestimate your gut instincts
  • Make sure you customize your secondary metrics to your company or product and always link back to your North Star metric
  • DO NOT let the measure itself turn into the goal (Read Perverse incentive)

What KPIs do you track?

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