Understanding Activation and Product Qualified Leads—and Why They’re Not the Same Thing
When was the last time you purchased software without trying it first?
It’s possible you can’t remember—the self-service, try-before-you-buy approach to software distribution has become so ubiquitous that having to sign up for a demo or (gasp) speak to a salesperson first can feel archaic at best.
More and more SaaS companies are striving for a product led growth (PLG) go-to-market approach—which typically involves a freemium or free trial distribution model. In a PLG approach, the customer lifecycle shifts to revolve around in-product engagements and experiences.
With this shift in the customer journey comes a shift in the metrics companies use to measure and track acquisition. Marketing qualified leads (MQLs) and sales qualified leads (SQLs) look a lot less relevant in 2020 than they did just a few years ago. Instead, savvy companies are turning their attention to in-product behaviors to measure key PLG metrics like activation and product qualified leads (PQLs).
What is activation?
User activation is a one-time event that happens when a product delivers on the value it promised—it’s the critical “aha” moment when a user experiences the value of a product firsthand. After activation, users go on to adopt a product and convert to paying customers.
Even though it is one of the most important metrics for a SaaS company, activation’s far-reaching influence on a company’s long-term sustainability is often overlooked.
Accurately identifying your product’s activation metric allows you to optimize for this critical moment in the user journey.
Ideal activation metrics have three key qualities:
- Time-sensitive: They should occur within a certain number of days, ideally less than a month.
- High-value: They’re high-value actions—something tied to retention or conversion.
- Persona-specific: They might be persona-specific in advanced organizations with products that have individual paths to success for users.
The difference between activation and PQLs
Product qualified leads (PQLs) are prospects that have demonstrated buying intent based on product interest and usage.
In a product led growth approach, sales touch points typically occur after a user has already entered the product through a free account, making PQLs an especially valuable metric for product led growth companies.
PQLs are occasionally confused with activation metrics. But a true activation point only occurs once, while PQLs can be made up of multiple layers of engagement in the product.
How product led companies measure activation and PQLs
Neither activation nor PQLs currently rank among the most popular SaaS metrics—but that’s changing. In a study OpenView ran in early 2019, only a quarter of organizations were tracking activation or qualifying leads with the product. This year, that percentage doubled.
Of the two metrics, activation is the more popular: 60% of companies with a free trial or freemium model track at least one activation metric, along with 38% of companies with no free version of their product.
Yet only 25% of the SaaS companies we surveyed had a PQL metric (although a further 37% said it was on their roadmap). If you’re among the companies that put defining PQLs on the backburner, you may want to reconsider your priorities: During recent projects with the OpenView portfolio, we found that leads who qualified themselves in the product convert at a 5x higher rate than the overall conversion rate.
How do your metrics stack up?
Metrics don’t mean much in a vacuum.
Part of the reason companies track metrics like activation and PQLs is to gauge their success—which is hard to do without benchmark numbers. What makes comparing these particular metrics so tricky is that there isn’t a single tool or agreed-upon tech stack to refer to.
When we asked SaaS leaders how their companies measure product metrics like activation, daily active use and more, 12% of respondents said they got creative and hacked together a stack with existing tools, while the approximately 40% of respondents who measure monthly active use or activation do so with a product they’ve created, rather than one they’ve purchased.
Companies reported a median activation rate of 50% which is, frankly, unlikely. We find it hard to believe that half of new users generally find any given SaaS product valuable. We suspect some product managers are being far too lenient with how they’re defining the “aha” moment!
For reference, in our work with best-in-class PLG companies, activation rates tend to average around 33%. And our recent benchmarking survey found that the median activation rates at top PLG companies hover between 20% and 40% for freemium and free trial products, respectively.
Why the discrepancy between freemium and free trial medians? Freemium products have a wider top of funnel and no time limit on product usage, which often results in lower rates of activation. Free trials, on the other hand, create a sense of urgency that can motivate new users to complete important onboarding steps, leading to higher activation rates.
Get the full report
The statistics above were all drawn from OpenView’s 2020 Product Benchmarks Survey.
Over 150 SaaS companies participated in the survey, which we conducted to help product and growth professionals hold a mirror up to their own success—and to make more strategic, data-driven decisions going forward.
Dive into the full report to gain new insights and find out how your company stacks up to your peers.
Todd talked to us about what exactly “product led” means, how a product-led strategy extends way beyond acquisition, and how the less-is-more concept can make a big difference.