Do you ever feel like you have a target on your back? If you’re a product executive, especially with product management responsibility, you’ve felt the pressure to justify the existence of you and your team at some point. Sure, you can talk to the executive team about efforts underway to define the MVP, groom the product backlog and prioritize features for the next release. . But they want something more concrete from you – a clear connection between the investment in your team and the top line or the bottom line results.

How to quantify return on product managementIt may be tempting to jump to your product or product line P&L to justify staffing compensation, return on investment, contribution margin and productivity… However, this can be a big mistake if you haven’t laid the proper foundation and set expectations with your co-leaders and your team.

Why Avoid P&L and Other “Hindsight” Measures?

To be clear, monitoring financial results is important. The trouble is these measures provide little guidance to your team about what to do next. Tracking financial results is like looking in your car’s rearview mirror. It doesn’t help identify unmet needs, anticipate competitor moves, and ultimately steer the company’s product strategy.

Especially if your products have long sales cycles and require many customer touch points (i.e. demonstrations, prototypes, proposals, conference, etc.) then your team’s contribution is even harder to gage from “hindsight” financial measures.

So What IS Useful to Measure?

In order to judge how well your product management team is performing its market-facing duties, you need to measure market-facing factors like speed to market, product adoption, and customer loyalty.

While these are not tidy financial numbers, the executive hanging over your shoulder can come to appreciate that these operational measures are in fact leading indicators of financial results.

Let’s look at a couple that highly-effective product management teams monitor:

Speed to Market:

  • Connection to financial measures: consistently being faster to market will naturally lead to increased product revenue.
  • What to track: compare speed to introduce new products or features to speed in prior periods; also, how often your team beats a key competitor to market with similar features

Product Adoption:

  • Connection to financial measures: ramping up sales volume faster and at lower cost will typically result in higher margins.
  • What to track: compare sales volume and marketing spend over time to prior releases.

Customer Loyalty:

  • Connection to financial measures: increasing the “willing to recommend” percentage of existing customers correlates with higher retention rate and drives down cost of sales, supporting higher margins.
  • What to track: surveys that include an objective loyalty indicator.

A concerted effort to measure performance in these areas will allow you to steer your team’s work while helping executives see the connection between product management execution and the company’s overall performance.

How to Make it Happen

Keep the measurements and the collection of data lean. Define a few (5 to 10) straightforward measurements you want to start tracking. They should align with the critical efforts of your product management lifecycle. They should also focus on the strengths and weaknesses of your team.

Some market-facing factors or measurements you should consider:

  1. Number of market discovery visits by each product manager
  2. Number of new ideas sourced and validated from the market (customers and potentials)
  3. Year to year change in customer (market) acceptance rate of MVP
  4. Adoption or usage rate of new features

Accept that fact that some measures will be easy to collect but harder to translate or correlate, but gathering a small sample size and committing to thoughtful inspection will provide some powerful insights. This will be especially true of market discovery data, it is largely unstructured and often appears one-off, but synthesizing even a small amount of this information can increase the number of break-through ideas and new “wow factor” features that make into the backlog.

The Result

The long term benefit of Product Management becoming measurement-driven is higher team performance, improved predictability, and increased credibility. The ultimate benefit is the ability to reliably create outstanding products and market breakthroughs. Keep in mind that a key ingredient to success is an underlying measurement-driven culture that couples rewards, recognition, compensation and promotion to attaining operational results.