Bridging Product & Profit

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The day I was laid off as a product manager is etched in my memory. It was a visceral blow, the kind that leaves you breathless and questioning everything.

After three years dedicated to the company, the news came without warning.

I had successfully navigated product launches, led teams, and enhanced user experience. Yet, these accomplishments proved insufficient when I was told my role was being eliminated.

I believed I was excelling. My strengths lay in collaborating with engineering, optimizing UX, and implementing agile methodologies.

However, I lacked a critical understanding of the commercial aspects of the business.

Specifically, I failed to fully grasp how to translate product features into profitability.

Ultimately, this deficiency led to my departure.

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About the Commercial Side

The conversation with my boss began with praise: 'Your design skills and ability to connect with developers are valuable assets.'

But my optimism quickly faded when she added, 'As we scale, we require a product manager who understands monetization and the financial implications of product decisions on revenue, COGS, and expenses.'

'We need product managers with a strong 'commercial side' to their skillset.'

That's when the importance of the 'commercial side' of product management became clear—something I had previously dismissed as corporate jargon.

I had overlooked the fundamental principle.

The 'commercial side' means that product managers must approach decisions with an owner's mindset, not just a builder's.

Technical expertise and design acumen are insufficient. Without a firm grasp of financial metrics—profit, loss, unit economics—we're only fulfilling a portion of our responsibilities.

Costs of Goods Sold (COGS)

Consider, for instance, COGS—'Cost of Goods Sold'—which essentially represents the true cost of bringing a product to market.

Initially, I believed COGS encompassed fundamental expenses such as development, server infrastructure, and hosting. However, my layoff revealed a more comprehensive reality.

Previously, I considered my role complete upon feature release. Now, I recognize that every decision bears a cost—a cost that directly impacts the company's financial stability.

While COGS may seem like the exclusive domain of the finance department, that was my critical error.

A lack of awareness regarding your product's cost structure means you're neglecting a vital aspect of your role. We must ensure that our creations are not only embraced by users but also economically viable for the business.

Monetization

Monetization is the strategy for converting features and user value into financial gains. This involves selecting a pricing model—subscription, one-time payment, freemium, or ad-supported—and exploring diverse revenue streams, such as premium features, in-app purchases, in-app advertising, or strategic partnerships. Other options include affiliate marketing, sponsorships, bundling your product, the "user is the product" model (though this requires careful attention to data privacy), and even crowdfunding.

As I discovered through experience, a product's failure is inevitable if users dislike the pricing, regardless of their affinity for the features. Similarly, a product that generates revenue without delivering value drains resources.

A product manager must balance these elements to ensure the success of both the product and the business.

Expenses

Expenses encompass the ongoing operational costs of the business, including salaries, marketing expenditures, and even office rent.

I previously regarded these as peripheral costs or mere figures within a financial report. However, I came to realize that these numbers should drive every product-related decision.

The seemingly abstract figures on a balance sheet are directly relevant to product management because they impact the fundamental viability of the company.

I learned to consider the impact of every decision on our overall profitability, rather than focusing solely on features and timelines. A failure to account for expenses—to assess whether we were operating efficiently or overspending—indicated a limited understanding of the product's long-term success.

Building a product that resonates with users is insufficient if its costs exceed its revenue. In such a scenario, we are simply depleting our financial resources.

Revenue Outcomes

As my boss presented these business concepts, I maintained a composed facade. However, inwardly, I was in turmoil, realizing that I had not thoroughly considered many of these factors.

I was internally deconstructing my approach. I had focused heavily on outputs—screens, features, designs—while neglecting the other half of the equation: the outcomes.

Specifically, I had overlooked the crucial revenue outcomes, which are directly linked to the financial performance of the product. Revenue is the total amount of money a business brings in.

If a feature does not contribute to revenue generation or cost reduction, its value is questionable.

As she spoke, the realization dawned that I had been misinterpreting my role.

Being Technical and Creative Is Not Enough

The realization struck me forcefully. I had approached my role as primarily technical and creative, which seemed logical given my background.

With a computer science degree, I gravitated towards my strengths: technical skills, problem-solving, and developer communication. These skills were my entry point, and I believed they were sufficient.

However, product management extends beyond building and designing innovative products. It involves propelling the business forward.

My overemphasis on the technical aspects overshadowed the equal importance of understanding the financial implications of my work.

Profit and Loss (P&L)

My boss continued her explanation, each word resonating more deeply than the last. While acknowledging my strengths, she emphasized the need for a product manager who could drive revenue and possess a comprehensive understanding of our P&L—Profit and Loss.

Upon hearing "P&L," I feigned understanding, while inwardly, I was discomfited. I had always perceived P&L as the domain of "commercial" teams: sales, marketing, and finance.

It had not occurred to me that I, too, was part of that "commercial" function.

In my product work, I had neglected to consider pricing, revenue generation, and cost analysis. I failed to ask these questions, assuming they fell outside my purview.

