Concept 4 of 4

Product profitability

2 questions test this

The Business category ends where the business case began, with numbers. Product Profitability asks how the product is actually performing now that it exists, and the framework wording is careful to name three different things rather than one. Performance in the market, impact on company operations, and contribution to profit.

Three questions, not one

Is it winning in the market. Share of the segments it targets, win rate against named alternatives, retention, and whether new customers look like the ones the positioning describes.

What does it cost the company to run. Support contacts per customer, onboarding time, infrastructure, the proportion of engineering capacity consumed by maintenance, and the load it puts on functions that never appear in the product budget.

What does it contribute. Revenue and margin, and how those compare with what the business case predicted.

The third question is the one that gets reported and the second is the one that gets skipped. A product with healthy revenue and a support burden that grows faster than its customer base is a problem that stays invisible until somebody divides one by the other.

Comparing against the case that funded it

The business case that funded the product contained assumptions about adoption rate, price, cost to serve and churn. Checking the actuals against them serves two purposes. It tells you whether this product is on track, and it tells you how good this organisation's forecasting is, which changes how the next case you read should be weighed.

Very few organisations do this, which is why business case optimism has no correction mechanism.

The portfolio view

Product Profitability sits next to Product Portfolio in the framework, and the framework's phrasing is to manage the portfolio like a product, with its own business plan, positioning and market requirements.

At that level the options widen. A product that is unprofitable alone can be worth keeping because it holds an account or opens a segment. A profitable one can be worth retiring because it consumes capability the strategy needs elsewhere. Neither judgement is available while looking at one product in isolation.

The levers a product manager holds

Price and packaging, which decide what is captured from the value delivered. Which segment is served, which decides the cost of acquisition and the cost of support. Design decisions that generate or avoid support contact. What gets built next, which decides the maintenance base for years. And whether the product continues at all, which is a legitimate recommendation and one of the most useful a product manager can make.

Common misconceptions

Revenue is the measure of a product's success.

Revenue with no cost to serve beside it hides products that are busy and unprofitable. The framework wording names market performance, operational impact and contribution to profit as three separate things to monitor.

Profitability is finance's report, not the product manager's.

The levers are product decisions. Pricing, packaging, which segment is served, how much support the design generates and what the product costs to run all come from the product side.

A product that is not growing should be given more features.

Adding to a product the market has moved away from raises the cost to serve without changing the reason people left. The framework's answer is to review it at portfolio level, where retiring or repositioning are also options.

2 questions test this concept

A product shows steady revenue growth. Which additional question does the Product Profitability box require?

  • AWhat it costs the company to run, since the framework names market performance, operational impact and contribution to profit as three separate things to monitor, and a support burden growing faster than the customer base stays invisible until somebody divides one by the other
  • BHow the growth compares with competitors
  • CWhether the growth is coming from new or existing customers
  • DHow many features were shipped during the growth period
Check whether it stuck.

One per page, with a worked explanation.

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