Beginner’s Guide to Product Qualified Leads (PQLs)
Editor’s Note: This article was first published on Product-Led Institute’s blog here.
A product qualified lead (PQL) is a lead who has experienced meaningful value using your product through a free trial or freemium model.
As a result, PQLs are more likely to become a customer than other leads. Unlike Marketing Qualified Leads (MQLs) which base buying intent on arbitrary factors like email opens, whitepaper downloads, and webpage visits, PQLs are tied to meaningful value.
When you reach out to a PQL, they should have already experienced meaningful value in your product. This makes the sale easier because there’s no need to sell the user on the value of the product.
If you still need a little more explanation on what a PQL is, I created a short video on the topic below:
Before we dive into how to identify a PQL, I wanted to take a second to list out what PQLs are NOT:
- PQLs are not people who upgrade their free plan
- PQLs are not marketing qualified leads
- Someone who signs up for a free trial does NOT qualify as a PQL
Have companies used these PQL definitions? Absolutely but it’s hurting their business. For example, if your PQL definition is someone signing up for a free trial, your entire team is going to optimize for that outcome. This sounds fine, but nobody cares about helping the new user become successful in the product.
To choose a successful PQL definition, it has to involve helping the user become successful in your product. I’ll share a few great examples with you in a second.
What is the first step in identifying a PQL?
This is where most people give up. One of the biggest challenges is the first step which involves truly understanding how to define a PQL in the first place. That’s not to say the definition of a PQL is hard, but understanding what a PQL is for your business is challenging.
For instance, should a PQL be when someone activates their email, accomplishes a key task once in a product, sends 1,000 messages or adds a coworker to the platform?
There are a million ways you can slice and dice what a PQL is for your business. What matters, however, is that you try to find behaviors that correlate with people upgrading.
For many businesses, this can feel like a bit of a moving goal post as the product continues to evolve. The more products and features you have, the harder it is to pinpoint exactly what behaviors lead people to upgrade. To really nail down the ideal definition of a PQL, you need to know your value metrics.
According to Patrick Campbell (the CEO and co-founder of Price Intelligently), the perfect value metric should align with your customers’ needs, grow with them and be easy to wrap one’s mind around.
Figuring out what your company’s value metrics are could be its own blog post, but for now, I recommend checking out this post from Price Intelligently to learn more about value metrics.
Now that I’ve probably scared you away from thinking through what a product qualified lead could look like for your business, I recommend checking out some great PQL definitions so that you can see how simple they truly can be. The last thing I want you to do is stop reading this blog post because you think PQLs have to be complicated. As you’ll see, PQLs can be extremely simple.
What are some examples of good PQL definitions?
Like the MQL, the way you define a PQL is entirely dependent on how your business operates. No business should have the same product qualified lead definition.
The best definitions of product qualified leads are informed by conversion correlation data, for example, experiencing a product’s aha moment.
As such, a PQL is a moving target. Every business should be constantly refining what their PQL definition is and make sure it helps users experience meaningful value in the product. Here are just a few examples of PQL definitions from well-known brands:
- For Slack, a PQL is when an account reaches its 2,000 message limit
- For Facebook, a PQL is once someone adds 7 friends
- For Drift, a PQL is once someone has 100 conversations on their website
As you can see, each of these PQL definitions is closely tied to what the business offers as a product and if you become a PQL, your likelihood of becoming a paying or returning user increases significantly.
One of the biggest benefits of the PQL is that it is closely tied to experiencing an aha moment in your product. As a result, PQLs close at significantly higher rates than MQLs because users understand the value of your product. It’s not uncommon for PQLs to convert upwards of 20-30% in my experience working with B2B SaaS businesses.
How to identify what a PQL is for your business
Product Qualified Leads can be a competitive advantage for your business. If defined correctly, you can align your marketing and sales team, close a high percentage of free users, and understand what prevents your users from becoming successful in your product.
As prospects utilize your application, they demonstrate buying intent based on product behaviors which can include:
- Product interest
- Number of users
- Features used
- Spending patterns
- Usage patterns
- Velocity – How fast a user or team is adopting your product
If you have a good history of product data at your fingertips, try looking for what behaviors closely correlate with users becoming paying customers. If you have Mixpanel, Amplitude or Heap setup correctly you’ll be able to see what events correlate with upgrading. DataMiner has a great video which walks you through how you can use predictive modeling to identify your PQL definition. If not, I highly recommend getting an analytics expert to set this up for you.
