Your Guide to PLG Benchmarks
We’re all familiar with the classic B2B marketing and sales funnel and the supporting jargon: leads, MQLs, SQLs, SALs, opportunities, closed won, etc.
The B2B funnel isn’t quite dead, but it’s not exactly thriving either. To be honest it never won me over because it doesn’t capture the way that people buy products— especially how people buy in the PLG era. Some of my gripes:
- It only reflects the last mile of the buying process, which feels short-sighted considering that just 5-6% of buying activity is spent meeting with sales reps at a specific vendor (data from Gartner).
- It assumes that “buyers” hold the power rather than users. Increasingly, end users discover and champion products, then tell their boss what to buy.
- It ignores product and community engagement, aka the experience with the thing that someone is actually purchasing.
It’s time to replace the classic B2B funnel with a new one, this time taking into account users rather than buyers and product activity rather than simply sales and marketing activity. The New User Journey looks something like this:
- Discover: Users learn about the product typically by word-of-mouth, a product invitation, or Googling a solution to an everyday problem. Your goal: drive relevant, high-intent traffic to your website while keeping CAC as low as possible.
- Start: Users see potential value in the product and decide to sign up and try it for themselves. Your goal: educate website visitors on the value of the product and convert as much of that traffic as possible to free-account signups.
- Activate: Users actually realize the value that they were promised. Product usage grows into a habit and they become engaged users. Your goal: reduce time-to-value and guide users to their ‘aha’ moment in the product.
- Convert: Users decide to take the relationship to the next level and become paying customers. They’ll usually start small on an entry-level package or pay-as-you-go plan. Your goal: generate revenue by efficiently converting free accounts into paying customers.
- Scale: Users deploy the paid product and decide to deepen their relationship by expanding use cases, inviting their team, or increasing their activity. Your goal: facilitate ongoing usage and expand the overall revenue generated by paying customers.
That begs the question: what does a “good” PLG user journey look like?
Product-led growth benchmarks
Along with our friends at Amplitude, my colleague Sam Richard and I surveyed 450+ software companies to find out in OpenView’s 2022 Product Benchmarks report. A few words on who was included in the data:
- Respondents spanned all sizes from <$1M to $100M+ in annual recurring revenue (ARR). 24% of folks had <$1M ARR, 22% had $1-5M, 26% had $5-30M, and the remaining 28% had $30M+.
- More than half (55%) identify as product-led. This is up from 48% in 2020 and 45% in 2019.
- Product-led companies were almost split evenly between offering a free trial or a freemium product as their initial product experience.
We summarized the New User Journey benchmarks in a helpful visual below. You should use these product-led growth benchmarks to get a sense of what you’re already doing well and where you aren’t so that you can focus your limited resources most efficiently.
(If you’re doing well at everything, you should let me know 😉 — I’m always trying to feature the best up-and-coming PLG companies!)
How do you stack up against the PLG metrics that matter?
For freemium companies, it’s all about organic sources like SEO and direct traffic (53%) or driven by the product itself (13%). Paid marketing (10%) and outbound sales (8%) play only a small role in PLG user acquisition.
Pro-tip: Invest in product-led marketing campaigns (ex: template galleries, product-related hubs, and product education) to get discovered by users in their moment of need.
For every 1,000 website visitors, freemium products get ~60 sign-ups on average (6%). Free trial products get only 30-40 sign-ups (3-4%).
Pro-tip: Make sure your website speaks to users, not just executive buyers. Instead of focusing on your specific product features, speak to what your users can do with these great features.
We’re seeing that the vast majority of freemium products measure activation (76%), but it’s not mainstream yet for free trial products (58%).
Activation rates of 20-40% are normal. Aim to be on the higher end if you have a single-player product, but expect to be on the lower end for multiplayer mode (more people to activate).
Pro-tip: Nail first impressions with new users by avoiding these common self-serve onboarding mistakes.
In our latest data, freemium products convert 5% of their sign-ups—far lower than those with a free-trial motion (17%). Freemium conversion also takes longer since there isn’t an impending trial expiration.
Pro-tip: You don’t have to choose between the two! We’re starting to see more companies use ‘reverse trials’ where users start with a free trial, then downgrade to a basic freemium tier after 14 days (ex: Airtable). Reverse trial products tend to see high first month free-to-paid conversion as well as a long-tail of conversion from engaged free users. More on that in an upcoming newsletter!
In order to scale you can’t have a leaky bucket. It’s important to focus on usage retention, how much of your users come back into the product in their second month, third month, etc. The average freemium company in our dataset retained only 19% of their sign-ups in month 1, 11% in month 2, and 9% in month 3.
Look for ways to add collaboration and sharing into your product so your active users bring in additional users. Single-player products tend to see low-paid user retention (40-60%) and limited upsell opportunity. Team-based products, on the other hand, will often see closer to 80% retention and significant in-account growth (150%+ net retention).
Pro-tip: Ideally all of your plans should enable multi-player usage, which helps you reach more champions in an organization and helps your customers discover more use cases.