Product leaders frequently ask me how they should measure and motivate their product team members. Traditionally, product teams are measured on revenue and dates, so if a company hits its numbers within a specific timeframe, then members of the product team will continue to earn their paychecks. But what happens when product leaders want a more precise and individualized way to incentivize their product teams? What steps should they take?
I recently spoke with several product leaders who were looking for guidance on setting meaningful objectives for their product teams. “How do I measure my product managers?” they asked. “I know we need to watch revenue and retention rates, but how do I combine everything into a plan that helps the team focus on achieving relevant measurements of success?”
I’ve identified three types of metrics to help product leaders manage by objective (MBO) as they evolve their teams. These metrics work to help product leaders focus on prioritizing their product requirements based on market impact, which in turn helps them assess the outcome of everything they do. By focusing on these components, it also helps train a team to ask, “If we focus on doing that, will it actually drive demand for our product?”
1. Measure product teams by how they run their product like a business.
When they think about their products and what to focus on, many teams concentrate on execution, especially tactics, features, and deliverables. But we need to incentivize them to think about their products more strategically rather than think about the next set of features. This strategy includes how to drive product demand and whether to measure success by revenue, retention, or usage rates. Setting objectives will help teams focus on what success really means for their product and crossing the finish line.
A common metric is revenue by product. It should be based on the product’s gross margin—not net margin—because product teams usually don’t control everything that goes into running a business.
But for some product teams, crossing the finish line might not involve charging to use the product. Instead, it might involve driving up logins and usage rates for solutions used by employees as customers. It may also be important to look at product market share and more granular metrics, like retention rates, especially for multi-year renewals or net-new customers acquired in key segments. It’s important to know what to keep an eye on to understand how well your product is doing.
2. Tie the five P’s to success.
Though marketing has long recognized four P’s (product, price, place and promotion), at Pragmatic Institute we advocate adding a fifth P, problems, to the top of the list, as the other four P’s ultimately don’t matter unless you are solving a market problem.
The five P’s build on the first metric—running your product like a business—as you need to demonstrate how one or more of them will help drive success. For example, what problems do you need to focus on, to whom will you deliver solutions to those problems, and what will you do to solve those problems? How will that drive the success metrics? If it’s product, price or place, how do they link to the success metrics?
By linking the five P’s to your team’s individual success metrics, you help them focus on success in the market, instead of just focusing on which features are coming out and when each release will be launched.
3. Help them become market experts.
Becoming more market-driven requires spending time outside the office. If you are building, expanding or refocusing a team to be market-driven, consider where you are in that process and how to incentivize team members to get out of the office. As a leader, you must encourage and incentivize your team to leave the building and conduct interviews with the market, and that means evaluators and potentials as well as customers. I think ideally your team members should be doing 12 to 15 visits per quarter. These visits are key to the team becoming market-driven.
In addition to these visits, look at the product’s positioning documents and when they are created. Are they created upfront, before development starts, so that the product leader can drive development? Tying the creation of a positioning document with a target milestone that development has agreed to will help raise the bar on the way the team thinks about these documents.
Positioning documents are also helpful for driving your collaboration with marketing and sales. Make sure that the problem development is focused on also appears in the sales script and training tools. That way, when the sales team begins to sell new product capabilities, they will be prepared to discuss the problem your product can solve, rather than simply itemizing product features.
Incorporating each of these three metrics will help create MBOs that continue to evolve your team’s culture, moving them closer to a complete understanding of the market and being able to act as the voice of the customer.
No one will use each metric in every situation. For example, if your team has an engineering focus and needs to become more market-driven, you will want to implement outside visits and win/loss interviews. However, the metrics will differ if your team has a good base of market data but needs to focus more on prioritization and driving awareness of the problem to development, sales and marketing.
Regardless, if you intend to run your product like a business, your team must learn to connect the dots. These metrics will help incentivize your team to think about what needs to be done to drive revenue.