## Definition of North Star Metric The North Star Metric is a single [[Product Metric]] that a company uses to measure its overall performance. It is designed to serve as a simple-yet-powerful indicator of the company's success, and is typically the most important metric in a company's portfolio. It is the ‘beacon’ that the entire organization can focus on, in order to continually improve and stay on track to achieve the company's most significant goals. ## North Star Metric Formula & Calculation To calculate the North Star Metric, one must first identify the desired outcome of the business, such as increased customer satisfaction, increased sales, or increased user engagement. Then, a formula is developed to calculate the metric. For example, if the desired outcome is increased [[Customer Satisfaction]], one might use the formula: Customer Satisfaction Score [[Customer Satisfaction Score (CSAT)]] = (Number of Positive Reviews / Total Number of Reviews) x 100 This formula would provide a percentage score that would be the company's North Star Metric. The formula can be adjusted to account for any additional factors that are important to the business, such as customer [[Lifetime Value (LTV)]] or [[User Retention]] rate. By tracking and monitoring the North Star Metric on a regular basis, companies can measure and monitor their progress towards achieving their desired outcomes. ## North Star Metrics Examples Here are some of the best North Star Metrics examples: **### Monthly Recurring Revenue (MRR) MRR is the total amount of revenue a business generates from its subscription-based services or products on a monthly basis. It is a critical metric for SaaS companies and subscription-based businesses as it provides a clear picture of the company’s revenue growth and stability.** ### Customer Acquisition Cost (CAC) [[Customer Acquisition Cost (CAC)]] is the total cost a business incurs to acquire a new customer. It includes all the marketing and sales expenses. A low CAC indicates that a business is efficiently acquiring new customers and is a key metric for businesses that rely on customer acquisition to grow. ### Lifetime Value (LTV) [[Lifetime Value (LTV)]] is the total amount of revenue a business can expect to generate from a customer across their entire lifetime with the company. It is an essential metric for businesses that rely on repeat customers and is a good indicator of [[Customer Loyalty]]. ### Gross Margins Gross margins measure the profit a business makes after deducting the cost of goods sold (COGS). It is an essential metric for businesses that sell physical products and is a good indicator of profitability. ## Choosing the Right North Star Metric Selecting the right North Star Metric is crucial for its effectiveness in driving product success. Here are a few guidelines to help you choose the appropriate North Star Metric for your product: 1. **Alignment with Core Value.** The North Star Metric should directly align with the core value proposition of your product. It should capture the essence of what your product aims to deliver to users. 2. **Actionable and Influencable.** The chosen metric should be actionable and within the control of the product team. It should be influenced by the decisions and improvements made to the product. 3. **Long-Term Focus.** The North Star Metric should have a long-term perspective and reflect the sustained value and engagement of users over time. It should not be influenced by short-term fluctuations or external factors. 4. **Growth-Oriented.** The North Star Metric should be growth-oriented, meaning that as the metric improves, it should lead to increased user value, retention, or revenue. 5. **Measurable and Quantifiable.** Ensure that the chosen metric is measurable and can be quantified with data. This allows for tracking progress and making data-driven decisions. ## Leveraging the North Star Metric in Product Management Once you have identified the North Star Metric for your product, it becomes the focal point of your product management strategy. Here are a few ways to leverage the North Star Metric effectively: 1. **Product Prioritization.** Use the North Star Metric to prioritize product initiatives and features. Evaluate how each initiative contributes to improving the North Star Metric and allocate resources accordingly. 2. **Experimentation and Iteration.** Experiment with different approaches and features to optimize the North Star Metric. Implement A/B testing and iterative improvements to identify the most effective strategies. 3. **Cross-Functional Alignment.** Communicate the North Star Metric to the entire product team and ensure that everyone understands its significance. Foster cross-functional collaboration to align efforts and make data-driven decisions. 4. **Performance Measurement.** Continuously track and analyze the North Star Metric to measure the impact of product changes and initiatives. Monitor trends, set targets, and assess the success of your product strategy. 5. **User-Centric Decision Making.** Use the North Star Metric as a guiding principle for user-centric decision-making. Consider how changes will impact the metric and prioritize enhancements that provide value to users. ## Related Links - https://amplitude.com/blog/product-north-star-metric