Tradeoffs that arise when selecting a North Star Metric

Selecting a North Star Metric is hard, but it can be extraordinarily valuable if done well. Here are some tradeoffs that arise.

One metric vs many

  • The benefit of having one single metric to rule them all is alignment. Everyone knows what’s most important. Decisions can be made by asking what’s best for the NSM.
  • But to get that benefit, you have to give up the disambiguation that comes with having many “most important metrics”. The single NSM conflates many things into one thing.

Strategic vs tactical

  • The benefit of choosing a choosing a metric that’s long-term-focused (ie, it will serve you for many years) is compounding benefits over time. By focusing on the same goal for many years, your team can make massive progress and develop deep collective wisdom.
  • But to get that benefit, you have to give up the ability to adaptively tailor your org’s top-level metric to whatever tactical objectives are most important over the next quarter or three.

Simplicity vs precision

  • The benefit of a simple metric like DAU is that everyone will understand and remember it.
  • But to get that benefit, you have to give up precision. More complex metrics can more precisely model the relative importance of various factors of success.

Per time vs all time

  • The benefit of choosing a per-time-interval metric (such as active users per day or time spent listening per month) is that it will keep your team focused on what’s happening recently.
  • But to get that benefit, you have to give up the ego-stimulating magnitude of all-time absolute counts. 100 million registrations sounds better than 40k registrations per day.

Short time interval vs long time interval

  • The benefit of a short time interval (eg, per day) over longer time intervals (eg per year) is that the number reacts more quickly, giving a tighter feedback loop to your team’s efforts.
  • The benefits of longer time intervals are that they smooth seasonality effects.

Count or percentage

  • The benefit of a count (like count of active users per day) is that it can go up and to the right for years to come. Your team can keep moving it and moving it. A percentage will asymptotically approach 100%, and as it does your teams efforts will have diminishing return on the number.
  • But to get the “up and to the right” benefit, you have to give up the benefits of percentage numbers — one of which is that they can isolate the effects of your team’s effort from larger ecosystem trends.

Shallow vs deep engagement

  • The benefits of a metric that counts a more shallow engagement step like views or logins (as in DAU) are that you can count it immediately and that you capture upstream indicators of downstream value.
  • The benefits of a metric that counts a deeper engagement step like purchase or 7-day return rate are that they better reflect the deep kind of product or business you’re trying to create.

User value vs revenue

  • The benefit of focusing on user value is it will keep your team focused on creating user value, which will make your product/company better able to weather storms over the long term.
  • The benefit of focusing on revenue is you’ll probably get more of it in the short term.

More on North Star Metrics from Sean Ellis.