My Product Management Toolkit (65): making an impact — customer and business
At a time where people in the industry seem to question the added value of Product Managers (PMs) there’s even more reason for PMs to focus on the impact that they’re making through their products. The need for PMs to ensure to move the needle on their company’s bottom line is not a new one, but we’re seeing more businesses waking up to the fact that the job of a Product Manager is so much more than delivering products or features. While there are still plenty of companies that apply a narrow view on product management, there’s a noticeable increase in companies applying a much broader view. In these companies, PMs aren’t just treated as a delivery function but are empowered to really impact customer value and business goals.
I often come across a narrow view of Product Management in organisations where the PM focuses on delivering a set of roadmap items (usually determined top-down) and making sure the team delivers against a backlog. It pains me to see situations where the PM acts as the de facto manager of the team, making sure all team members are being kept busy and happy (they play the dreaded “product janitor” role).
In contrast, companies that apply a much broader view of product management are those where the PM works closely with their counterparts in Sales, Growth, Marketing and Customer Support / Success to ensure products deliver against business goals. For example, when technology leaders Brian Chesky and Tony Fadell talk about the changing role of the PM, they talk about the impact PMs can achieve by focusing more on product marketing and creating a compelling story for their products.
Typically, companies that apply a broader view of product management will measure metrics such as Revenue per Employee (total company revenue divided by number of employees) or Sales per Employee (total annual sales divided by number of employees) and look at ways in which their product function can contribute to these metrics. How can we as product people best quantify the impact of our work on out The question is therefore how we as product people can best demonstrate how the work that we do affects — directly or indirectly — our companies’ bottom line.
Metrics such as Revenue per Employee are lagging indicators which are influenced by a multitude of factors many of which are outside of the sphere of a PM’s influence. This, however, doesn’t mean that PMs can’t contribute to revenue or sales and can’t deliver impact instead of just features. To be intentional about driving impact, we need to start with answering with one simple question:
“What does success look like for the customer?”
What value does a customer get out of your product? What outcome can they achieve through using a product or feature that makes it indispensable for them? Here are some simple examples of the outcomes that customers want to achieve through specific products?
- A customer of Shein — online fashion retail — wants to buy something nice to wear at the Christmas party
- A customer of Canva — a graphic design tool — wants to create visuals that they can use everywhere
- A customer of Peleton — provider of exercise bikes and classes — wants to remain fit
- A customer of Robinhood — a stock trading and investment app — wants to make money from their investments
As obvious as these customer outcomes might sound, I’m still surprised when I see product people going straight into ‘feature mode’ without first considering the outcomes their customers are aiming to achieve.
These outcomes can be measured through a value metric; capturing the value exchange that happens through your product. When I was at Intercom, for example, “resolved conversations” was an important value metric that we were constantly looking to optimise. The metric represents the value exchange that happens trough Intercom’s AI support agents: the more (cost) effectively the agents can resolve customer issues, the better for Intercom and its business customers. In constrast, when I worked at ASOS — a global online fashion retailer — “average basket value” was an important value metric that we tried to impact in a variety of ways.
