What is an Annual Product Plan?

It is a single document that is a roadmap for the company and the product for the next 12 months. It is also a document that quantifies the projected impact the product will create in the next year.

Why is it important?

  1. It helps everyone focus on the right problems.
  2. It creates alignment across the board, horizontally and vertically.
  3. It ensures everyone makes progress in the same and the right direction.
  4. It builds a healthy culture, that is both outcome and ownership driven.
  5. It connects the roadmap to the company’s larger mission and vision.

What is the best way to build an effective annual product plan?

A diagram showing 7 the steps in creating an annual product plan
Effective Annual Product Plan - Summary

Step 1: create focus areas for the year

The exec team meets and decides the areas they want the company to focus on for the year. At this stage, the focus areas are broad, and intentionally so.Example: focus area for a food delivery app - “Become the best food delivery partner in the country.”

At this stage, the focus should be on the problem areas not the solutions.

Step 2: finalise and align on the focus areas

The previous step results in a long list of ideas. And now:

  1. The execs negotiate, discuss, and argue. But, they eventually reach a final list of 1-3 focus areas.
  2. Exec team shares the list with non-exec leaders - like product heads, engineering heads, business heads, etc. - and allows them to share feedback, ask questions, and suggest changes.
  3. The exec team and the respective heads agree on the final list of the annual focus areas.

Step 3: break-down focus areas into initiatives

At this stage, the primary ownership of the process shifts from the execs to their direct reports (VPs/Directors/GPMs), who then start working with their direct reports (GPMs/SPMs/PMs)

The product leader and last level product managers work with their engineering counterparts, and they start breaking down the focus areas into initiatives. Initiatives are not specific features (or actionable roadmap items), but they have just enough details for PMs and EMs to start estimating the impact and cost of doing them.

Example: Focus area - Become the best food delivery app in the country

  • Initiative 1 - Introduce a loyalty program to increase the avg. monthly order frequency by 20% 
  • Initiative 2 - provide real-time order status to decrease the total number of user complaints by 10%
  • and so on..

Step 4: estimate the impact of each initiative

PMs work with their business and analytics counterparts to estimate each initiative’s impact. It is critical to ensure that the impact of all initiatives is in the same currency.

Example: Focus area - Become the best food delivery app in the country

Common currency - 💵 dollars (made or saved)

Initiative 1 - Introduce a loyalty program to increase the avg. monthly order frequency by 20% 

  1. leads to an increase in monthly orders by 20%. 
  2. Every order, on average, has a value of ~$10. 
  3. average order value multiplied by the incremental orders give us the incremental revenue for this initiative

Initiative 2 - provide real-time order status to decrease the total number of user complaints by 10%

  • reduces the total number of complaints by 10%.
  • every complaint needs ~10 minutes of a call support agent’s time
  • total complaints reduced multiplied by 10 minutes gives us total time saved
  • use the total time to calculate the (reduced) number of agents required, and use that to calculate the cost (dollars) saved

Step 5: estimate the cost for each initiative

At this time, the EMs (engineering managers) create high-level effort estimations for the initiatives. 

Since at this stage the initiatives are not well-defined, EMs typically add buffers for vagueness, unknowns, and unplanned events (PTOs, sick leaves, team churn, etc.) They work with engineers to create best-guess-estimates for each initiative.All estimates are in a common currency: engineering months

Step 6: prioritise by ROI

This step is usually straightforward. The PMs add a column for ROI (a function of impact and cost) and then sort the list by ROI.

Step 7: finalise and align on initiatives for the year

In this step, the product and engineering leaders finalise the intiatives that they will commit to deliver by the end of the year.

And to get to that list, the additional information they need is the: total available engineering capacity

The engineering heads have visibility on this number. And using this data, the group is able to objectively decide which initiatives are doable assuming the same capacity.The output looks something like the below chart:

A diagram showing the difference between the items that the team will do, might do wont do in the annual plan
Will Do, Can Do, Won't Do Chart

We classify each initiative in the following categories:

  1. Items that we will do based on current capacity
  2. Items we can do if we have more capacity or if any of the items in the “will do” category get deprioritised. 
  3. Items that we won’t do, because they are low impact, high cost, or both.

Answering #2 above is not straightforward. There are situations where it will not make sense to move items from “will do” to “can do”. And in such cases, the next option is to create more bandwidth. Engineering heads incorporate this in the hiring plans and ensure that teams have the required bandwidth through the year.

It is important to note that at the end of this step, we have finalised and aligned on two crucial things:

  1. List of initiatives that teams commit to deliver
  2. Number of engineers the teams need to hire to deliver on the commitment

Step 8*:create quarterly projects/requirements/tasks

*This step is NOT a part of the annual planning. But I still included it in the process, because it is the immediate next step after we freeze the annual product plan.

In this step, the PMs and EMs break down the initiatives into projects or tasks and with the aim of creating an actionable roadmap for the first quarter.

That is it for today. If you liked the article, please share with friends.

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Nov 17, 2023
Fundamentals of Product Management

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