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The Missing Link Between North Star Metrics and Revenue
Connecting North Star Metrics
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Dear Reader,
In many organizations, there's still a disconnect between product and business metrics. Product teams focus on customer-centric outcomes while business teams chase financial targets, with neither side fully trusting how one drives the other.
When done right, a North Star Metric (NSM) can establish a middle ground that brings together both perspectives (even when not separated through departments). However, this is only possible when it is not treated as another “product framework” but shows how its increase matches the company’s business model.
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Take an e-commerce company focused on profitable operations: It would be easy to say that “number of purchased items” is the North Star Metric. After all, customers are getting value if they can purchase something from us, right? Not quite. This NSM falls short on two levels:
- Purchasing an item is vital to creating value for customers, but it’s too one-sided. For starters, it ignores the quality of the experience after the purchase.
- Equally, there’s an argument that the number of purchased items does drive a company's business goal of GMV (Gross Merchandise Value). But it ignores factors like returns that lead to the company's bottom line: Net Revenue.
Which prevents “number of purchased items” from becoming the aforementioned middle ground that truly aligns business and product perspectives. To make it a truly valuable North Star Metric, the metric should include metrics that represent the full experienced customer value and alignment with all aspects of the company’s business goal:
Let’s try a version of “Number of Well-Received Items.” The qualifying criteria of this NSM would be that it’s an item that…
- …a customer was able to buy,
- that was sent to them 24h after purchase completion, and
- that wasn’t returned.
These three high-level criteria cover the general purchase and conversion experience, inventory availability (whether the item was sold), logistics efficiency (shipping the item), and the shop’s search and recommendation capabilities (increasing the likelihood of keeping the ordered item).
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Each branch of this tree provides product teams with clear tactical metrics while showing business teams how these improvements drive revenue and profitability.
Consequently, an increase in the “Number of Well-Received Items' has a much more substantial impact on the company’s net revenue, as it considers the various drivers of the company’s business model.
There’s never just one “correct” NSM. Each variation of your NSM will have different consequences for the adjacent practices of goal setting and business alignment. For instance, if the company operates on a marketplace model where it takes a commission from each sale, the NSM might evolve to "Number of Successfully Mediated Sales" – tracking not just completed purchases, but also seller ratings, the commission earned, and repeat buyer behavior. This adjustment ensures the NSM continues to align with the fundamental business model while maintaining focus on customer value.
Success comes from choosing an NSM that creates a clear chain of cause and effect. Tactical product improvements contribute to the NSM through influenceable leading indicators derived from its main drivers, which in turn propel business performance.
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Thank you for Practicing Product,
Tim
PS: My V60 this week? El Burro Geisha, floral and complex, but only after I messed it up twice. The first one dripped too fast, the second was over-extracted, and the third was just right. Metrics? Same deal. The first version of your NSM might look good on paper, but give it a few iterations before you taste the real value.
As a Product Management Coach, I guide Product Teams to measure the real progress of their evidence-informed decisions.
I focus on better practices to connect the dots of Product Strategy, Product OKRs, and Product Discovery.
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