Product Managers – How Do You Measure Their Success?

October 8th, 2009 by Rob Berman Leave a reply »

Product Managers are as different as the products and services that they manage.  However, they are all evaluated based upon their results.

Key Metrics

The first time I managed a profit center as a Product Line Manager I was informed that only three numbers would determine if I succeeded or failed.

The metrics were to meet or exceed:

Let’s take a look at each of these metrics.

Top Line

Most businesses judge their success by the revenue that they generate and hopefully collect. I agree that setting a reasonable revenue budget and achieving it is good planning.

I remember one year I was asked to grow my business 100%.  I achieved 106%.  My expectation was congratulations for exceeding a stretch goal.  Instead, a very senior corporate executive sent word to me, “Is that all you can do?”  I guess my budget was too reasonable.

Bottom Line

Each dollar of revenue is expected to spin off a pre-determined net margin or bottom line. Each incremental dollar of revenue should create a sufficient margin to warrant placing the capital at risk.

Consider two scenarios:

  1. 105% of top line and 95% of bottom line achieved OR
  2. 95% of top line and 105% of bottom line achieved

The lesson I learned was that is was better to make your bottom line or profit goal versus making the top line. Scenario 2 was the better outcome.

Expenses

In some ways, expenses was the easiest metric to achieve.  Fixed and variable expenses when totaled equal total expenses.

“Correct” planning allows us to know what our fixed expenses should be. The wildcard is the variable expenses.  Of course, if revenue is up the variable expenses should be on plan or potentially higher yielding total expenses at or potentially above plan.  If revenues are down the expectation is that variable expenses and consequently total expenses should be down.

The Takeaway

On average, we work 250 days per year and our success or failure can be boiled down to three simple metrics. I have never forgotten those lessons from almost 20 years ago.

That is what I am thinking.  How about you?

  1. Can a product manager really be judged on just these three metrics?
  2. How have you been judged as a product manager?
  3. How do you evaluate your product managers?
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4 comments

  1. salem says:

    what if the fixed target is not in harmony with the market growth, and this create a reduction in my market share.
    i think market share is a very important facture to determine if the product line manager is performing as per the market pulse, higher or lower.
    i welcome any comments on my point.
    thanks

    • Rob Berman says:

      Salem:

      There are shrinking markets and product managers should be judged on the market environment. If you were a product manager for cigarettes or cigars 30 years ago you would have a very different market than today in most countries. I agree the measurements need to be aligned to reality.

      Rob

  2. Thanks for the post Rob.

    How about judging based on whether the product actually solved the market’s problem. This can be determined by win/loss analysis, surveys, etc.

    Ultimately to the extent that a product solves a market problem and the market knows about it, the top and bottom line will increase and marketing expenses will eventually decrease.

    • Rob Berman says:

      Keno:

      Great points. Thanks for commenting. I was illustrating how I was judged in a financial services world in one company. There are competing products as well that can solve the need.

      Rob

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