product management financial literacy

Accounting is not a core skill for most product managers. Many had some basic education about Income Statements and Balance Sheets in school, but few have the opportunity to apply these skills in their day-to-day work. Yet, basic financial literacy is critical when presenting the impact a product can have on customer revenues, expenses, profits, and cash flows. It is also important when building business cases for new product investments. Deciphering competitor finances, even privately-held competitors, can lead to more effective decisions about product evolution. Product managers should develop basic financial literacy skills.

In this article we will cover:

  • An Illustrative Story
  • Why Do Product Managers Need Financial Literacy?
    • Financial Literacy Helps Product Managers Understand Their Contribution to the Enterprise’s Success
    • Financial Literacy is Critical When Designing Pricing, Packaging, and Growth Strategies
    • Product Manager Financial Literacy Provides Insights into Competitors
    • Finance is the Lingua Franca of Decision Makers
  • How to Develop Product Manager Financial Literacy

An Illustrative Story

Jack is a senior product manager for FashGen – a $50 million private equity-based online apparel retailer.  FashGen made its mark in the industry by being the premier destination for iconic millennial brands like Hollister and Fashion Nova.  After five years, FashGen’s revenue growth rate has declined precipitously.  Jack has an idea for a product extension that could drive significant incremental revenue.

Jack’s idea is to add Bitcoin and Ether as payment options in addition to the many credit cards and Paypal that FashGen currently offers.  Consumers aged 18 to 34 are the largest adopters of cryptocurrencies and are a core target market for FashGen.  Jack envisions using a payment gateway like Bitfinex.  The development effort would be ‘minimal’ since they already had a payment API infrastructure.  A significant investment in marketing to crypto enthusiasts would be required, but the net new customers they could attract would drive significant new revenue for FashGen.

One of Jack’s friends, Sameer, is a senior developer for FashGen and is very active in the crypto world.  Over a long weekend, Jack and Sameer had a mini-hackathon to explore Bitfinex’s API and walked away convinced that the software engineering effort to integrate into FashGen’s core platform was doable.

On Tuesday after the mini-hackathon, Jack pitched the idea to his director and VP.  They both expressed interest and told Jack to put together a business case for presentation at the next executive staff meeting in a week.  Jack was excited and dusted off the notes from a product management training class he’s taken a year ago.  Jack worked tirelessly all week and followed the format recommended in the class.  His report included:

  • Executive summary
  • Problem and Market landscape
  • Competitive landscape
  • Financial and impact analysis
  • Risk analysis
  • Assumptions
  • Open issues
  • Conclusions and recommendations

What Should Have Been a Good Idea

The final document was 30 pages long.  Jack decided to try something he had read about – the infamous Amazon 6 Pager. The 6 Pager is a narrative document that Amazon uses for planning purposes.  As Conor Neill described in

“We have study hall at the beginning of our meetings,” says Jeff Bezos. Staff meetings at Amazon begin with 30 minutes of silent reading. Powerpoint is easy for the presenter, hard for the audience.

The traditional kind of corporate meeting starts with a presentation. Somebody gets up in front of the room and presents with a PowerPoint presentation, some type of slide show.  In our view you get very little information, you get bullet points.  This is easy for the presenter, but difficult for the audience.  And so instead, all of our meetings are structured around a 6-page narrative memo.
Amazon Staff Meetings: “No Powerpoint”

Amazon was widely admired at FashGen and Jack thought by introducing one of their best practices he had a better shot at getting his idea funded.

The Big Meeting

The Big Day arrived and Jack convinced the executive team to give his Amazon 6 Pager a try. After 25 minutes of reading the CEO asked “So what do you think?”  The VP of Development started “The estimates to build and launch the API integration is off by a factor of two or three.”  The VP of Finance said “the revenue estimates are on a cash basis, not consistent with how we recognize revenue for ASC 606.  The labor cost estimates do not include burden costs.  I don’t know if Bitfinex charges some type of licensing or usage fee.”  The Chief Revenue Officer said “Our goal this year is to grow top-line revenue by 20% or $10 million.  I can’t see this adding more than a million dollars, at best.  Also, none of our main competitors accept cryptocurrencies – why should we do it now?”  The Operations VP said “Would the investment in this project slow down our infrastructure investments for eliminating SPOFs (Single Points of Failure).  We agreed in this year’s plan to fund the elimination of 75% of the SPOFs”  Finally, the General Counsel noted, “This new product will force us to redo a lot of work for our SOC 2 audit and slow that down by at least four months.”  These kinds of discussions continued for another half hour.  

Eventually, the CEO brought the meeting to a close.  He said to Jack “Thanks for putting this together but it seems now is not the best time to move forward with this project.  Next time take a look at what the VP Operations prepared for his proposal to eliminate SPOFs in this year’s budget cycle.”

What Went Wrong

After the meeting, Jack and Sameer had a cup of coffee.  Jack said “What the hell went wrong?  This project is a no-brainer!”  Sameer said “we’ll have to wait until next year I guess.  They just don’t get how important the crypto world is.”

In reality, there was not much wrong with Jack’s idea, Amazon-style 6 Pager, or even the core parts of his 30-page business case.  The challenges Jack faced included:

Presenting Financial Estimates in The Right Context

One of the core issues Jack faced was presenting his revenue and expense estimates in the proper context. Executives understand how revenues and expenses are presented in financial statements. By not presenting his estimates in an ASC 606-compliant manner Jack lost credibility with several key executives.

Understanding Relative Contribution

Another challenge was Jack did not understand the relative contribution his proposal would make to the overall business. When the CFO said the crypto payment initiative would only contribute 5% of the fiscal year’s revenue growth goal, it put a serious damper on the project’s appeal.

