Product Managers and Product Owners frequently have to balance market needs, user experience, customer outcomes, and technical feasibility. However, the financial point of view in product development is equally important but often gets overlooked.
People who own or manage a product are often not fully equipped to handle the financial aspects of product development. To overcome this challenge, product managers and owners must engage in the financial decision-making process proactively. While they don’t need to be financial experts, having a good understanding of the financial landscape is essential. Product managers can make more informed decisions by gaining insight into their product's financial performance.
In this blog post, I will focus on managing a product's financial perspective. To see more on customer value, please visit my other blog posts.
Financial Lifecycle
The financial lifecycle in agile product development is an ongoing, adaptive process rather than a fixed, one-time plan.
In my experience, most large, traditional-led organizations fear dynamic budgeting. This fear is often rooted in the comfort of predictability that traditional budgeting offers. Fixed budgets provide a sense of control, ”predictability” and certainty, allowing organizations to plan their financials for the year. However, this approach often limits flexibility and responsiveness in today's rapidly changing, complex and unpredictable markets.
For organizations with deeply rooted traditional financial processes, dynamic budgeting could lead to financial instability, misalignment with fiscal reporting periods, or difficulties justifying changing budgets to leadership and stakeholders.
Yet, this reluctance overlooks the inherent benefits of dynamic budgeting.
Dynamic budgeting allows the teams to adjust real-time funding in an agile setting, making sure investments are directed toward high-value solutions (including customer value). For example, instead of sticking to a pre-set budget for a year-long project that may no longer be relevant in six months, agile teams can reallocate budgets based on sprint results, customer feedback and their desired experience (outcomes) or changing market conditions. While this might seem risky to traditional organizations, dynamic budgeting allows companies to pivot quickly, ensuring that people’s skills, creativity and money are not wasted on outdated or unwanted solutions.
Overcoming the fear of dynamic budgeting often requires organizations to adopt a mindset shift—moving from seeing the budget as a static control tool to seeing it as a flexible framework that adapts alongside the product. Visualizations, measurable strategic and product goals, and frequent inspections can provide more “sense of control” in uncertain environments.
For example: A product team allocates $100,000 for a feature, but after customer feedback in early sprints, they decide to redirect $30,000 to a more valuable enhancement, reflecting adaptability.
Outcome-Oriented Financial Planning
Instead of focusing solely on fixed cost estimates, teams should align budgets with expected customer outcomes, ensuring funding prioritizes the most valuable and customer-centric features.
For example: A team working on an e-learning platform might tie part of their budget to increasing the course completion rate. The team focuses on features that improve learning retention. If these features help users complete courses faster or with higher success rates, funds are reallocated to optimize the learning experience further, making sure financial decisions are directly aligned with desirable customer outcomes like higher completion rates or improved engagement in the learning process.
Financial Metrics
Here are some financial metrics that I use in real-world applications in organizations.
Return on Investment. ROI is one of the most critical financial metrics in product management, as it measures the financial return relative to the cost of the investment. This is particularly important in agile organizations since teams work iteratively, and each sprint should ideally deliver features that contribute to the overall ROI (and customer value, obviously).
For example: A team investing $100,000 in a new feature might expect that feature to generate an additional $600,000 in revenue over the next year. If the feature generates only $200,000, the ROI falls short of expectations, indicating the need to re-evaluate whether further investment is warranted.
Market share. Agile product management should also focus on increasing market share, particularly in competitive industries. Market share reflects a company’s percentage of total sales within a given market and provides a long-term view of how a product performs relative to competitors. This metric can influence financial decisions about where to invest.
For example: If a team launches a new product feature and tracks a 2% increase in market share after its release, they may decide to allocate more funds to developing complementary features that could further capture competitor customers. Conversely, if market share stagnates, it may indicate that different investments are needed to stay competitive.
Revenue. Revenue is an immediate financial indicator that shows the direct impact of a product or feature on a company's top line. Agile teams should frequently assess how each new increment or release affects revenue generation. Revenue is particularly important in agile environments where frequent/continuous product releases and updates offer opportunities to improve profitability continuously.
Cost. Tracking costs is necessary to make certain that product development remains financially viable. Agile teams should constantly monitor the cost of development, including team costs, infrastructure, and third-party services.
