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As China continues to crack down on how companies handle user data, it’s time for the business world to think about what exactly they’re collecting and measuring. The country’s strict data privacy laws make it more challenging to store and manage Chinese consumers’ data, but it could also have more wide-reaching ramifications if other countries decide to adopt similar regulations (much like the EU’s General Data Protection Regulation). This will lead to a new digital marketing landscape when it comes to data and metrics.
Not long ago, marketing and growth teams relied on just a handful of metrics to analyze campaigns and measure business performance: revenue, expenses and profit. Then, the internet exploded, ushering everyone into the information age. The rapid proliferation of technology, product development and data-collection methods created a feeding frenzy of sorts.
Marketers and product teams began capturing and measuring anything and everything they could get their hands on. Their intentions were good: They thought if they collected every piece of data available, then voila, those metrics would reveal what was and wasn’t working in their products. In practice, however, they simply created a game of “find the needle in the haystack.” And unfortunately, there’s no winning that game.
When it comes to product growth metrics, more isn’t always better. Having too many metrics is as bad as having none at all. Simply look at the sheer amount of data people generate to understand why. Research estimates that humans collectively will create more than 180 zettabytes of data by 2025. To put that in perspective, that’s equivalent to the storage of 2,587 iPhone 13 Pros per second (1 terabyte model).
Imagine the resources and time it would take to track this much data. Plus, some of the information could be old or obsolete. Other metrics might be readily available but ultimately lack relevance and practicality. In the end, you’re data-rich but insight-poor — not a good position to be in.
Why do you need a North Star metric?
Rather than chasing down any metric that feels remotely related to your product, consider centering your product growth strategy around a singular guiding metric. Just as sailors used the North Star located directly above the Earth’s northern celestial pole to navigate oceans, you can use a North Star metric to align your team around the top-line goal of product growth.
Of course, the sales, engineering, product and marketing teams can still have their own subgoals and metrics. But having that North Star shining brightly overhead keeps everyone moving in the same general direction. Because a North Star metric is focused on overall product growth, there’s a built-in level of teamwide transparency and camaraderie not found in other team-specific initiatives.
However, what makes a North Star metric such an effective measure of success is its intrinsic relationship to users. By definition, a North Star metric is the number that best reflects the value your product delivers to users. Therefore, your teams will always be aligned and working together to grow your product.
Related: Customer Experience Will Determine the Success of Your Company
What constitutes a North Star metric?
So, what exactly is a North Star metric? It’s important to note that revenue isn’t a North Star metric. When you track your product’s revenue, you track how much money you made at the end of the month, quarter or year. Though this is a decent indicator of success, it’s not user-specific. For example, revenue alone can’t tell you how much the average user spends on your products and how long they remain loyal.
In general, there are five categories of North Star metrics:
- Customer growth: Customer growth-focused North Star metrics include market share and number of paid users, among others.
- Consumption growth: Consumption goes beyond mere site visits. Instead, think about this category through the lens of product usage, such as messages sent or classes attended.
- Engagement growth: If your product is an app, you might use engagement metrics — such as monthly or daily active users — to track the number of unique users within a specific time period.
- Growth efficiency: When comparing the value of a new user relative to the cost of acquiring one, you might leverage metrics around lifetime value and customer acquisition costs as your North Star.
- User experience: User experience metrics, such as net promoter score, provide data that helps you measure user satisfaction and product experience.
Related: 4 Reasons Sharing Performance Metrics Will Accelerate Your Business
What’s your North Star?
Your North Star metric should be the one that’s most predictive of your product’s sustained success and how users get value from the product. Therefore, it will vary based on your industry, audience, offering, etc. For instance, a fintech product might coalesce around the total assets under its management or daily active users. In contrast, streaming company Netflix uses total hours streamed as their North Star metric.
Of course, the metric you choose must be regularly measurable. It also needs to fulfill two other criteria to be considered a North Star metric: help generate revenue and mirror customer value.
1. Help generate revenue
A metric that doesn’t measure advancement toward goals in a way that informs your next steps won’t be useful at all. So, make sure you can directly tie your North Star metric to product growth. Airbnb‘s North Star metric, for example, is number of nights booked. This reveals platform growth and correlates with the value customers and hosts receive from good experiences.
Just remember that it’s important to balance this criterion with the other two. For instance, if you hang your hat on a money-centric metric to the detriment of customer satisfaction, you’ll ultimately drive users away. On the other hand, you can’t prioritize customer satisfaction at all costs, or you’ll run yourself out of business.
2. Mirror customer value
Your North Star metric needs to encompass what users find valuable about your product. If you fail to understand what they appreciate, then you’ll end up measuring the wrong thing. For instance, users disliked having to log in to Meta‘s virtual reality headset with a Facebook account. Meta was too focused on boosting its social media platform to realize that its audience wanted more flexibility and anonymity.
To define your North Star metric, gather key stakeholders to outline your company’s needs and the value your product adds to users’ lives. Determine whether a metric helps users achieve the intended results of your offering. Look at the external factors that might impact your North Star metric, as well as the internal ones within your control.
Related: How to Keep Leaders Focused on a Company’s Most Important Metrics
Long ago, sailors turned their eyes to the sky to determine where they were going and what adventures awaited. In the same way, you can use your North Star metric to inform your product growth strategy no matter what the future holds.