How to calculate a SaaS product feature's revenue?

The CEO set a target of growing sales for this quarter (improve profit margin). As a PM, I must estimate the revenue per feature while prioritizing features based on the cost of delay. How would I approach the CFO with this? Do I need to talk to anyone else than engineers about this?
Thanks in advance.

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The full impact on revenue isn’t known up front, to start. What you have shows that feature X most likely will have the same impact as feature Y, but that feature Z most likely will have twice the impact of feature X based on your intuition and some statistics.

To prioritise features using Fibonacci numbers within the WSJF framework, we make the best assumptions possible (as in planning poker).

We just have to realize that even though we are planning with the best of our knowledge, neither perfection nor realism will be achieved. The basic presumption is that all of our guesstimations are inaccurate and will be prejudiced equally.

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Estimating revenue for a SaaS product feature can be a challenging task, but it can be done using the following steps:

  • Determine the target audience: Find out who the SaaS product feature’s target market is. Both current and potential new clients may be mentioned here.

  • Find the value proposition: Find the feature’s value proposition. What advantages does it offer clients? How does it fulfil a need or address a problem?

  • Calculate the size of the target market in terms of both the possible number of clients and the amount of income that might be made.

  • Decide the cost: Establish the cost of the SaaS feature. Take into account elements like the value it offers, the competition, and the readiness of people to pay for it.

  • Calculate the adoption rate: Calculate the SaaS product feature’s adoption rate. This may be based on previous information, market analysis, or other elements.

  • Compute the revenue: To calculate the potential revenue that the SaaS product feature could produce, multiply the pricing by the adoption rate and the market size.

  • Revise the estimates: Adjust the estimates in light of client input, market developments, and other elements.

These procedures will help you determine how much money a SaaS product feature might be able to bring in. It’s crucial to keep in mind that these estimations are just that—estimates. Several variables may affect actual revenue, therefore it’s critical to continuously review and modify your projections as necessary.

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As a PM, you would interact with the CFO to discuss the financial aspects of the product and its features, including revenue projections, cost of development, and profitability. Here are a few tips for working with the CFO:

  1. Schedule a meeting: Request a meeting with the CFO to discuss revenue goals and the financial impact of the features you are prioritizing. Make sure to provide an agenda in advance so that the CFO can prepare accordingly.
  2. Discuss revenue projections: Share your revenue projections for each feature with the CFO and be prepared to explain your methodology and assumptions. Discuss any potential risks or uncertainties that could impact the projections.
  3. Discuss development costs: Discuss the cost of developing each feature with the CFO and be prepared to provide a detailed breakdown of the costs. This will help the CFO understand the potential return on investment for each feature.
  4. Discuss profitability: Discuss the potential profitability of each feature with the CFO. This will help you prioritize features that have the greatest impact on the bottom line.

In addition to the CFO and engineers, you may also want to discuss the features with other stakeholders such as sales, marketing, and customer support teams. They can provide valuable insights into customer needs and help you prioritize features that have the greatest impact on customer satisfaction and retention.

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First of all revenue and profit are not the same thing. Regardless, as a PM you prioritize based on greatest value at least cost.

Since the metric you’re looking for is revenue, you should assign each feature a quantifiable revenue you expect to generate for each feature. You could do the ‘cost of delay’ way, but that makes more sense when every day of delay is costing the company money (not just opportunity cost, but actually losing the company money).

You should talk to engineers to estimate the effort or complexity of these tasks.

You as a PM have to think of the value piece, you may need to ask the right people to get certain pieces of info, but you need to quantify the metric for value.

An example on my product: Helps customers book appointments themselves instead of calling in. From asking the business, they estimated each call costs the company $10. So if my feature makes 100 more customers book an appointment instead of calling per month, we might save $1000 per month.

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I’m curious how they came up with $10/call. Is that just average time on phone x wage?

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Not sure how they did it, but certainly average time per call * average cost of employee/hr would make up a big chunk of it. Other expenses like infrastructure (phone charges, equipment, etc.), the cost of training those working in call centers, and managerial expenses would also be taken into account (cost of their managers).

The expense of an employee, including benefits, office space, office supplies, etc., would exceed the employee’s wage by about 60 to 70%.

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Never heard of WSJF or Fibonacci numbers.

Was a good read on google and something I can use. Thanks.

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WSJF (Weighted Shortest Job First) and Fibonacci poker are two techniques commonly used in Agile project management for prioritizing features and managing product backlogs.

WSJF is a prioritization model that helps teams prioritize work items based on their economic impact. It takes into account factors such as the cost of delay, the size of the opportunity, and the level of risk. By using this model, teams can prioritize work items that have the greatest potential to deliver value to the business. WSJF is often used in large organizations with complex portfolios and multiple teams.

Fibonacci poker is a consensus-based approach for estimating the relative effort or size of a task or feature. It is based on the Fibonacci sequence (1, 2, 3, 5, 8, 13, 21, etc.), which assigns a point value to each task or feature based on its relative complexity. This approach helps teams avoid getting bogged down in debates over the specific effort required for each task or feature and encourages them to focus on the relative effort involved. Fibonacci poker is often used in Agile environments for estimating and planning work.

Both WSJF and Fibonacci poker are Agile techniques designed to help teams prioritize work items and manage product backlogs in a more efficient and effective way.

Hope that helps you understand the terms better.