How to measure product value?
Every product manager wants to make an impact. The opportunity to turn raw concepts into real products is a rare one — what you build represents the future of the business. And you have the honor of solving problems for people. Colleagues, customers, and your company are relying on you to deliver the most value to all. It is a weighty and exciting responsibility.
Value exchange is at the core of most successful products. Yet it can be difficult to understand how to estimate and measure product value in practice. The value that a product brings to those who build and those who use it is quite different. For example, a company might see value as the total amount of new revenue that an update to a product brings in — whereas the user might see value realized in the time that the product saves them each day. Trying to reconcile the varying inputs and find a blended value measurement is tricky.
Estimating and measuring product value holistically is essential to business growth. With the emergence of value-based product development, many organizations are striving to find the best way to assess value. This guide lays out some of the reasons why product teams are interested in establishing a mechanism for scoring value metrics, some of the different ways that you can quantify product value throughout the product development lifecycle, and the best tools for doing so.
What is product value and why is it important?
Product value means different things to different groups. Some companies simply look at the profit that a product brings the organization — total revenue minus cost to develop. Others view it through core business metrics.
For example, a SaaS company might review how well the product attracts, converts, and retains paying customers. Looking at product value this way puts the focus on how the product benefits the organization without much regard for the user. Profitability is certainly an important aspect of product value, but it is not the sole measurement.
Others point to specific key performance indicators (KPIs) as a way to measure product value. Understanding product usage data and analytics is a critical part of understanding the health of your product. But again, it only presents one view of value. Knowing how many people are using your product each day or month does not tell you anything about their experience and what they gain by doing so.
Let’s shift to our perspective as customers. We are all product users and each of us recognizes value when we experience it. An electric hedge trimmer saves time over a pair of manual gardening shears. Athletic shoes are the obvious choice for a long walk. Customers choose what we believe will be most effective for solving a specific problem. Value is the benefit we expect to receive while using the product.
Holistic product value is measured by how well what you build serves business goals and gives customers what they need.
A forward-thinking approach to product development takes each of these perspectives in order to account for product value at every phase of the process. This includes the value the organization gains, the value the team realizes, and the value the customer perceives. Measuring product value from idea through to delivery is important because it gives product development teams a way to prioritize based on this holistic view and to improve value estimates over time.
What are value metrics in product development?
Value is subjective. Remember that your measurement will likely comprise more than one metric or source — it depends on your organization, the product you are building, and the market the product serves. It might seem as though this point is being hammered over and over, but it is true and vital to consider when choosing value metrics for your product. What works for one organization will not necessarily make sense for another.
If you are a leader in title or action and want to drive forward a value-based approach to product development, you can start by opening up the conversation to others. Set up a meeting with other leaders from your product development team to discuss what feels right for your product. You can set the agenda by drawing from your overall company and product strategy to guide the conversation.
One good way to think about how to begin crafting your value definition is to look at the elements of a Complete Product Experience (CPE) — all of the touch points that contribute to how people derive value from using your product. You can begin to list out the interactions that a customer has throughout the lifecycle to understand what ingredients lead to product value and then, longer-term, a lovable product.
A business exists to exchange value. This means that the value the product delivers to the company deserves meaningful consideration. Here are a few inward-facing thought starters related to business value you can use when crafting a team discussion guide related to product value:
Goodwill or halo effect
How do you measure value as a product manager?
Product managers should estimate and measure value at set intervals. The advantage of creating value scores at specific phases is that the team can look back at the initial estimate to see how close or far off the score was from reality. Over time, you will identify opportunities to improve how the team estimates — which will streamline and strengthen decision-making.
Initial value estimate
Early in the idea management process when the concept is raw and not refined
Detailed value estimate
After the effort has been further vetted during roadmap and scoping
What was actually achieved once it is in production and customers use it
You will probably have to update your value estimate a few times throughout the development process as you learn new information. And you may need to do the same for the value analysis, especially if you want to understand the long-term impact of a specific feature.
Because we are human, we want firm answers. Ambiguity is difficult to wade through and most of us want to feel confident that we are making the right choices. As much as we want to rely on data and analytics to help guide our process, there is an element of the unknowable when you are investing in something new — whether it is a net new product or an enhancement to an existing one. This is part of the thrill for product builders.
There is a certain level of “gut feeling” behind many of the product decisions being made right now. Sure, most teams are operating against an overall strategic direction, customer knowledge, and market awareness. Product managers are prioritizing what they believe to be best based on all of the above.
Creating a value scorecard can help make that decision-making process repeatable. There are a few categories that most product development teams can use to begin estimating product value right away. Each metric should be weighted. (Using a dynamic product value scorecard is helpful here.) Notice that the list below is general and somewhat broad — as you mature how your organization views value, you can narrow in more. For example, you might create a scorecard that includes specific goals or initiatives rather than overall strategic alignment.
Example product value scorecard:
Population: How many customers will this item impact?
Need: How important is it for those who require it?
Strategy: How closely connected is this work to your company and product strategy?
Effort: How much work will it take to build?
Confidence: What is your level of confidence in each score above?
How do you effectively quantify product value?
Value is not static. It constantly evolves based on a variety of factors — from market shifts to customer preferences. So when you are thinking about how your team should approach quantifying product value, you may want to create a long list of metrics from different sources. Although tempting, this will create more confusion for the team.
Start with a basic set of metrics instead. Simpler is better, especially at the start. You do not want to overwhelm yourself (or the team) with a complicated formula that relies on many inputs. As you begin to estimate and measure value, you can gradually expand and layer in more data points as analysis matures.
Ideas: Assigning a quick value score as soon as an idea is submitted to the product team can help speed up backlog review meetings
Features: Value scores should be updated several times as the engineering team begins work and understands the full scope of what you are building
Releases: Product development software typically includes the ability to dynamically score releases based on the value of all the user stories and features within it
Realized value is where things get more tricky. So far, the product development team is estimating based on their best understanding and information available at the time. But you want to keep everyone honest and close the loop by measuring the actual worth of what was delivered. You can choose a blend of performance metrics here — likely updated over time as more people use what you built. New revenue, add-on revenue, product usage, and customer feedback are all valuable points of reference and should be weighted in a way that best reflects your organization's priorities.
What is the best tool for measuring product value?
Today there are more options than ever for product development teams. Customer feedback, virtual whiteboards, roadmapping, workflow, and analytics tools proliferate in many organizations. There are so many software solutions out there and product development teams can quickly suffer from tool sprawl — understanding and aligning the mounds of data that come from those tools can be a job itself.
The best tool for measuring product value is a product development software suite that includes everything you need to build and manage products. When all of your product data is stored in one system, then you can more easily track value estimates throughout the development cycle and update realized value scores. Static or scattered tools make this difficult and you can end up spending more time reconciling the different inputs than analyzing how well the team is doing at driving product value forward.
However, there is an old saying that holds true: The best tool is the one you use. Meaning, what matters most is your own motivation. So even if your team is stuck using spreadsheets and email to manage product development, you can still benefit from a value-based approach. Instilling the right mindset and providing the team with standardized templates to work from can help bridge gaps in tooling.
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