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October 2, 2018
How to Know When to Make the Tough Call and Sunset a Product
By: Daniel Korten
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:
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.
Additional Resources
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Dan joined SBI in 2012 and has mastered many roles within the firm’s Consultant Team. Most recently he became Client Success Manager, where he oversees and ensures project quality, consultant team development and client satisfaction.
Dan is an expert problem solver, which he achieves through data-driven decision making. When advising clients, he incorporates market segmentation, account segmentation, revenue & budget planning, sales organizational strategy and sales operations strategy.
Dan has also deep experience solving multi-functional organizational alignment issues impacting revenue growth. Expertise in private equity due diligence & screening, product strategy, buyer segmentation, demand generation strategy, sales territory optimization and talent strategy round out his broad base of knowledge in problem solving.
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