Although this process is time-intensive, you’ll be able to get a good handle on what behaviors are linked with users upgrading.
If you don’t have product data at your disposal, make sure to install a product analytics or product adoption platform to get a better handle on what behaviors link to users upgrading their accounts.
Once you have that in place, I recommend brainstorming a few PQL definitions as a start. Even if it’s just a hypothesis at this point, it will come in handy when you test it in your business.
What is a Minimum Viable PQL?
Let’s say you’re just starting out or are launching a free trial or freemium model and don’t have anything but a guess as to what a PQL is for your business.
Where do you start?
I find that usage patterns are one of the easiest ways to define a PQL if you’re short on time. At first, your PQL could be as simple as a user that logs in 10 times. This at least shows that the user is actively using the product and is coming back for a reason.
Now, the next step is to find out what they’re coming back to do. Like I mentioned before, your PQL is meant to be a moving target. You can start with usage patterns but eventually, you want to get closer to pinning what the leading behaviors of someone who becomes a paying customer are. It’s an art and a science to finding what a PQL is for your business but it’s more important that you start somewhere rather than pulling your hair out trying to find out what the “golden PQL definition” is for your business.
By this point, I’m curious. What is your definition of a product qualified lead for your business?
- Is it the number of logins?
- Is it someone who accomplishes a quick win in the product?
- Is it a user that experiences meaningful value in the product multiple times?
I don’t expect you to have the answer right away, but I’d encourage to ask others on your team what they’d consider a PQL to be and then validate it with product data, if possible.
How to implement PQLs across the organization
Once you have your PQL definition, you need to put the systems in place so that all teams can play an active role in generating more PQLs. This is not a solo sport. In this section, I break down some of the key metrics each team can be responsible for.
To keep marketing aligned on driving quality signups, these are the top two metrics that need to be prioritized:
- Visitor to Sign up – Quantity Metric
- Sign up to PQL – Quality Metric
When setting up metrics for teams, I always recommend having both a quantity and a quality metric to ensure that each team isn’t sacrificing quality in order to attain the quantity metric. As you can see with marketing’s metrics, they need to prioritize the sign-up to PQL conversion rate to ensure that the signups generated are top quality.
Sales is in a unique position to help users who have experienced meaningful value in the product decide which plan is right for them and offer additional support.
The quantity metric that sales is responsible for influencing is below:
- PQL to Customer Rate – Quantity Metric
For the quality metric, there are a lot of different ways you can decide what is best for your business. Here are a couple options I’ve seen work well for B2B SaaS businesses:
- Length of contract for each user
- Average LTV per account
Regardless of what quality metric you choose, it’s important that it reflects that we’re upgrading users that become and stay as successful customers.
These metrics will help keep the product team aligned with delivering features and experiences that drive revenue. Having both a quantity and quality metric will ensure that the team is focused on driving the right kind of revenue through features.
- Sign up to PQL – Quantity Metric
- PQL to Customer – Quality Metric
Customer Success bridges the gap between helping both users and customers. As such, the team’s key metrics reflect helping users experience a meaningful outcome in the product and expanding accounts through upsells.
- Sign up to PQL Rate – Quantity Metric
- MRR Expansion Rate – Quality Metric
When it comes to monitoring the success of the free trial for the engineering team, these two metrics are helpful:
- Sign up to PQL – Quantity Metric
- PQL to Customer – Quality Metric
When engineers are responsible for key metrics that involve the product they’re building, I often find they can come up with brilliant ways to improve user adoption. If you’re a small organization, you can always start with one engineer who’s responsible for influencing these metrics and then involve more people as your organization grows.
Tying everything together
Unlike the marketing qualified lead which is typically determined by the sales and marketing teams, the product qualified lead requires all teams to work together.
One of the best parts about PQLs is that it aligns teams to focus on helping the user become successful in the product.
If you embrace the PQL model, you’ll have more successful users and more upgrades as a result. If that’s isn’t a win-win scenario I don’t know what is.
Mike Walsh, CMO at Reflektive, has gone through multiple pricing processes and has developed his own framework for assessing the situation and then developing pricing that is appropriate and effective. Learn more about his 4-step framework here.