Product Cost
What is Product Cost?
Product cost refers to the total costs incurred when creating, maintaining, supporting, and selling a product. Product cost includes a wide range of expenses directly and indirectly.
A Product Owner should be aware of the total (direct + indirect) cost of their product. These vary from research and development of the product to support and maintenance and other supporting costs such as:
- Team employee wages and benefits
- Tools (licenses, laptops, etc)
- Travel Expenses
- Overhead (office space, utilities, supplies etc)
- Training, Onboarding, Human Resources
- Marketing and business development (if not a part of the Scrum Team)
- Support (if not a part of the Scrum Team)
Understanding Product Cost
Scrum Teams know that it is important to monitor their product's revenue and usage, but they often neglect its cost. Depending on the type of product, sometimes calculating the information can be tricky and difficult to obtain, especially when there are internal barriers in place. Nevertheless, understanding product cost is necessary for a Product Owner to be effective and for any product to succeed.
A Product Owner and the Scrum Team should know whether or not their product is profitable (or cost-saving) for the organization. Working in Sprints is a consistent way for a Product Owner to monitor costs, risks, and value delivery. Knowing the cost of a Sprint and the costs of developing a product, feature, or update helps the Product Owner make more informed decisions as the Scrum Team pursues Product Goals. Understanding product costs is also vital for general budgeting in the organization.
Scrum Teams can consider different approaches they can take when developing a product when trying to balance value, learning, risk, and cost. These include:
- Experimenting rapidly to achieve goals quickly or pivot as necessary
- Validating ideas with real customers to avoid accruing risk and unnecessary costs on assumptions
- Working with customers and users early to co-design a product. This creates a product for the customer with the customer
- Releasing a minimal but valuable version of a product to the market to gather initial and early feedback from customers
Understanding and managing product cost is essential for Scrum Teams and Product Owners, ultimately contributing to the overall success of their product.
Resources: