If you asked ten senior executives if their Product Managers understand what it takes to drive Return-On-Investment for their product lines, what do you think they’d say?
I’ve spent most of my career running product management, marketing and business strategy for start-up technology companies and the large corporations that acquire them. If there’s one thing I know, it’s that regardless of the size of the company, the CEO, CFO and other key stakeholders are constantly concerned about ROI and Margins, and whether all that money they are pouring into product development is actually producing enough revenue and profit to justify it. And if your company is back by private equity investors, they’ll certainly be concerned about the company’s valuation, which is directly affect by product ROI.
At the same time, if you ask ten Product Managers what the ROI and Profit is for their product line, I would venture to guess that more often than not, they really don’t know. They’re aware of what they should know, and may even be told that they have ‘P&L’ responsibility – but what does it really take to manage it successfully?
As a starting point, Product Managers need to understand the KEY DRIVERS of ROI for the products they manage. This article will focus on the revenue drivers of ROI, and part 2 will address cost.
5 THINGS PRODUCT MANAGERS NEED TO KNOW TO DRIVE REVENUE
#1: Sales Win/Loss Drivers
Most companies already track their sales pipeline and win rates, and everybody knows that even a small increase in win percentages can have a big impact. However, if you’re the product manager, you need to know more specifically why sales were won and lost, and which of these reasons truly have to do with the product solution. You won’t find this data in a typical sales report. That’s because either the company’s system doesn’t make it easy to capture this information, or because most sales representatives are not exactly eager to publicize the reasons they lost a deal!
What’s needed is a ‘win/loss call’ process, run by somebody outside of the sales group, which results in some combination of surveys or phone calls to the customers won or lost, and a structured way to capture the information so Product Managers can learn first-hand about what’s really going on. However, don’t assume that Product Managers can run this program by themselves – they will need help, and it must be prioritized by senior executives to keep it running…but that’s a topic for another article!
#2: Needs of New vs. Existing Customers
One of a Product Manager’s most important responsibilities is to make sure that the product fits the needs of target customers because it directly affects value created, and willingness to pay for that value. Especially in the B2B market, what existing customers demand is often very different than what prospective customers ask for during the sales process. Both are important, of course, but Product Managers need to know the difference so that when they prioritize development investment, they can strategically choose the right balance to fit the company’s and product’s growth strategy. This is very important, because it’s very easy to fall into the trap of listening too closely to the most vocal existing customers, and not enough to what prospective customers need. By the same token, it’s risky to rely too heavily on requests from your sales force, because even though it’s valuable information and does reflect what their prospects are asking for, their demands may not fit into your product growth strategy. You can never please everybody, but you should at least choose your mix on purpose! (Whether you have a product growth strategy and strategic roadmap are topics for another discussion).
#3: Customer Retention/Attrition Drivers
Customer retention is always an important revenue driver, and with today’s common ‘recurring revenue’ pricing models, it’s absolutely critical. For Product Managers to make smart decisions that affect retention rates, they obviously need to know what these rates are for their particular product line, and why customers are choosing to stay or leave. This sounds obvious, but most companies do not have easy access to this kind of information, and if they do, it’s usually at such a summary level that Product Managers can’t use it to manage their particular products. The win/loss call process from above will definitely help determine why customers leave, but they need data to know the retention rates for their products to know when there is a problem to address!
#4: Customer Satisfaction & Referral Data
One of the simplest and most powerful tools I’ve used to understand the satisfaction of my customers is the Net Promoter Score. By simply asking your existing customers how likely they are to refer your product to others and tracking this information over time, you can very quickly learn whether you’ve got a problem to address. Assuming that you choose to capture the customer’s contact info, it also helps to identify customers to call for more information. However, like many of these key drivers, your company needs a process and people in place to easily capture and report this information on a recurring basis. If every NPS survey requires multiple e-mails, meetings and convincing others to help implement, it likely won’t get done as often as necessary due to so many competing product management priorities.
#5: Pricing Optimization Methodologies
One of the most impactful, yet overlooked drivers of ROI is your pricing strategy, which should be directly tied to your value-based product strategy. Let’s assume, for example, that you’ve already made the decision to pursue a high quality, premium pricing strategy, and you’ve already figured out how much value your target customers can derive from your product (customer ROI). How you structure your pricing, what your pricing levels are, and when to offer discounts will fundamentally impact your company’s product ROI. Pricing is too broad of a topic to summarize here, but suffice it to say that it is one of the most essential elements of product ROI. Just a few of what I call ‘Pricing Value Capture Opportunities’ are listed below:
Reducing random discounting
Optimizing pricing structure
Removing pricing barriers to adoption
Aligning pricing drivers with value creation
Maximizing monetization (white space) of existing customers
Simplification to reduce support costs
Maximizing recurring revenue
Niche pricing opportunities
There are many other factors affecting product ROI, of course, but at least in my view, these are the most important places to start! To read about the key cost drivers affecting product ROI, continue reading here: [Link coming soon].
I’m sure you’ve heard plenty of others! If so, share them with a ‘reply’ to this post, or e-mail me at firstname.lastname@example.org.
John Hanson is President of MarketView Consulting, LLC, which helps companies monetize more value with a repeatable product management process for discovering & delivering what the market wants and will pay for.For more information, please contact John via e-mail (email@example.com), or by calling 651-261-0344.