Quantifying product value and return on investment (ROI) is critical yet challenging for product managers. It’s easy to make vague claims about how a product will create value, but substantiating those claims with hard data is much more difficult. However, quantifying value is essential for several reasons: securing investment and resources for development, demonstrating market viability, convincing customers to adopt, and winning over executives. Techniques like developing ROI case studies can help, but have limitations.
This article will explore methods for quantifying product value, steps for building ROI case studies, and effective presentation approaches to convey value in compelling ways.
Quantifying Product Value
There are several dimensions on which products can create quantifiable value:
- Financial impact – Increased revenue, higher profit margins, expanded market share
- Strategic impact – Helps achieve key business goals like entering new markets
- Customer impact – Drives adoption, retention, satisfaction, loyalty
- Competitive impact – Provides differentiation and defendable advantage
Quantifying value is challenging because it’s difficult to isolate the product’s direct impact across these dimensions. Companies need to identify the right metrics and have processes to collect reliable data, which takes time and effort. Qualitative benefits are also hard to quantify.
Common metrics used to quantify value include:
- Sales leads generated
- Product engagement and usage
- Conversion rates
- Customer churn/attrition
- Net Promoter Scores
- Payback period
- Internal rate of return
For example, an ecommerce company released a new recommendation engine that increased conversion rates by 5%. By tracking revenue-per-conversion before and after launching the new engine, they quantified the financial impact.
The goal is to identify metrics that directly tie to one or more value dimensions, and can be clearly attributed to the product itself. But this remains challenging, requiring product managers to make assumptions and estimates.
Building ROI Case Studies
ROI case studies aim to quantify the monetary return generated by a product, using real data before and after launch. The steps include:
- Identify 3-5 key benefits the product delivers
- Determine appropriate metrics that connect to those benefits
- Collect baseline data before product launch
- Collect data again after launch for comparison
- Isolate the product’s direct impact on metric changes
- Calculate ROI using revenues, costs, and projections
For example, an enterprise collaboration tool promises to improve employee productivity. Metrics could include time-to-completion on key tasks and output per employee. Baseline data is collected on those metrics. After launching the tool, the same metrics are compared to quantify changes. The ROI is calculated using the value of productivity gains.
Other examples of ROI case studies:
- Increased sales conversion rates after launching a new self-service buying journey
- Faster deal cycles due to sales automation tools
- Reduced customer churn attributed to a new loyalty program
- Decreased customer support costs with virtual agents
To calculate ROI, identify annual benefits, factor in costs, and divide net benefits by costs. This can be done for past periods with real data, and future periods through forecasts.
The main challenges with ROI case studies are properly isolating the product’s impact and selecting metrics that clearly link to benefits. It requires making assumptions on attribution and projections.
Presenting Value
Effective ways to present quantified product value include:
- Results-focused presentations leading with key data points
- Interactive ROI calculators allowing users to adjust assumptions
- Customer success stories and testimonials that humanize the data
- Compelling data visualizations like charts, graphs, and illustrations
The presentation should be tailored for different audiences:
- Leadership wants to see strategic value and revenue/profit impact
- Finance is interested in ROI, payback period, margins
- Customers care about benefits specific to their role
Examples of effective data visualizations:
- Charts showing lifts in conversion rates, sales, or other key metrics
- Heatmaps demonstrating product usage and behavior
- Sparkline trends displaying metric changes over time
- ROI curves mapping benefits vs. costs over time
- Cost-benefit breakdowns comparing value to investments
Visual storytelling and persuasive presentation design is crucial to convey the data effectively. Frameworks like Dave McClure’s AARRR funnel can demonstrate how a product delivers value across key phases of the customer journey.
The goal is combining quantitative data with compelling narrative and visuals. This brings dry numbers to life and drives home the product’s value and ROI in memorable ways.
Conclusion
Quantifying product value and ROI is critical for product managers, but also fraught with challenges. While techniques like ROI case studies can provide supportive data, they rely on assumptions and have limitations. The metrics may not fully capture the product’s total economic impact across all dimensions. However, even imperfect value quantification is better than none.
Product managers should make quantifying value a priority in their process, while recognizing the inherent difficulties. ROI case studies can be directionally useful, but need to be combined with other techniques like A/B testing and experiments. No single method will reflect the full picture.
Presenting the value in compelling ways is just as important as quantifying it. Striking visuals, customer stories, and interactive tools create stickiness and appeal for diverse audiences, from executives to end users.
In conclusion, quantifying and conveying product value requires creativity and rigor. But the effort pays dividends in securing stakeholder support, winning customers, and driving growth. Product managers should embrace value quantification as an ongoing journey, not a one-time event, to maximize their product’s impact.