I have not been able to find an answer to the question “what is the business value of a product manager?”
So, I did some arithmetic, and here’s what I came up with:
A product manager is worth between $5 and $10 million of annual product revenue. ([tweetthis]A product manager should be worth between $5 and $10 million of annual product revenue.[/tweetthis])
That’s an educated guess, a stake in the ground, a challenge to you.
I arrived at that value working bottom up using familiar financial ratios from software product companies:
- The normal ratio of development resources to revenue is roughly one developer per $1 million in revenue.
- The normal ratio of product management to development resources is one product manager per 5-10 developers.
Combining those ratios results in one product manager for every $5-10 million in revenue.
I’ve taken a leap and assigned this as the business value of the PM – if you hire a product manager, then you are looking toward increasing your revenue by $5-$10 million annually. ([tweetthis]If you hire a #prodmgr, then you are hoping to increase your revenue by $5-$10 million annually[/tweetthis])
Once you put a stake in the ground about the business value of a product manager, you can ask interesting questions.
If you are a product manager, you can ask:
- How well am I doing? Is what I’m doing going to result in $5-10 million a year in new revenue?
- How much would it be worth to the company if I got 10% better at my job (answer: maybe as much as $1 million).
If you manage product managers, you might ask:
- What’s the return on investment if I help my product managers become 10% more effective, and it costs $10,000 per product manager? (Answer: pretty high!) ([tweetthis]Q: What’s the ROI if it costs $10k per #prodmgr to make my PMs 10% more effective? A: Pretty high![/tweetthis])
And here are two questions for you:
- Does this analysis make sense to you and is it valuable?
- Do you have a top-down analysis – to go with my bottom up calculation – for the value of a product manager?
I’m curious to see how this conversation ends up. I believe that putting software product management on a concrete business value foundation could be transformative for the profession.
What is your take on the business value of a product manager? Does this concept make sense to you? Do you think my figure is correct? Way off? Unmeasurable? Let me know.
It's more like "If you hire a product manager, five engineers, 3 QA, and a doc writer, you're looking at increasing your revenues by $10 million annually," right? But generally I like the approach.
Kent – thanks for this point – you're totally right. The argument is you could hire those others (don't forget some salespeople) and if you *didn't* have good product management to support and guide them, you might end up with $0 revenue.Nils
Assuming Product Manager to be responsible for ''what'' shall we build and ''to whom'' we will build it, I think the business value is extremely high. Sometimes we forget this and invest sales and development capabilities only and forget who is actually behind the wheel.
Antti – thanks for the comment. I'd say that product management has – potentially – the highest leverage on the success of the company, potentially bigger even than the CEO. That's because product management is all about the "top line" – revenue. Ensuring revenue goes up faster than costs is the secret to a successful company, and that's what good product management can assure.