Around a decade ago, SaaS businesses used to focus on Marketing Qualified Leads (MQL) to attract customers. The marketing staff would run paid campaigns to qualify the leads and nurture them before they became MQLs. They will then pass these leads on to the sales staff for more action. But the problem was that only a limited number of leads would convert into consumers.
MQLs (Marketing Qualified Leads) are categorized on the basis of purchasing intent and uses arbitrary factors such as e-mail opens, e-book downloads, website visits, etc. Much of the leads have not experienced the product’s value, which means that any lead passed to the sales team passes through several stages before it converts into a purchase.
Product Driven Growth overturned this paradigm by allowing SaaS businesses to deliver better time-to-value and higher revenue. Product Led Growth model uses PQL or Product Qualified Leads instead of focusing on MQL. PQLs have a better chance of converting to end consumers because, unlike MQL, they discover the product’s value in a free trial or a subscription model.
In this post, we’re moving deep into the world of product qualified leads, how to define and measure them for your business, and how to integrate PQL throughout your company.
What is a Product Qualified Lead?
A Product Qualified Lead (PQL) is a lead who has experienced the product’s value either by a free trial or a freemium model.
However, just because the user has signed up for a free trial or a freemium model doesn’t mean you can classify them as product-qualified leads. The user has to navigate different product features and complete certain tasks before categorizing them as a PQL.
Another misconception about product qualified leads is that you don’t need marketing if you opt for a product-led growth model. Marketing is integral to the product-led growth approach, considering that users only experience the product’s value once they opt for a free trial or freemium model.
How to identify the PQL for your business?
Most SaaS businesses struggle with defining PQL because there are a multitude of approaches you can use to define PQL for your business. Also, the definition of product qualified leads changes as your product matures, and your business model evolves. To clearly define your PQL, you have to identify your value metric. Value metric is essentially what and how are you charging your end customers. But as Patrick Campbell rightly points out in his article identifying your value metric and getting your pricing right is more complicated than you think.
According to Aazar Shad, Head of Growth at UserPilot, “For me, a PQL is either someone who has tried the entire app and is ready to buy after a free trial, or someone has used all the basic features in a freemium version and is wanting more.”
Every SaaS business has to continually refine their definition of PQL to ensure end-users experience the actual value of their product. Here are a few examples of PQLs set by well establish SaaS brands.
- Slack deems the user to be a PQL until the account hits the 2,000 message cap.
- Facebook describes the lead as PQL when the user adds at least seven friends.
- Drift finds the user to be a PQL when they have over 100 conversions on the website.
Each PQL definition above is closely related to the solution your business offers to end customers. When you link your PQL to your core business offering, the chances of a user turning into a paying or returning customers improves dramatically.
In order to define PQL, you will need to consider the buying intention by analyzing product behavior like product interest, the number of users, the features used, usage habits, patterns of usage, and the velocity of adoption.
How to implement PQL across your organization?
If your business has defined PQL, the next move is to ensure that you put structures and processes in place to generate product qualified leads. It is critical to ensure alignment between cross-functional teams such as marketing, sales, customer success, engineering on the key metrics tracked.
Marketing
The marketing staff is responsible for generating leads for your product’s free trial or freemium model. But they often get obsessed with the number of leads generated over the quality of the sign-ups.
While setting up KPIs for your marketing team, consider both qualitative & quantitative metrics. Setting up KPIs in this manner would mean that the marketing team optimizes for the lowest cost per lead and invests in the fastest converting channels.
- Visitor to Sign-up (Quantitative Metric)
- Sign-up to PQL (Qualitative Metric)
Sales
The sales staff should highlight additional use cases and market best practices to ensure that PQL’s experience more value from the product. B2B SaaS businesses can also go a step further and evaluate the average lifetime value generated per account or length of the contract in case of high-value deals.
- PQL to Sale
- Sale to Average Lifetime Value (LTV) Per Account
Product
The product team has to be focused on delivering a superior experience to end-customers. Unless the customer experiences the product’s value, they will not convert into a PQL.
- Sign up to PQL
- PQL to Customer
Customer Success
The customer success team has to deliver a positive experience to product qualified leads and upselling to existing customers.
- Sign up to PQL Rate
- MRR Expansion Rate
Engineering
These two metrics are useful when it comes to tracking the performance of the engineering team.
- Sign up to PQL
- PQL to Customer
Final Thoughts
PQLs are the foundation for more satisfied consumers, faster time-to-value, and recurring sales. Deciding to rely on PQLs instead of MQLs and SQLs is vital for a product-led growth strategy. Transitioning to let the product lead the way in both customer acquisition and retention guarantees long-term sustainability.
