How to Know When to Make the Tough Call and Sunset a Product

As a Product leader, sunsetting one of your products is a difficult call to make. There is big risk associated with your decision. Sunset a product too early, and you’ll be blamed for missed bookings and revenue. Sunset a product too late and you risk being perceived as “behind the times” by the market and your customers.

So how can you, as a Product Leader, make an objective, fact-based call to sunsetting a product? And once you do, what are the best practices for sunsetting a product? We’ll answer both of those questions in the rest of this blog.

Download the Sunsetting a Product Tool to help dimension whether you should be thinking of sunsetting a product or not, discover two measures for sunsetting a product, and Calculate and Project CLTV by product into future years.

Objective Factors for Sunsetting a Product: Cost-to-Serve and Lifetime Value

Instead of relying on gut instincts, the best Product Leaders use two critical measures to determine the effectiveness of a product: Cost-to-Serve and Lifetime Value.

Cost-to-Serve is a measure of cost and profitability that allows for an accurate understanding of what it requires to “deliver” a product. Calculating cost-to-serve at the product line level helps Product Leaders better understand whether their products are truly profitable.

A large cost-to-serve for a product line can be driven by a few different factors. The most common is the number of resources (people, money and time) required to execute the product. Another is ongoing maintenance and issue resolution. Products Leaders have a difficult time justifying products with high cost-to-serve figures should the lifetime value not be significantly higher.

To that end, Lifetime Value is a metric used to understand how much bookings and/or revenue you can expect from each customer, for a given product line. Lifetime Value for a product line is impacted by a few measures: customers adding additional components of the same product line, new customers purchasing the product and retention of customers currently owning that product. Importantly, Lifetime Value is not a one-time measure, and thus the best Product Leaders are constantly measuring this to make informed decisions.

Ultimately, product lines with the highest Lifetime Value relative to Cost-to-Serve are the best. Typically a 3x to 5x ratio is best practice. These are products that the Product Leader continues to promote. On the contrary, products that have less than a 3x Lifetime Value relative to Cost-to-Serve as those that must be considered for sunsetting.

Here is a tool to help you dimension whether you should be thinking of sunsetting a product or not.

So when the time comes to sunset a product, how do the best Product Leaders go about doing this?

Best Practices for Sunsetting a Product Line

There are six best practices top-class Product Leaders use to sunset a product:

1. First is to involve all departments in the decision to sunset a product. While this may elongate the process some, the product team cannot be the only ones involved in this decision. All departments (Sales, Marketing, Pricing, Operations, Finance, Strategy) need to be aware and voice their input.

    

2. Next is to give your customers plenty of notice. 6-12 months is the norm. This is critical to give them enough time to make a transition and for you to manage the relationship.

    

3. Building on #2, the next best practice is provide customers with migration assistance. That is, develop a process to ensure a smooth transition for customers from the old product to the new product.

    

4. Fourth is to focus on the product line’s biggest users first. Ensure these users are prioritized throughout the process, both with notifying them and transitioning them. It’s also important to personalize this transition as much as possible; phone and F2F will serve you better than an email notification.

    

5. Fifth is to create content that speak to customers’ and employee concerns. Here is where collaboration with marketing is critical. If customers worry that the migration will be difficult then product should assist in creating reference stories of where it’s be done before to ease concerns. And if employees are fearful, now may be the time to involve management and leverage them in communication.

    

6. Lastly, focus on customer marketing. Arguably the biggest risk of sunsetting a product is that your current customer moves to the competition. Allay this issue by developing content specific to each customer emphasizing their importance to your business. This last best practice is the toughest, yet most important to get right.

    

Pulling It All Together

Ultimately sunsetting a product is neither an easy call or a fun one to make. This is often when an objective third-party is helpful so as to remove the emotional aspect. Still, the best Product Leaders know when and how to make this call. Follow the guidance above, leverage the concepts of Cost-to-Serve and Lifetime Value and be as objective as possible.

Download the Sunsetting a Product Tool to help dimension whether you should be thinking of sunsetting a product or not, discover two measures for sunsetting a product, and Calculate and Project CLTV by product into future years.

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