Should you be responsible for product profitability?

Stack of coins and bank notes

Should Product Managers be responsible for product profitability?

It’s one of the big questions that we get asked again and again on our training courses, but the answer depends on what you mean by “responsible”.

Yes, you want Product Managers to care about whether their products are successful and a key part of this is whether they are profitable.

Profit and Loss

However, another interpretation is to ask if Product Managers are held accountable for product profitability. That means they face some penalty if it fails to meet targets. In business terms this means they own the Profit & Loss (P&L) for their product. That’s a very different question.

Product Focus 2018 Industry Survey

We know from our 2018 Product Focus Industry Survey that 20% of respondents are measured by P&L. But respondents ranged from Junior Product Managers to Heads, Directors and VPs of their teams.

Product Focus 2018 Industry Survey – how are you measured?

Product Focus 2018 Industry Survey – how are you measured?

For those that classed themselves as Product Manager or Senior Product Manager only 13% were measured on P&L. And, of course, it’s one thing to be measured on P&L and quite another to own it (and get fired if you fail to meet targets).

Our experience is that P&L responsibility is usually held by people more senior in the business – Business Unit Heads, Directors, MDs and CEOs.

Product Managers should feel responsible

Even if it has not been explicitly assigned, we believe every Product Manager should feel responsible for product profitability.

We buy-into the mini-CEO mentality where as a Product Manager you should view running your product like running a small business within the context of your wider organisation. You bring a product-focused and balanced view supported by a good understanding of all the different aspects of your product e.g. technical, commercial, operational.

True, you’re not in charge of all the levers that can drive success – you probably don’t control development budgets, sales commission plans or marketing spend. But you are fighting for your product and at the very least should know if your product is profitable. And, if there are challenges then you should be taking decisions and making recommendations to the business to drive activity that will get things back on track.

Should Product Managers be responsible for profit?

What people often actually mean with this question is “is the product generating enough income and making sufficient contribution to the business?”.

Product Managers are generally expected to manage their products to hit revenue or other targets. As you can see from the previous graph the most common measurement is ‘measurement by objectives’. That’s because it’s not always about profitability.

The challenge might be getting a strategic product or feature to market quickly that is sold as part of a bigger product or bundle. Individual product or feature profitability may be impossible to measure. And there are times where the challenge might not be about maximising profit but about minimising cost and risk, for example, when you’re withdrawing a product.

Conclusion

So, should Product Managers be responsible for whether their product makes a profit?

We say that at the very least Product Managers are responsible for knowing if their product is profitable. Many Product Managers struggle even at this level as they don’t have reporting for the financial performance of their product.

The next level is being responsible for having a financial model to show how profitable their product is. This is typically the business case spreadsheet. With this they can make sensible decisions on revenue opportunities and understand where the major costs are.

Finally, some may get full P&L responsibility, but for most that doesn’t happen.

Bottom line. If you think your boss would say that as a Product Manager you are responsible for the success of your product, then you can safely assume you should feel responsible for its profitability.

Ian Lunn
Director, Product Focus

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