3 Reasons Why Product Management Should Have Revenue KPI:s and 3 Reasons Why Not
The responsibility and accountability for product manager might be defined but seldom enforced. What are the pros and cons with setting up financial KPI's for the Product Manager. What do you need to reflect upon when doing it. Expert product manager Maja Lindström shares her thoughts.
Should Product Managers be measured on revenue? Some argue that it's better that Product Management focus on understanding user needs within selected user segments and then "just" creates the best possible product for those needs. Revenue, they argue, should be the responsibility of sales and marketing who can have a direct impact. But there are some very good reasons why Product Management should have revenue KPIs. There are also some common arguments why not, which I will also address in this post.
To sum it up, I can only think of one valid reason for not having a revenue KPIs and that is when your business is not about creating revenue at all (in which case it's hardly a business), but then you still need to define success and measure that.
If you're having this debate in your organisations, some of my arguments for why you should have revenue KPIs may be helpful.
Three common arguments for having Revenue KPI's:
Make sure you create business
The job of Product Management is to create business value, to maximise the profitability of a product or product portfolio over its lifetime. Profitability requires revenue and the longer it takes to get to revenue the less time you have to earn back the investment of building or improving the product.
KPI's help focusing on what's important; with a revenue KPI you have to focus on delivering value early, and maintaining and increasing value over time.
To focus on leveraging you product investment
Product management is a lot more than developing the actual product. When you have the product you still have a lot of levers and activities to help you increase the business value, for example by coordinating marketing efforts, motivating the sales channel, plough through data and user feedback to find those small improvements that will help your product grow faster, or optimise the pricing. Without a revenue focus, it's so easy to get stuck in the backlog management and expedition of requirements.
Power comes to those with accountability
If you don't have accountability for revenue, those who have will win every debate. In the worst case scenario, Product Management is reduced to Project Management where the ones with the revenue KPIs (sales) sets the agenda and the long term product vision or potential for big wins is lost. More often than not, a feature bloated product will be the result. On the other hand, if you have accountability for revenue, you will have an upper hand in understanding how feature usage and soft data correlates with increased revenue and will give you the weapons you need to fight for your product vision.
Three common arguments for not having Revenue KPI's:
Your product is not about creating revenue at all
Even if your product should not generate revenue, maybe because you are in a stage when you are building volume to monetise later, or you are a non profit, revenue is not a relevant KPI for you. But you still have to create business value and hence you should define and measure your product based on whatever that is, like donations or active users.
However, if your plan is to monetise later, your business model will contain a couple of assumptions about conversion rates and user segments that you will need to test, to make sure that you are building a user base that will convert. But that's a different topic.
The items for sale are disconnected from the actual product
Some products are there to sell other products, either your company's products or as a broker between buyers and sellers of their products. In that case you could argue that you can't be accountable for revenue as you don't have any say in what items are for sale. But that's of course not true. How your product is designed and optimised will have a huge impact on sales and hence revenue, so this is a clear case FOR having a revenue KPI. Sorry!
Sales and/or marketing are in control of pricing, campaigns etc.
Often a Product Manager has very little direct impact on what happens in the sales and marketing channels and hence being measured on revenue can be unproductive. Isn't it better to focus on measuring things you can impact like net promoter scores, product quality etc and let sales and marketing worry about revenues?
But if you look at it from the other direction, sales and marketing can't really control revenue either, because they are totally dependent on you to create a great product to sell. So they could make the same argument and don't take any responsibility for revenue. So in order to create business value, the answer is of course that Product, Marketing and Sales all need to work together to create revenue and be measured accordingly.
So all in all, my conclusion is that Revenue KPIs are important for successful Product Management. Good luck!
Read more blogs from Maja on her webiste https://poptype.co/majacing