Designing and Operating a North Star Metric

Premise — the conditions under which a North Star metric works

You choose a North Star metric so that it represents the value the product delivers to customers while also predicting business results in advance. Its distinguishing feature is that it captures usage behaviour before the point of a lagging indicator such as revenue or number of contracts.

For this metric to work, it is a premise that the product's value proposition has been articulated to some degree. For an exploratory-stage product whose value is not yet settled, it is often more valid in practice to prioritise hypothesis testing rather than fixing a metric. The fact that the metrics you should track change by product stage is also covered in The product lifecycle and decision-making at each stage, so first confirm which stage you are in.

Procedure — four steps to choosing a North Star metric and breaking it into input metrics

1. Define the value proposition in one sentence

Write in one sentence "what this product makes possible for the customer." The trick is to express it in terms of the actions the customer actually takes, not in abstract words.

2. Compile candidate metrics and narrow them down against criteria

It is fine to produce several candidates, but in the end narrow them down against four criteria: does it reflect the customer's realisation of value, does it function as a leading indicator, can the team's initiatives move it, and can it be measured and visualised on an ongoing basis. A metric that fails even one of these is safer treated as a supporting metric rather than a North Star.

3. Decompose the North Star metric into input metrics

Break the chosen metric down into several input metrics the team can actually move. If the granularity of the decomposition stays coarse, the metric only tells you that it went down or up as a result, and it does not connect to the next initiative.

4. Put it on a dashboard and decide the review cadence

Bring it together on a dashboard, input metrics included, and create a forum to review it weekly or every other week. If you leave it as a number looked at only in the executive meeting, it won't be reflected in on-the-ground decisions.

Worked example — North Star design for a SaaS product

The following is an illustrative example, not real figures or product names. Suppose a project-management SaaS set its North Star metric as "number of weekly active projects."

North Star metric = number of weekly active projects

Decomposition into input metrics (example)
  Activated users (new users who reached their first project creation)
  × Weekly retention rate (share of users active last week who were also active this week)
  × Average number of projects per user

This decomposition lets you tell apart, when the North Star metric drops, whether "new activation is falling," "retention of existing users is declining," or "usage per person is thinning out." A simple metric such as number of sign-ups is unsuited to this purpose, because it includes users who merely registered without getting any value.

Check — a North Star metric is not all-powerful

There is no shortage of warnings that it is dangerous to let a single metric speak for the health of the entire product. At the same time, if you chase the North Star metric alone, you risk adopting initiatives that raise the metric while harming users' substantive convenience. For example, increasing the frequency of notifications raises short-term usage counts, but churn can worsen. To prevent this distortion, a practical approach is to also set guardrail metrics paired with the North Star metric and to be wary when only one of them moves.

Where teams stumble

The most common failure is adopting a vanity metric such as number of sign-ups or number of visits directly as the North Star. These may look good in the executive meeting, but they do not show whether customers are actually getting value. Initiatives aimed only at raising the metric — so-called gaming — are another classic trap. You also see teams changing the North Star metric itself every quarter, but this makes comparison with the past impossible and the metric loses its meaning. It is not unusual, either, for a metric to fail to become the shared language of the whole team and to remain a number looked at only by the leadership.

The next step

Once the North Star metric is decided, checking which of the input metrics currently has the most room to grow, on a cohort basis, reveals the initiative to tackle next. How to read metrics is covered in How to read cohort analysis and retention, so do take a look. The point that the North Star metric also becomes a subject for review whenever the product stage changes is organised afresh in The product lifecycle and decision-making at each stage.