Cost of Delay is a powerful metric in agile product management that helps teams understand the financial impact of not delivering a product or feature on time. It represents the opportunity cost of delaying a feature release, which could include lost revenue, missed market opportunities, or diminished customer satisfaction.
Depending on an organization, product portfolio or product, I also consider these metrics to be helpful. See the following examples below:
- Customer Acquisition Cost
- Customer Lifetime Value
- Gross Margin
- Net Present Value
- Profit Margin
- Churn
- Revenue Per Customer/User
- Revenue Per Employee
- Operating Expenses (OPEX)
- Capital Expenditure (CAPEX)
- Free Cash Flow
- Economic Value Added
- Total Cost of Ownership (TCO)
Remember that the specific financial measures used in your organization may be different. I provide you an overview to help you compare and evaluate the financial measures most relevant to your product and business objectives.
Managing Financial Risk
Financial Risk Management: Agile embraces uncertainty, therefore teams must continuously review financial risks as part of their iterative processes. Risk management should include identifying potential cost overruns and creating backup plans.
Example: During a product's development, a team discovers that integration with a third-party service will be more expensive than anticipated. They can adjust their sprint budget and reorganize, they might make efforts toward reducing the impact of the additional cost.
Contingency Budgeting: Agile teams, especially Product Owners/Product Managers, might maintain a financial buffer to handle unexpected expenses, enabling quick course corrections without disrupting the overall budget.
Example: A product team working on a mobile app sets aside 10% of its budget to cover unforeseen technical challenges or additional user research/experimentation that may happen.
Financial Transparency and Communication
Visualization and a shared space for measurement. I would suggest keeping all important metrics on the same board. Visualization helps make informed decisions. Effective visualization of these metrics makes it easier to identify trends and define actions based on actual data. See the example below:
The most effective approach is consolidating and visualizing all Evidence-Based Management (EBM)* Key Value Areas and metrics on a single board. This allows stakeholders and teams to collaborate using the same data, ensuring alignment and having informed discussions. All the key measures shown in one place, help everyone see the broader picture, track progress toward goals, and make decisions together. See the example below:
Value-Driven Reporting: Agile teams should report financial performance in terms of value delivered, not just dollars spent. This helps stakeholders see the direct impact of each sprint on the company’s bottom line.
Example: Instead of reporting, “We spent $50,000 in the last quarter,” a Product Owner communicates, “We delivered three key features that are expected to increase user engagement by 20%, contributing an additional $80,000 in projected revenue.”
Stakeholder Alignment: Keep your stakeholders informed with regular updates on financial health and progress, trust and alignment between financial goals and product outcomes.
Example: During Sprint Reviews, the team highlights how the latest feature aligns with financial targets and customers’ desired experience, giving stakeholders confidence that the product is delivering value both functionally and financially.
Flexible Product Backlog Management with Financial Focus
Items Order Based on Financial Impact (and do not forget about Customer Value! You need to balance both). The Product Backlog Items are flexible in agile product management, but financial considerations should always inform decisions. Teams must consistently balance the costs and expected returns of each feature.
For example: Two features are up for consideration. Feature A costs $30,000 but is projected to increase revenue by $100,000, while Feature B costs $50,000 but has a similar projected revenue. Feature A gets a higher order due to its higher ROI.
Incremental Funding and Iterative Value Delivery. Agile teams often release products or features incrementally, allowing for quicker revenue generation. This iterative approach spreads the financial impact over time, reducing upfront risks.
Foe example: A team releases an initial version of their software after three sprints. By charging early users a lower subscription fee, they generate revenue that can be allocated into future feature development (hopefully not “featurosis”**).
Conclusion
Managing finances is a crucial part of agile product management and should never be omitted or diminished even if a Product Owner or a Product Manager is unempowered. By staying flexible with budgets, focusing on financial impact, and keeping everyone informed (create transparency!), Product Owners or Product Managers can handle uncertainty while delivering valuable products to customers. Using financial metrics with agile principles and practices helps both the product and the business stay healthy.
---------------
* More on the EBM: https://www.scrum.org/resources/evidence-based-management-guide
** More on “featurosis”: https://youtu.be/4kJoH-iMUQc?si=Cks9WjH4-P8TQIr4
Special thanks to Patricia Kong for reviewing and providing insights.