Profit and Loss is a calculation of income versus expenses. Profit represents earnings, while loss represents spending.

Consider P&L the lifeblood of a business.

Therefore, P&L ownership is a collective responsibility across all business functions, including product management.

While seemingly straightforward now, I recognize that I was previously unaware. This realization was profoundly unsettling.

Reflecting on What Went Wrong

In the weeks following my termination, a profound sense of failure consumed me as I contemplated my missteps. I had invested significant effort in my role, only to discover a critical oversight.

I obsessively replayed past conversations from meetings with sales, marketing, finance, and leadership. They discussed revenue, margin analysis, and key financial metrics such as EBIT and Gross Margin.

And I was merely present.

I regarded my attendance as a formality, assuming my role was limited to addressing product-related inquiries—perhaps regarding design or specific features.

However, I was not actively participating. I failed to correlate those financial metrics with my work. Looking back, I recognize the extent of my oversight in those conversations.

Mere reflection was insufficient. I needed to thoroughly investigate the financial aspects I had neglected. I then started to educate myself.

EBIT and Gross Margin

I continually recalled those meetings with finance and sales, where financial figures were discussed, and I remained disengaged. It is now embarrassing to acknowledge that I regarded metrics like EBIT as solely "finance-related" and disconnected from my product responsibilities.

In reality, EBIT (Earnings Before Interest and Taxes) and Gross Margin are fundamental to the business aspects of product management .

EBIT reveals the core operational earnings of a product, independent of debt and tax considerations. Gross Margin indicates the percentage of revenue remaining after covering the cost of goods sold (COGS).

A high gross profit margin indicates effective management in generating revenue relative to the costs involved.

This realization was illuminating. Suddenly, I understood the interconnectedness of monetization, revenue, COGS, and expenses, which together paint a comprehensive picture.

I realized that without understanding the profit generated from each sale (revenue) and the costs associated with generating those sales (expenses), my comprehension of the product's overall performance (revenue and COGS) was incomplete.

This understanding leads to the importance of unit economics, which provides insight into how each sale, customer, and decision impacts the company's financial performance.

Unit Economics, CAC, and LTV

Looking back, I realized that a lack of understanding of unit economics prevented me from connecting my decisions to the company's financial performance.

Unit economics taught me to examine the costs and revenues associated with each customer or product unit.

It involves asking, "What is the cost of acquiring a customer?" This is Customer Acquisition Cost (CAC). And then, "What is the predicted revenue generated by a customer during their relationship with the company?" This is Lifetime Value (LTV).

CAC represents the cost of acquiring each new customer. Every dollar spent on marketing, sales, and outreach contributes to this cost. A high CAC indicates potential issues if the revenue generated per customer does not offset that cost.

LTV represents the total revenue expected from a customer throughout their engagement with the product. If LTV is lower than CAC, the business is unsustainable.

Similar to monetization, balancing CAC and LTV is essential. LTV must substantially exceed CAC for the product to be profitable.

By focusing on CAC and LTV, I began to recognize the financial implications of my product-related decisions.

To fully assess a product's revenue-generating potential, one must examine revenue trends over time, leading to the importance of ARR and MRR.

ARR and MRR

Learning about ARR and MRR felt like discovering two essential perspectives for understanding a business's financial trajectory.

Annual Recurring Revenue (ARR) indicates the predictable revenue expected from subscriptions over a year. ARR is best suited for companies that sign most customers to a term of at least one full year. The formula for ARR is: Annual subscriptions + additional ongoing revenue – cancellations = ARR. It provides insights into a product's long-term prospects and aids in planning for growth .

Monthly Recurring Revenue (MRR) tracks monthly income. It represents the predictable income generated from active accounts on subscription-based payment plans. The formula to calculate monthly recurring revenue (MRR) is equal to the average revenue per account (ARPA) multiplied by the total number of active accounts for the given month: Monthly Recurring Revenue (MRR) = Total Number of Active Accounts × Average Revenue Per Account (ARPA). This short-term view reveals customer retention rates and the effectiveness of customer acquisition efforts.

Tracking ARR and MRR allows you to monitor a company's financial health, predict future revenue, and identify potential problems early on .

These metrics provide a roadmap. Without them, product decisions would be uninformed. ARR and MRR connect product decisions directly to financial outcomes.

Understanding these metrics provided a clearer financial picture and illuminated the reasons for my job loss.

This realization motivated me to address the gaps in my knowledge by seeking guidance from others who had navigated similar challenges.

Margin Analysis

One of my initial calls was to a former colleague, a Senior VP at a SaaS and PaaS company, who offered candid advice rather than mere sympathy.

He stated, "Product management goes beyond sprints and releases. Product is about running a business, but tech-focused individuals often learn this too late. You must consider the margins."

Feeling inexperienced, I inquired, "Margins?"

"Margins reveal the profitability of each sale after accounting for all costs. Low margins can result in minimal profit, even with substantial sales volumes."

