Introduction to the Series
Welcome to the third post in our five-part series on the fundamentals every SaaS product leader should master. In this series, we delve into essential practices that can drive product growth and success. Today, we focus on a crucial aspect of product management: adding real business value. As product leaders, our primary objective is to ensure that our efforts translate into tangible value for the business, often measured in revenue or efficiency gains.
As product leaders, we must understand that our role, and our teams role, is an investment, not a cost center. We are expected to deliver value to the business, which in most cases translates to additional revenue. Like salespeople, who are measured based on the new revenue they bring in, product managers must also be able to demonstrate their direct impact on the business's bottom line. Each company will have its unique expectations for the annual ROI of a product manager, but understanding what your organization expects is key to your success and growth.
To illustrate how a product leader or a product manager should be thinking, let's look at a practical example of measuring the ROI or business value of your PM or yourself:
Team Structure: A PM typically gives product direction for a team of 5-10 developers.
Cost per Developer: Each developer costs about $170K annually to the business.
Cost of the Product Manager: A senior PM costs about $200K annually.
Expected Return on Investment: A business might aim for a 2X return on their investment in one year.
Suppose a product manager oversees a team of 7 developers:
Total Annual Cost: (7×170,000)+$200,000=$1,390,000
Expected Additional Revenue with 2X ROI: $1,390,000 × 2 = $2,780,000
This means the PM should aim to generate approximately $2.78 million in additional revenue annually to achieve a 2X ROI.
It's crucial to start seeing ourselves as both a revenue and an expense area, not just someone to babysit the product while the parents are away. The easiest way to show your value and secure your job is to logically demonstrate the financial value you provide to the company. If you can do this, you're more likely to retain your position and ensure continued investment in your role.
Connecting Non-Revenue Generating Roles to Value
Not every PM is working on a directly revenue-generating product. However, you can still connect your work to business value by focusing on operational efficiency or other metrics that can be quantified in monetary terms. For example:
Operational Efficiency: Calculate time savings or cost reductions achieved through improved processes or automation.
Customer Satisfaction: Link increased customer satisfaction or retention rates to potential revenue gains.
Strategic Alignment: Align your product efforts with strategic business objectives that drive long-term value.
If you're unsure about the value you're adding, start asking the tough questions. These conversations might be uncomfortable, but they are necessary. Seek to understand how your role is perceived in terms of value and, if needed, work with stakeholders to identify areas where you can enhance your contribution.
Find Out ROI Expectations: Engage in discussions with your leadership team to clarify the expected return on investment from your role. Understanding what is expected of you in terms of annual revenue or efficiency gains is crucial.
Conduct Stakeholder Interviews: Talk to key stakeholders to understand their expectations and perceptions of your role.
Analyze Your Impact: Evaluate your product's performance and its contribution to business goals.
Identify Opportunities for Improvement: Look for areas where you can enhance efficiency, reduce costs, or increase revenue.
Collaborate with Cross-Functional Teams: Work with other departments to align your efforts with broader company objectives.
Adding business value is not just about hitting revenue targets; it's about aligning your efforts with strategic goals and making a meaningful impact on the company's success. As a product leader, it's essential to understand your value, measure it, and communicate it effectively. By doing so, you can enhance your contribution to the business and ensure long-term success.
Stay Tuned
Our hope is that little reminders of these basics will be enough for you and your team to make those small changes that, when made, make all the difference. Follow along as we explore the remaining basics in our series, equipping you with the insights and practices needed to excel as a SaaS product leader. Your path to mastery starts here.
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