Updated: April 17, 2023 - 6 min read
With stakeholders, client needs, and business considerations all vying for attention, prioritization is a crucial part of the Product Manager’s toolbelt. In this environment, knowing which features to greenlight can be tricky. Here’s where feature ROI comes in.
What is It?
ROI, or return on investment, is a great starting point to decide whether or not to greenlight a business decision. It’s usually calculated by taking the value of a new initiative and dividing it by the cost, and calculating anticipated and actual ROI can help you refine your sense of how your audience will respond so you don’t waste resources developing unsustainable products. But anticipating ROI for product features is more complicated: it’s difficult to attribute revenue to any one feature of a product, and therefore hard to calculate the specific value a feature adds.
Because of this, we calculate ROI for features through a prioritization system based on feasibility and importance.
When to Use It
This exercise is not meant to decide the end features on your behalf; rather, it’s a tool to use when you have too many potential features to develop at once and you need to clarify priorities. It’s also a great tool for when there’s miscommunication or misalignment on priorities between different departments or team members.
This exercise gives all parties a better shared understanding of the initiatives and how they relate to each other. With these insights in hand, you’ll be better equipped to articulate a strategy that both product development and other departments can own and support. Starting from this point of clarity and collaboration, you can move forward more effectively with strategy.
How Does it Work?
There are seven steps to calculating feature ROI:
Step 1 — Get your team together
You’ll most likely be making these prioritizations with a group of people. Going through the prioritization process together can be a great way to get everyone on board with final decisions and make them feel included in the process. Think about who can share important perspectives from different departments in the organization; members of the marketing or finance team, for example, will have different insights than members of the product development team.
Step 2 — List your initiatives
Then make a list of the set of initiatives that you want to prioritize. Depending on how democratic you’d like to be, you can either select these initiatives beforehand or decide on the list with your selected team.
It’s best to start with the list of items that do not have dependencies because otherwise you might prioritize an initiative above its dependency. If you do want to include items with dependencies, it’s best to consolidate the initiative and the dependency into one item on the list.
Step 3 — Create a table
Then create a table with three columns, and the same number of rows as the number of initiatives on your list. Put the initiatives in the left-hand column. The second and third columns are for Feasibility and Importance.
Step 4 — Create a point budget
Next, create a point budget. The larger the budget, the higher fidelity your results will be. Alternatively, you can give a rating to one of the columns first, and then use the total from this as the point budget for the second column. Regardless of the order, it’s important that the totals for Feasibility and Importance come out to the same number.
Step 5 — Assign feasibility and importance ratings
And now assign a Feasibility and Importance rating to each initiative. With a consolidated initiative (an initiative + a dependency), rate the initiative and dependency separately and then average their scores.
The sum of the Feasibility ratings and the sum of Importance ratings should each add up to the point budget (e.g. if your point budget is 35 the sum of your Feasibility ratings will be 35 and the sum of your Importance ratings will also be 35).
Sometimes it makes sense to divide each of the Feasibility and Importance columns into two columns that you average together: “technical feasibility” and “creative feasibility” and “importance to user” and “importance to the business.” For this approach, simply take the average of those two columns to come up with the total budget allocation for that initiative.
Rating is the most delicate part of this process. Because you’ll be working as a group, it’s best to give individual ratings first and then take the average of these ratings for the final score. This reduces bias and allows everyone to think through their answers based on their own expertise. An easy method for this is using a shared spreadsheet that averages everyone’s inputs into a master sheet.
Step 6 — Discuss
Some of your individual ratings might be drastically different. This is an opportunity to talk through the differences and understand the rationale of differences in scores; someone in product development is better versed in the technical feasibility of a feature, for example, while someone in finance will know more about the economic feasibility.
Step 7 — Plot the results
Create a graph like the one below, with Feasibility along the x-axis and Importance along the y-axis. Then create a point for each initiative based on the ratings you gave them for a visual representation of priorities.
This visualization makes it easy to identify which initiatives fall in high priority zones vs low priority zones. Those closest to the top-right corner—the highest priority initiatives—have the greatest ROI.
Where To Find It
Ready to find out which of your initiatives will bring more ROI? Check out our templates below.
On Google Drive
This one is for the Product Managers who want something straightforward and easy to use. See a breakdown of feature ROI calculation in Google Slides and do it for yourself in Google Sheets.
Notion is an all-in-one workspace where you can create anything from a to-do list, to a product roadmap, to an ROI Calculator.
Coda is a way to build docs for teams that brings together words and data. It’s a different way to organize and collaborate. Try it out!
Collaborative online whiteboards are perfect for difficult group prioritization exercises. See MURAL’s take on the ROI Calculator.
Choose a product with multiple features under consideration and try it out! Whether you conduct the exercise by yourself or a team, it’s sure to bring clarity to the value of potential features and give you a better ROI on your development.
Need more templates?
Still looking for some great templates? Check out our collection of Product Management Templates.
Updated: April 17, 2023