He explained that product managers at his company were responsible for their product's P&L, collaborating with finance to assess the impact of new features, product launches, and pricing adjustments on profitability. Finance product managers orchestrate the lifecycle of Fintech products from discovery to launch. As a finance product manager, you are at the heart of a product's success.

I was unaware of the expected financial involvement of product managers.

Go-To-Market Strategy (GTM)

My colleague then steered the conversation toward another crucial aspect.

'Have you given thought to your go-to-market strategy?' he inquired.

As before, I had typically left that to the sales and marketing departments.

He stated, 'A GTM strategy isn't something to delegate. It's the intersection where the product you've built connects with the customers you aim to attract.'

'GTM is a comprehensive strategy, not just a launch date and some advertisements. It involves understanding your customers, the rationale behind targeting them, and the distinct benefits they'll derive from your product.'

This highlighted that a GTM strategy serves as a roadmap for introducing the product to the market. It blends timing, customer insight, and messaging to establish market dominance.

Reflecting on my role, I recognized that a stronger understanding of pricing structures, distribution methods, and sales support tactics would have enabled me to contribute more meaningfully.

'In SaaS, distribution is paramount. Ensure that your platform can scale and integrate with partners or alternative channels to broaden your product's reach.'

He added, 'It's not as simple as 'build it and they will come.''

This discussion underscored the necessity of considering the entire lifecycle, from initial development to customer adoption.

It went beyond sprints or feature enhancements, requiring long-term, strategic thinking that encompassed everything from margin analysis to market influence. A GTM strategy includes a target market, messaging, distribution channels, and metrics.

CapEx and OpEx

I paused, consulting my notes, and asked, "How do CapEx and OpEx specifically factor into a go-to-market strategy? I understand their financial significance, but what direct impact do they have on a GTM?"

He replied, "Every GTM decision – pricing, partnerships, scaling – carries real costs. CapEx and OpEx illuminate these expenses."

"CapEx represents major, long-term investments like new features or infrastructure enhancements that enable your go-to-market efforts."

"OpEx covers the day-to-day costs of executing your GTM, including salaries, maintenance, and marketing."

This clarified that a successful GTM involves not just launching a product, but strategically allocating CapEx to drive growth and balancing OpEx to ensure efficiency.

Learning and Putting the Pieces Together

As I reviewed my notes, everything began to fall into place. CapEx and OpEx were not merely financial terms; they formed the foundation of a go-to-market strategy that could yield tangible results.

The roadmap became evident—a development and financial pathway that linked every step, from understanding user needs to the moment the product reached the customer.

With product manager interview opportunities approaching, my motivation to prepare with my newfound knowledge surged.

I immersed myself in learning, studying P&L statements to grasp how revenue and expenses were tracked. I compiled resources on revenue forecasting to understand how to predict future earnings based on current product performance.

Every product decision I considered—whether launching a new feature or entering a new market—had a direct impact on EBIT, Gross Margin, and ultimately, the company's profitability.

The pieces were finally coming together.

The Job Interview

After months of dedicated study, mentorship, and financial education, I felt prepared to re-enter the job market.

I applied for a product management position at a startup, approaching the interview with a new mindset.

Rather than simply detailing my experience with team management and feature launches, I aimed to demonstrate my understanding of the financial aspects of product management. I emphasized balancing user needs with financial objectives.

During the interview, when the founder inquired about my approach to launching a new feature with significant development costs, I articulated my strategy.

"First, I'd evaluate the costs by categorizing them as CapEx or OpEx," I explained. "Differentiating between long-term investments and daily operational expenses allows for a clear understanding of resource allocation."

The founder nodded and asked, "How would you determine whether it's worthwhile?"

"I'd forecast the potential revenue generated by the feature and assess its alignment with our financial goals," I replied. "Then, I'd analyze the impact on our margins to determine the timeline for profitability."

Leaning forward, he inquired, "What about pricing and distribution?"

"For pricing, I'd consider models that align with our broader strategy, such as a premium add-on, bundled offering, or standalone product," I responded. "For distribution, I'd identify the market channels that would maximize customer reach and engagement."

The founder was intrigued and asked, "What about customer acquisition costs?"

"CAC requires careful management," I stated. "Excessive spending on acquiring new users undermines our return on investment. I'd ensure that revenue per customer significantly exceeds acquisition costs."

The founder smiled and said, "We need someone who truly understands the financial side of product."

Concluding the interview, I sensed that I had made a positive impression.

Just a few days later, I received the job offer.

Be a Strategic Partner to the Business

The layoff was a tough experience, but it exposed a critical gap in my skillset.

Though challenging, learning these lessons was invaluable. It transformed me into a stronger product manager and a true strategic partner to the business.

Today, I understand my role extends beyond building and maintaining products. Companies need more than that.

They need product managers who understand the financial bottom line.

When we can hold both the product and financial perspectives, we build products that generate revenue.

In a way, being forced to develop a "commercial side" as a product manager came at the right time.

Now, I don't just build products – I build profitable businesses.