How Much is a Product Manager Worth?
Does evaluating your effectiveness as a product manager seem like a complex, and perhaps even elusive, task?
Whether you’re intrinsically motivated to evaluate your skills as a product manager or gathering evidence of your superior performance to your employer (or even adding some clout to your resume before submitting for another position), you have data on your side.
Here’s where you start:
Regardless of your motivation, there are succinct and effective strategies developed by practitioners and authors in our field, to guide you in this task.
Practitioners such as Jock Busuttil, an experienced product management consultant, author and startup mentor, contend that in order to evaluate your success as a product manager, you need to consider your effectiveness in the following areas:
- Communication
- Idea development
- Roadmapping and planning
- Launch
- End-of-life
These areas form the basis of many product management Key Performance Indicators (KPIs).
Busuttil, along with others including Marty Cagan of the Silicon Valley Product Group, states that it is essential for product managers to recognize the fluidity of their work, and the ways in which product managers work as a sort of ‘oil in the gears’ of an organization, without which the business would ostensibly fail to reach its full potential.
So how much is a product manager worth to a company?
Nils Davis, a field professional with over 20 years of experience, contends that, “a good product manager is worth between $5 and $10 million in annual product revenue.”
He reached this conclusion by using a formula to determine that the normal ratio of development resources to revenue is approximately one developer per $1 in revenue. The normal ratio of product management to development resources is one product manager per 5-10 developers, Davis said. He posits this as a challenge to product developers, asking, “are you worth $5-$10 million a year?”
If you’re not sure how to evaluate your worth in these high terms, Marty Cagan offers an easy to use tool to help determine the answer to Davis’ question, and to help you to improve where necessary. He calls this tool a “product scorecard,” not to be confused with the “Balanced Scorecard” which Cagan argues is somewhat unnecessarily complex for a majority of teams. He suggests that the scorecard can be used to establish the KPIs that product managers, and the organization as a whole, use in decision-making throughout various aspects of production.
Cagan uses an example of a product manager in charge of high-volume seller solutions for an e-commerce company. Though the company strategy may differ, he states for the sake of example that these high-volume sellers bring the majority of the company’s revenue. This company’s scorecard might look something like this, according to Cagan:
- Average revenue/seller – because we want to encourage sellers to sell more goods
- Average promotional revenue/listing – because we want to encourage sellers to promote their listings as aggressively as possible
- Absolute number of high-volume sellers – because we want to grow the number of high-volume sellers
- NPS of high-volume sellers – because we want the sellers to consider ours their preferred marketplace
So, as Cagan and Busuttil state, though product managers are not in control of certain aspects of the business, it is still the product manager’s responsibility to be invested in every aspect. This means if you’re not satisfied with the customer acquisition strategy, you should work with the marketing department to create a more effective campaign.
Concentrate on the essentials
Cagan’s scorecard can help you to ensure your work is in line with the company’s goals and that you are effectively managing your time on the essentials. If an idea doesn’t align with a KPI, Cagan suggests taking it off of the list. The KPIs should be adjusted to reflect the natural and necessary changes in the business strategy over time.
The best product managers work collaboratively to tackle problems others may not foresee. They’re problem-solvers, and often they work behind the scenes, offering dynamic support to various departments and elements of the business. So whether your role is hidden away or more visible, you are an invaluable asset to your company and you have the power to get paid what you’re worth.
How do you evaluate your own success, and your worth as a product manager? What sorts of KPIs do you consider? Let us know in the comments or you can Tweet us!
2 thoughts on "How Much is a Product Manager Worth?"
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Many companies assess the success of their product manager(s) on the basis of the success of their products. This seems like a good idea, except that in many companies, particularly those with a sales team, the success of the product is not just dependent on the ability of the product manager, but on how effectively other groups of people are at their own jobs. While the product manager has influence (hopefully) over the sales team, in my experience it’s rare that control over sales incentives and strategy sits with the product manager. Usually this responsibility falls to the VP or head of sales.
Once, I had the situation where my product was one of several that the sales team could sell, and whether I liked it or not, I couldn’t force the sales team to sell my product. So of course they sold whatever was easiest for them to earn their commission cheque – namely the products they were more familiar with, even though they were lower margin. Selling those products resulted in lower but safer commission. Of course, this is just one example, I’m certain there a many counter-examples, but hopefully you appreciate my point.
So if the product manager has no direct control over how effectively the product is marketed and sold, I’d argue it’s not a reasonable assessment of their ability to create a successful product if they’re not in control of all aspects of taking that product to market. So in those situations the performance of the product is not necessarily a representative indicator of the performance of the product manager.
Rather, on the assumption that product managers doing the right things will stand a greater chance of successful products, I’d suggest assessing product managers on their ability and success with the activities that are within their direct control: being user-centric, evidence-led, adept at keeping track of both the detail and big picture, and alignment fo their product strategy with the broader organisational goals.
Jock – interesting thoughts! I do want to point out that I didn’t necessarily suggest measuring PMs on their revenue contribution – after all, it’s a very lagging indicator – the things I do today as a PM might not result in significant revenue for six months or more. On the other hand, if you can’t get the sales people to sell your product, that might mean it’s too hard to sell, which might mean it doesn’t solve enough of a problem for prospects that they have an urgent need for it. Or it might mean that you haven’t done enough work on the go to market side to help the sales team position the product to prospects. Or against competitors.
My goal in the article is really to point out that if a company wants to get their money’s worth from a product manager, they have to make sure that all three components of the activity – finding and validating market problems, creating solutions, and taking the solutions to market – are supported, and that the PMs are effective at all of them.