Picking a North Star metric

How do you go about picking a North Star metric?

One thing that I’m convinced about is that if you’re a B2B PLG company, your North Star metric should not be revenue.

---

This post is presented by Amplitude.

Acquiring and keeping new users is hard. Stay ahead with proven frameworks and industry experts' advice on driving acquisition while keeping CAC low and maximizing ROAS in this playbook launched by Amplitude.

---

When it comes to for-profit companies, revenue is, of course, the ultimate goal.

But for PLG companies, using revenue as an action-driving North Star is rarely the best way to realise that revenue goal.

Why? It’s simple when you think about it.

For PLG companies, monetisation is always dependent on product engagement.

Because of that, for PLG companies, an engagement-based North Star metric is almost always preferable to a revenue-based one.

It should be something predictive of revenue, but should not be revenue itself.

The art of picking a successful (as in something that leads to growth) North Star metric is in decomposing it and understanding the levers you have at your disposal to drive improvements.

The North Star metric checklist

I created a simple North Star sanity check that holds for most B2B PLG product companies.

The metric should ideally be

• Reflective of the core value of the product

• Team-based

• Aligned with natural problem frequency

• Simple to understand

• Easily cross-functionally influenced

• Predictive of growth

Let’s have a look at each in more detail with an example from Snyk.

At Snyk, the number of Weekly Fixing Orgs was something we rallied around as a North Star.

An Org was just the Snyk terminology for a team.

Weekly Fixing Orgs (WFO) was defined as the number of teams who use Snyk to fix vulnerabilities in their applications each week.

1. Reflects the core value of the product

You acquire new users and teams because you promise to deliver some value.

You engage, retain and monetise some of those users and teams because you realise the promise you made to deliver some value.

Customers are not going to pay you if you fail to deliver the value you’ve promised.

So, picking a North Star metric that isn’t reflective of your core value will incentivise the wrong things.

For Snyk, it wasn't finding vulnerabilities that was important - that was just part of the process. Customers didn't get value unless the outcome was that Snyk supported them in fixing vulnerabilities.

Weekly Fixing Orgs.

2. Team-based

This should be the path that most B2B companies take when your product is used to support the work of teams vs individuals (the latter meaning you are a prosumer product).

The core value prop is most commonly centred around a team. Unless the team realises value, the product won’t see sufficient adoption, and monetisation will be unlikely.

Aligning the North Star to a team-based metric rather than a user-based metric was important for Snyk since we were ultimately enabling teams to secure the applications they create.

The team-based definition didn't mean we weren't obsessively thinking about individual developers and their journeys with the platform, but that we did so in the context of them most often working in a team.

Weekly Fixing Orgs.

3. Aligned with natural problem frequency

Customers use your product to solve a problem.

That problem occurs on a given frequency.

You can’t easily change that frequency.

When picking a North Star metric, make sure the period is reflective of the frequency of the problem you solve for,

If the problem has a weekly frequency, don't use a daily or monthly metric.

At Snyk, aligning with typical dev team cadences, we expected teams to be paying back security debt on a weekly or fortnightly basis.

Weekly Fixing Orgs.

4. Easy to understand

If your North Star metric isn’t something that’s easy for everyone to grok, people won't get behind it.

Perfect is the enemy of good here.

For Snyk, how many teams have fixed vulnerabilities this week?

Simple.

5. Easily cross-functionally influenced

For a North Star to be meaningful, it needs to be something that a broad cross-section of functions can help improve.

This is where understanding the various levers that move the metric comes in.

It’s a great exercise to break down your North Star metric candidates into their input or lever metrics to validate the opportunity you have to positively influence them.

For Snyk, Product, Growth, Customer Success, Support, Sales, and Marketing could all feasibly participate in driving improvements to the number of teams regularly fixing.

6. Predictive of growth

Business performance should improve when your North Star metric improves.

Typically, in B2B, this means increased revenue.

Expect revenue growth to lag from improvements to the North Star, but the stronger the correlation, the better.

More teams actively using Snyk to fix vulnerabilities each week meant greater opportunity for monetisation.

What next?

When choosing a North Star metric, this checklist will help you validate if your candidates are directionally correct.

You’ll be able to compare and contrast different metric candidates against the points in the list to bring some objectivity to the table.

Figuring out the right metric may not be easy, and as your product and market evolve, it will likely need to change.

But when aligning your business around it, picking an objectively good North Star metric can be transformational.

Of course, defining the metric is just the start.

The real work is just beginning.

---

Thanks again to our sponsor - Amplitude.

Until next time!