Being clear about desired impact on our customers means that we can translate this into business impact:
Customer Impact = Business Impact
Note that we’re talking about business impact and not just product or sales success. We capture business impact through a North Star metric, the key top-line measure to which all company priorities align, requiring collaboration across various business functions to achieve it. Here are some examples of customer impact translating into high-level business impact, laddering up to an assumed North Star metric:*
* These are assumed North Star Metrics, for explanatory purposes only
A North Star metric is the key measure of success for an organisation, a compass to assess whether the business is moving in the right direction in delivering value to its customers. For a North Star metric to be meaningful it needs to meet the following criteria:
- Measurable — The value needs be measurable
- Customer success — Represents customer success
- Actionable — Can be influenced by company actions
There’s a range of different impact drivers that you can apply to determine your North Star metric, ranging from revenue growth to product usage:
Impact Driver: Revenue Growth → North Star Metrics:
- Annual Recurring Revenue (ARR) [common SaaS metric]
- Monthly Recurring Revenue (MRR)
- Average Revenue Per User (ARPU) [common service and subscription metric]
- Revenue Growth Rate (RGR)
- Customer Lifetime Value (CLV)
- Average Contract Value (ACV)
- Total Revenue Churn
- Net Revenue Retention
[common B2B metric: recurring revenue plus cross-or upsell minus churn]
Impact Driver: User Engagement → North Star Metrics:
- Daily / Monthly Active Users (DAU/MAU) [common social media and app metric]
- Weekly Active Users
- Key Actions Taken
- Time spent in app [common media and social media metric]
Impact Driver: Return on Investment → North Star Metrics:
- Customer Acquisition Cost (CAC) and CAC Payback
- Customer Lifetime Value (CLV)
- Payback Period
- Internal Return Rate (IRR)
- Return on Marketing Investment (ROMI)
- Cost — Income Ratio
Impact Driver: Customer Growth → North Star Metrics:
- Customer Acquisition Rate
- Net Revenue Retention
[common B2B metric: recurring revenue plus cross-or upsell minus churn] - Visitor → Customer conversion rate
- Conversion from free to paid
- Retention — User or Logo
Impact Driver: Product usage → North Star Metrics:
- Daily / Monthly Active Users (DAU/MAU) [common social media and app metric]
- Number of core actions completed
- Customer Lifetime Value (CLV)
- Net Promoter Score (NPS)
With the North Star metric and the impact drivers that our product needs to move the needle on we can look at ways to help customers achieve their desired product outcomes. Take Coursera for example, a global online learning platform, to see how customer and business impact are interlinked:
Student successfully completes an online course and uses their newly learned skills to land a new job. [customer impact]
Because of the student’s satisfaction with Coursera and the specific course that they did, they leave a high course rating and recommend Coursera to their peers.
They enrol into the advanced level of the course and get their new employee to pay for the course.
Coursera will see the customer impact reflected in the following metrics that they use to measure their acquisition — retention flywheel [business impact]:
- CAC Payback Period — return on instructor / marketing investment
- Customer Lifetime Value — students enrolling into more courses after completing their first course
- Net Promoter Score — high likelihood to recommend Coursera to others
The point of this simplified example is to illustrate the close link between customer and business impact. North Star metrics will usually translate into more granular metrics that product managers, customer support staff and marketers can impact directly. Applying a KPI tree is a good way of working backwards from a North Star metric to determine the metrics that you can directly influence through a product, feature or service.
Main learning point: I recently watched a great talk by Ami Vora where she mentioned “PMs without a way to create impact” as the most dangerous thing at a tech company. I totally agree. Product people can use all the LLMs and AI tools in the world to build products, they’ll still need to find a way to make sure that businesses create impactful products. To create the right impact we need to continuously explore ways to translate customer success into business impact.
Related links for further learning:
- https://www.productled.org/foundations/the-rise-of-the-growth-product-manager
- https://wordpress.com/post/marcabraham.com/4892
- https://www.linkedin.com/pulse/how-create-kpis-drive-real-results-made-to-measure-kpis-vx0ue/
- https://gocardless.com/en-us/guides/posts/en-us-how-to-calculate-the-payback-period/
- https://appliedframeworks.com/blog/how-to-manage-pl-as-a-product-manager
- https://www.mindtheproduct.com/essential-kpis-for-data-driven-product-managers/
- https://www.zuora.com/guides/net-revenue-retention/
- https://swkhan.medium.com/product-management-its-a-system-for-business-success-not-product-features-fefa2662621f
- https://www.lennysnewsletter.com/p/how-to-determine-your-activation
- https://userpilot.com/blog/growth-metrics/
- https://aatir.substack.com/p/why-did-airbnb-combine-product-management
