North Star Metric
North Star Metric is the one metric which defines the essence of the business. It should be quantifiable on all the four fronts(breadth, depth, frequency and efficiency) and needs to reflect the direction of business strategy and customer satisfaction.
A few factors which should be considered when deriving a North Star Metric are
What defines the success state of your customer?
Does this apply to all the customers?
Is the metric measurable?
What's the frequency to measure?
Are they sufficiently immune to external factors?
Is the NSM rise tied to business growth?
Does the customer journey impact NSM?
Does it change with time?
A North Star Metric is derived from the KPIs relating to all four dimensions of the business strategy - Breadth, Depth, Frequency and Efficiency and these KPIs act as drivers for the product initiatives which are chosen.
In essence, there are six kinds of North Star Metrics and what’s the actual category of metric to use depends on the context of the business.
Along with a North Star Metric, also have a Guard Rail Metric - some kind of metric which ensures that you are within the limits of budgeting and other established constraints in the quest for your North Star Metric. For instance, when having Number of Transactions as a North Star, Cost per Transaction can be the Guard Rail.
On the other hand, it is always advisable to have a Counter North Star Metric which would ensure that the North Star Metric's focus is not damaging the end-to-end process elsewhere. The aim here is not to drive or focus on the Counter Metric but to ensure that it is healthy and stays above the set threshold. For example, it really doesn’t make sense to have a North Star as Session Time when there is no work actually being performed.
References
What is a “North Star Metric”? (+ 8 steps how you can discover your NSM) - Ward van Gasteren
The North Star Metric and How Can This Lead to Success
Choosing Your North Star Metric - Lenny Rachitsky
Every Product Needs a North Star Metric: Here’s How to Find Yours - Sandhya Hegde
North Star Metric (2023): Your NSM in 9 Steps [+ OMTM] - Gust de Backer