What Is The Business Value Of A Product Manager?
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:
[bctt tweet=”A product manager should be worth between $5 and $10M of annual product revenue” username=”nilsie”].A product manager is worth between $5 and $10 million of annual product revenue.
That’s an educated guess, a stake in the ground, a challenge to you.
Simple Ratios
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])
Raises Questions
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.
About the Author nils
Your host and author, Nils Davis, is a long-time product manager, consultant, trainer, and coach. He is the author of The Secret Product Manager Handbook, many blog posts, a series of video trainings on product management, and the occasional grilled pizza.
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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.
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