No Socialization

Jack had not socialized the business case with any of the other departments.  He had not asked for subject matter experts in Development, Sales, Marketing, Operations, or Finance to participate and approve the relevant parts of the business case.  In the ‘Big Meeting’, the executives easily pointed out the flaws from their perspectives.  They certainly did not see how the proposal advanced their agendas for their organization.

Why Do Product Managers Need Financial Literacy?

Product managers are experts in many things – understanding market problems, translating these problems into themes, epics, and user stories, prioritizing backlogs, developing launch plans, supporting sales, helping resolve difficult customer service situations, etc. Working with financial statements and complex financial topics like ASC 606 and deferred revenue is generally not in their wheelhouse.

Most product managers have some education in financial basics in college or graduate school. Yet it is a skill that they can use to be more effective in many aspects of their work. There are three main reasons why product managers should have financial literacy.

  • Financial Literacy Helps Product Managers Understand Their Contribution to the Enterprise’s Success
  • Financial Literacy is Critical When Designing Pricing, Packaging, and Growth Strategies
  • Product Manager Financial Literacy Provides Insights into Competitors
  • Finance is the Lingua Franca of Decision Makers

Financial Literacy Helps Product Managers Understand Their Contribution to the Enterprise’s Success

Understanding the context of how a product contributes to an enterprise’s revenues, expenses, profits, and cash flow is important. Unless the company only has one product, product managers have to compete against other products for resources. That is hard to do when you can’t state how much your product contributes to the enterprise’s revenues, expenses, and profits. 

Most companies do not produce product-specific profit and loss statements. At best they may produce some type of Pro-forma P&L. Even then, product managers rarely have access to this type of information. Part of the reason why is that senior management believes they don’t have a need to know. Even if they had access, they often believe that product managers don’t have the skills to use the information appropriately.

Financial Literacy is Critical When Designing Pricing, Packaging, and Growth Strategies

When designing pricing, packaging, and growth strategies product managers need to understand how their decisions translate into revenue, expense, and profit on the P&L. Revenue recognition is a rather esoteric accounting topic. ASC 606 Contracts with a key accounting standard that determines how product revenues and expenses are recorded n the P&L and Balance Sheet. Product managers don’t need to be experts in ASC 606, but they should be cognizant of its basic tenets.

Product Manager Financial Literacy Provides Insights into Competitors

Understanding competitor performance and positions in the marketplace are important for product managers. For competitors that are public companies, Product managers need to be able to locate, read, and interpret basic financial filings like Annual Reports (10-Ks), quarterly filings (10-Qs), and Proxy Statements (Def 14As).  It should be a  tool like others in their product management toolbox.  There is a ton of information in public filings that customers and competitors must disclose.  This information can make or break a sales deal, competitive steal away campaign, or even a product roadmap.

For competitors that are privately held, product managers should learn how to quickly estimate their revenues, growth rates, expenses, and valuation. These types of insights can help product managers make better decisions about prioritization and investments.

Finance is the Lingua Franca of Decision Makers

Finance is a common language for internal decision-makers and customer decision-makers. Product managers need to be able to translate how their product and its features impact revenue, expenses, profit, cash flow, valuation, and ROI. They need to be credible when they do so. Having basic financial literacy is critical to this credibility.

How to Develop Product Manager Financial Literacy

There are four ways product managers can develop basic financial literacy:

Learn About Financial Statements

Product managers should learn the basics of Income Statements, Balance Sheets, and Cash Flow Statements. They do not need a degree in accounting, but they do need to know how to find, read, and interpret basic financial statements. Here are five articles that can help:

Estimate Their Product’s Financial Contribution

If a product line P&L is not available, product managers should build a rough estimate of their product’s revenues and expenses. This will enable them to better understand how it ocntributes to their enterprise’s overall success and compete for scarce resources.

Estimate Key Competitor’s Revenues

Product managers should have a market map that shows the revenues of each key competitor and where their company stands in relation. They can also estimate the amount of resources they spend for research & development and sales & marketing. This will enable them to make better decisions. You don’t want to fight an uphill battle on someone else’s hill.

This article, Product Managers: How Can You Estimate Your Competitor’s Product Line Revenues? can help you develop an estimate of any competitor’s revenues.


Accounting is not a core skill for most product managers. Many had some basic education about Income Statements and Balance Sheets in school, but few have the opportunity to apply these skills in their day-to-day work. Financial literacy helps product managers understand their contribution to the enterprise’s success, design effective pricing, packaging, and growth strategies, and provide insights into competitors. Financial literacy is the lingua franca of decision-makers.

Product Management Financial Literacy Workshop

The Product Management Financial Literacy Woekshop is a three-day, 12 hour, virtual workshop for product teams. The goals of the workshop include:

  • Teach Product Managers How To Read And Analyze Income Statements, Balance Sheets, And Cash Flow Statements
  • Explaining Enterprise Value And Its Relevance For Product Managers
  • How To Locate Financial Information For Both Public And Privately Held Software Companies
  • How To Estimate Competitor Revenues And Apply Publicly Available Industry Benchmarks
  • How To Build A Market Map Based On Competitor Revenues And Enterprise Value

Book a call using this link to discuss your questions or requirements. Or send an email to

Also published on Medium.

By John Mecke

John is a 25 year veteran of the enterprise technology market. He has led six global product management organizations for three public companies and three private equity-backed firms. He played a key role in delivering a $115 million dividend for his private equity backers – a 2.8x return in less than three years. He has led five acquisitions for a total consideration of over $175 million. He has led eight divestitures for a total consideration of $24.5 million in cash. John regularly blogs about product management and mergers/acquisitions.