Let me start with a bit of a controversial statement. All product managers are responsible for growth. Whatever your responsibilities are as a product manager or whatever level you are in your organization, you are responsible for growth.
You may be a PM in B2C or a B2B company. You may be responsible for customer facing products or backend APIs or developer relations. No matter what genre of product manager you are, growth needs to be the core of your role’s mission.
In a separate post, I wrote what PMs do. Yes, you will continue to work with your engineering and UX team to build features, and yes you will continue to work with customers and do your research and measure usage and work on usability, adoption etc. But all your activities need to be encapsulated with the lens of growth.
Now, a few of you might wonder, why should product managers be responsible for growth. Isn’t that a sales and marketing job? We build products that they can sell and grow our revenues.
Yes, technically you are correct. Someone has to do the selling whether online or offline. But that’s just the mechanics of how the product gets into the hands of customers. Now, I am in no way diminishing the role of sales and marketing and positioning. They are extremely important.
But think about what they are marketing or selling. They are selling the value that you as a product manager has chosen to provide to your target customers. So it’s in your hand what value has to be provided to your customers and how it has to be communicated and eventually sold. How well marketing or sales is able to sell your product is a function of how well conceived is the perceived value of your product. Marketing can handle the brochures, and the web site or the ad copy and sales can help find and close deals.
There are many types of product manager roles and they vary by the stage of your company, the size of your company and the type of your company. Recently, I have been seeing job titles like Growth PM. My firm belief is that all PMs should have some aspect of growth in their objectives.
What is growth?
Let’s start by defining what growth is. Growth is defined as anything that either grows the top line or bottom line. For the non finance readers, top line means revenue, bottom line means profit. The most fundamental definition of growth is increasing top line or bottom line.
Let’s see this from the lens of an Income Statement. The income statement tells you what revenue came in, what were the expenses and what was the profit, in a given time period e.g Q1 2022 or Fiscal Year 2022.
Allow me to take you on a quick tour to the wonderful world of accounting and walk through a very simplified Income Statement.
The very top line is Revenue. In certain countries, this is also called Turnover. Revenue is what comes in from your customers. For a software company, revenue comes in mostly in the form of products or services you sell e.g. subscription revenue, license revenue etc. There can be secondary revenue such as training, onboarding, migration, advance support, services etc. (Interest from your bank account is also reported in here but let’s ignore that for our purposes.)
The next line is the cost of goods required to sell your products. Some companies call this cost of sales. A simple example, let’s say you are selling a shirt or a dress. The cost of goods sold will include the cost of the cloth, buttons, thread, any accessories, packaging and shipment cost. Labor to produce the shirt will also be included in the cost.
When Boeing sells an aircraft, the cost of goods sold has 1.2 Million items.
What about software, especially SAAS. You are likely incurring costs for hosting, databases, API access from 3rd party. Any direct cost that is required to support the sale is cost of goods sold. Or cost of sale.
Subtracting the cost of goods sold from Revenue gives as Gross Margin. (When someone says this is a high margin business, this is what they mean i.e. generate revenue without adding additional cost e.g. an online training product.)
R&D cost or product development cost is not considered cost of goods. The cost of your team (in salaries) is not in proportion to the sales. Hence they are reported under Expenses. (However, for professional services firms or subcontracting firms, the cost of people on a project is their cost of goods or cost of sale.)
- R&D is your product and engineering cost.
- Sales and Marketing is your sales team, marketing, demand gen, events, advertisements, promotions, discounts etc.
- Customer support or success or operations as the name implies is cost to support existing customers. This could also include customer success teams but sometimes they are clubbed in sales and marketing.
- G&A (or general and administration ) includes finance team, accounting, HR, IT. The cost of your laptop, your expensive chair, your adjustable desk and your friday lunches likely go in this bucket.
Now if you add up the expenses, and then subtract from Gross Margin, you will get operating profit or sometimes called net margin. For the purposes of our discussion, we will call this our bottom line.
After operating profit are non operating costs like interest, depreciation and taxes. Subtract those and you get Net profit or sometimes called Net Earnings. This is what gets reported to investors and wall street….the Bottom line. Since products do not control these categories, we will stick to operating profit as our bottom line.
By the way, if you are curious, here are the income statements for the biggies — Apple, Google, Tesla. All public companies are required to post their statements every quarter. It’s the law.
(Apologies to my accounting readers. Yes, the real world is more complicated and we thank you for handling that for us)
Hey, I am a product manager and not an accountant. Yes, I am finally getting to the crux of this discussion.
As a product manager, you are responsible for growth. It could be top line growth or bottom line growth.
Top line growth means you are responsible for growing revenue. In the second part of this article, we will discuss the various levers a PM can use to grow revenue.
At a high level, you can think of growing revenue by building new product capabilities for a new customer segment, or building adjacent products to cross sell to existing customers or upselling new licenses or seats to existing customers or encouraging customers to upgrade to a higher tier plan. You can also grow revenue by lowering churn. You can read the various ways you can influence top line in this post.
Most product organizations measure metrics such as number of logins, active users, engagement and even NPS (Net Promoter Score) or Customer Satisfaction score. These are also great metrics but you should use caution. Use metrics that contribute to the top line number. For example, faster time to value is a good predictor of retention. So absolutely you should measure time to value and monitor it.
When I was using mint.com many years ago, I rarely logged in. Why? Because they would email me my weekly summary of budget vs expenses and that was sufficient for me. I did not need to login daily. But if the PM had a metric goal to track logins, they would fail and unnecessarily try to convince me to log in. Social sites on the other hand live only by you logging in and engaging with others.
To summarize, revenue growth can be –
- Bringing new revenue from a new set of products
- Bringing new revenue from a new customer segment
- Bringing revenue from selling new offers to existing customers e.g. sell Product B to customers using Product A
- Bringing revenue from upselling to existing customers e.g. sell more seats, or upgrade them from Silver to Gold
- Reducing churn, this is especially significant for SAAS
- Faster onboarding and time to value
- Improve conversion rates e,g. From free trial to paid
Perhaps you are PM that is not responsible for front end feature but more back end capabilities such as cloud or APIs. Or, lets say you are responsible for building the developer community. You can still weave growth orientation into your goals. I will elaborate that in a separate post.
You can also be responsible for bottom line growth. In the third part of this blog, we will discuss the levers you as a PM can use to lower cost. In a nutshell, you as a PM can do the following –
- Lower the cost of goods (e.g. hosting cost, DB cost)
- Lower development cost (e.g. do more with less, use a different vendor for APIs or libraries)
- Lower the cost of sales and marketing by bringing value clarity, improve onboarding and time to value, increase adoption
- Lower the cost of support by addressing features that demand higher support
Conclusion
When you start a new job as a product manager, your primary responsibility is not just to manage the backlog and create new features or just do what your VP product expects. You need to own the growth metric.
Do you need to be responsible for everything in this article? No, unless you are the SVP Product or the CPO.
If you are already in a PM role, consider what your core growth metric is. It will likely be one of the above in the list. Then optimize for growing that metric. That should be your single minded focus.
