Product Feature ROI: A Fool’s Errand?
If you’ve ever been asked to produce a product feature ROI, you know what a mind numbing exercise it is. In most cases it’s a fool’s errand. Here’s the deal: most products and features are usually integrated and target the same markets and same customers. If that’s the case, think about how much additional revenue you can generate in each market segment by increasing the business value via additional features. While it’s easy enough to estimate the cost of building features, there’s simply no practical way to determine the revenue impact at that level of granularity. The Playbook: Go macro on your feature ROI:
Four Steps to Simplify Feature ROI
- Group features into buckets based on the customer business goals they support, e.g., employee engagement, customer experience, regulatory compliance, differentiation etc. Some features will land in multiple buckets which usually means they have higher value.
- Estimate the additional revenue you’ll generate in each vertical market segment by eliminating additional obstacles to those customer business goals with the new features.
- Estimate the revenue you’d lose (existing customers and new accounts) by not eliminating those obstacles.
- Add the incremental revenue you’ll get with the new features plus the revenue lost if you don’t deliver them, and divide the total by the cost of developing the new features. That’s your ROI.
Your product plans should always focus on eliminating the biggest obstacles that prevent your customers from meeting their business goals. The value accelerator kicks in when those business goals and obstacles are common across multiple market segments. If your proposed R&D investments map to the most critical business goals of your target customers (80/20 rule) the feature ROI exercise becomes relatively simple, as long as you do it by market segment and do it across your portfolio, instead of product by product and feature by feature.
If you want to elevate product management to a more strategic level where feature ROIs are not required to quantify market value, sign up for one of our Product Management Courses and learn how to lead more than react.
by John Mansour on October 14, 2021.