If you answered “don’t know”, then right now you’re failing as a Product Manager. But, don’t worry. Firstly: I won’t tell anyone. Secondly: if you don’t know, it’s unlikely anyone else at your company knows. Thirdly: you’ll be pleasantly surprised to hear that there are LOADS of Product Managers out there that are similarly in the dark. Lastly: if you read this article you’ll find out how to measure Product success AND what to do about it if it’s failing.
Why don’t you know whether your Product is successful?
There can be many reasons, for example:
- You’re new to the Product and you didn’t inherit success metrics
- In the excitement of building a new Product or feature you didn’t build in success metrics
- The numbers to measure success are hard to get hold of (common in big companies)
Of these three reasons, I’ve found the third to be the most common and the most insidious. The first two are short-term reasons, which are more easily overcome. The third reason excuse can be crippling to the long-term viability of your Product and at its root it’s a form of complexity bias. This is where our brain tries to save its mental energy by convincing us that something is harder than it really is. So, we think it’s impossible and we don’t even try.
In my 20+ years of working in Product Management I’ve never worked on a Product where it was impossible to get hold of the right numbers to measure success.
What’s the best way to evaluate Product success?
Start simple. Start with the basics. Often the difficulty with defining success metrics (and a catalyst for complexity bias) is when we get caught up in the detail of the Product and forgot the fundamentals.
The Purpose of Product Management is: to create value for customers and generate benefits for organisations.
That’s where you start. Your product needs to be generating value for customers AND benefit for your business. So, you need to define metrics (success measures) which show whether you’re achieving this.
The ultimate success metric for a Product is profit.
You should be able to show that your Product generates income greater than its costs. If you’re making a profit, then the business benefit is clear. You’re also creating enough customer value for your customers to continue buying your Product.
If you work on an internal Product, your metric is usually cost.
You should be able to show how you’re reducing costs in your organisation so that roles (or part of roles) can be made redundant and staff can be redeployed or leave.
There are some exceptions, but 95% of Products make a profit, reduce cost or are unsuccessful.
Of course, there are sub-metrics for each category which either show customer value or business benefit, but ultimately your headline metric should almost always be profit or cost reduction.
I often hear from Product people that they’re not involved in finance, that their role is to design and develop Products. I tell them: “You need to get involved.” Great Product Managers not only make great Products, they scale them and extract a return – they make them proifitable. Many Product Managers are initially sidelined from the financial side of things, which makes it very difficult for them to measure success. It also makes them less important to the organisation they work for. Ultimately, successful businesses make decisions on cost and profit. So if you’re not involved in this area — you’re peripheral.
So, how do you get involved in finances?
You could try cosying up to the Finance Team (which is a good idea anyway), but for a more structured way of doing things, try the:
Profit Driver Tree
I love Profit Driver Trees. They’re a great way to quickly and easily get to the heart of why (or why not) a business or Product is profitable (this is also why they’re beloved by management consultants). You can start with what you know and work forward or backwards and end up with a complete picture of costs, revenue and profit. Even better, they’re a very useful way to engage your broader stakeholder group — get them interested and involved in the profitability of your Product.
For a more detailed look at how to use Profit Driver Trees, and other financial wizardry, you can come along to our Financial Fundamentals course or for people who like to self-learn, read a blog like this.
Moving from metrics to goals
Now that you have your headline metric, and you’re getting a grasp of finances, you need to set goals, or Product Success Criteria. Here’s how we do it at Brainmates:
So, now you should have:
- A clear understanding of revenue, cost and profit
- An overall success metric
- Goals and Product Success Criteria
Once you have agreed all of these with your stakeholders and started measuring them in the real market you should soon be very clear on whether your Product is successful or not.
If your Product isn’t successful, then what?
If it isn’t a success, then you’re in a much better position to make good decisions on how to change this. Here’s one decision-making tool:
If your Product is failing, you can start making changes (product improvements, increased marketing etc), set goals for those changes, and then measure whether those changes are successful as they ripple down the line.
Or you can make a proactive decision to kill the Product.
If you decide to kill a failing Product, while it might not be a success – you’re a success. You’ve saved your company time, money and resources. The only way to fail as a Product Manager is to not know whether your Product is successful or not.
- If you’d like some help making your Product or business a success, find out more about our consulting services.
Liked this blog?
You might like to check out:
- How to use and understand NPV in a business case
- How to use the Value Curve Model and more about value propositions
- Our Essentials of Product Management course – a 3-day course which will help you delight your customers and increase your Product profitability