Are Companies Using the Product to Qualify Leads?
Are you tracking value based actions for prospects using the product?
Product-minded founders and product leaders already had plenty on their plates. They’re expected to make hard (and often unpopular) decisions and create MVP product offerings while still watching the market, the competition and, of course, their roadmap. Now they’re also expected to implement new metrics and go-to-market tactics.
To make the best strategic decisions and be held accountable in their roles, product and growth professionals need objective data. That’s why we conducted our first annual Product Benchmarks Survey—and now these findings will let operators compare themselves to their peers across the metrics they use most. Think of this report as your go-to resource for building better products.
OpenView’s 2020 Report was written and compiled by:
For questions, comments or to participate in next year’s survey, please email Sam Richard at [email protected].
More than 150 companies participated. Respondents were predominantly the CEO / Founder (40%) or Product Leader (31%), with the majority (86%) of respondents selling to Midmarket or Enterprise customers (100+ employees).
That’s one of the questions we hear most from product and growth owners. The answer is: Well, it depends.
For this exercise, we cut the data between two types of companies: those offering a freemium product and those offering a self-serve free trial.
Here’s what each funnel would look like if 1,000 leads entered the funnel on any given day:
(6% conversion from a visit to the website)
(7% conversion from free)
(of 62% conversion via self-serve)
In this freemium scenario: The median organization would convert four of them to paid, with three or so of them converting without talking to a single salesperson.
(4.5% conversion from a visit to the website)
(14% conversion from free)
(of 45% conversion via self-serve)
In this free trial this scenario: The average organization would convert roughly six of them to paid, with three or so of them converting without talking to a single salesperson.
Offering a freemium product opens up a business’s top-of-funnel much more than any trial or sales demo could, with typical freemium tools generating 33% more free accounts for every website visitor. If a product generates more value with more people using it—such as in viral products like Calendly or Zoom—freemium is the best way to go.
Unlike a never-ending freemium product experience, free trials drive urgency to purchase, made clear in the median conversion from free to paid being much higher in the trial scenario. If a business is laser-focused on maximizing paid conversion and near-term revenue, a free trial is the best way to go.
Ultimately, what drives home the value of a freemium product for us is its cost effectiveness from a manpower standpoint. Freemium products convert customers without sales 25% more often than a free trial model.
The choice is yours, but also note that there are big differences between the median and third quartile for each of these conversion rates. In some cases the third quartile, which represents the best performing SaaS organizations, is 2–3x higher than the median.
How can you get your business to reach that upper quartile? Leverage these benchmarks, invest in a growth team and run experiments. It’s worth it if you’re doubling or tripling your revenue.
Product leaders regularly debate whether to gate their free offerings with requests for contact information or credit card details. We learned that requiring a credit card is out of date: freemium and free trial businesses only do so 4% and 12% of the time, respectively. Software companies are finding that this extra step creates too much friction for would-be users.
But more than 70% of companies do require information such as email and company name before getting started. We recommend gathering this important data to re-engage users outside of the product and assess whether the user is in a high-value segment.
In the early 2010s, we all saw the risks of paying a lot up front—B2C companies like Handy and Uber had amazing sign-on deals to acquire new customers that ended up being disastrous for their unit economics. So while most businesses aspire to get new customers cheaply, the acquisition channel can greatly impact those business’ overall health. Organic growth is king, especially in recent memory.
We wanted to explore the longer term impact organic growth can have on a business. We’ve seen better conversion and retention rates with organic channels with various portfolio companies, and we wanted to understand if that’s the exception or the rule.
Referrals, organic search, organic social and direct traffic to your website
Any marketing that you’re paying for and tracking, like SEM or display ads
SDRs or field sales teams
You have either a viral loop, like invites, built into your product or some value-add product that helps you build your top of funnel
Clearly, high-growth organizations have leaned into organic acquisition and stepped back from paid marketing and traditional outbound sales efforts. Interestingly, those organizations are getting 2x as much traffic from their product than their lower-growth peers. One hypothesis is that the traffic coming from the viral loop that the product is creating is also driving more of those organic visitors through word-of-mouth and referrals.
But will those organically acquired users stick around? Let’s take those same growth buckets and see how their users fare after a month:
Founders face great pressure to buy their way into growth, but artificial growth comes with downstream impacts. Don’t saddle your organization with a leaky bucket. Optimize your organic and product growth engine before making substantial investments in paid acquisition.
Product people know that in order for their product to be sticky, retain users and grow, end users need to love it—which requires an “aha” moment with the product.
An example of an “aha” moment: The first time you “like” an Instagram post. Most call that user activation, a one-time event that cannot be undone or done multiple times.
Ideal activation metrics have three key qualities:
They’re time-sensitive and should occur within a certain number of days, ideally less than a month.
They’re high-value actions—something tied to retention or conversion.
They might be persona specific in advanced organizations with products that have individual paths to success for users.
Are you tracking value based actions for prospects using the product?
Strangely, the reported median activation rate was 50%. We find it hard to believe that half of new users generally find any given SaaS product valuable.
In a recent internal benchmarking study that OpenView ran, we found that activation rates at the very best PLG companies hover between 20–40%. Sounds like product managers are being far too lenient with how they’re defining what the “aha” moment is.
Make measuring true product activation a top priority. 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.
It’s relatively easy to get started—all you need is the right product analytics frameworks in place. Product Management 101: Feature Adoption is a great place to start.
Some people assume that product led growth (PLG) means altogether removing sales—and sometimes marketing—from their organization. The responses to our survey tell a different story.
In our survey, 79% of companies offering a free trial or freemium product reached out to prospects during that key first month of use. The majority (81%) of those companies had their sales teams doing the outreach.
But the best thing we found was that layering sales on top of a free trial or freemium experience does make a noticeable difference. Consider these free-to-paid conversion rates in the chart to the right.
Sales is high leverage, but we recommend deploying them in a thoughtful way to deliver an excellent customer experience and reduce costs of acquisition. The best PLG businesses deploy sales reps to the right users at the right time with the right message based on what they know about that user’s product behavior. We recommend designing a product qualified lead (PQL) methodology if you haven’t already.
If you build a great product, people will use it. But if you want to accelerate conversion so you can build a better product, layer in sales.
Read this piece by Kyle Poyar for examples and best practices of how great PLG companies have paired product and sales to drive faster growth.
Mature product-led businesses outpace other SaaS companies in both growth and Rule of 40, but younger product-led businesses may not always stand out when you apply some of the OG SaaS metrics we’re used to using.
That’s why we set out to create a metric that would identify a business’s Natural Rate of Growth (NRG), how efficiently the growth engine inside of a business (AKA its product) is running when you peel away sales and marketing efforts.
When we examined organic acquisition, one of the components of the NRG metric vs. sales-led acquisition, the results were stunning: Slower growing organizations lean on sales-led acquisition strategies more than companies with high growth rates.
In turn, companies that have taken a product-led, go-to-market approach tend to have higher proportions of organic traffic.
This data reinforces Natural Rate of Growth’s value as a metric to identify promising product-led businesses. Not only is it correlated with better growth outcomes (which is what we’re all here for), but the key driver of NRG, organic acquisition, is also most common with companies that are further along in their PLG maturity.
Hiring a team (or even one person) to manage growth at your organization is still extremely limited. In fact, 60% of our respondents didn’t have a growth expert at all.
Does the absence of a growth team correlate with low growth? Not at all. When we compared growth rates, we found that merely hiring a growth expert or team didn’t make a difference. Growth can’t just be a box you check in order to drive outcomes.
|Growth Rate||No Growth Personnel||One Growth Hire||Growth Team|
|Low Growth (<100%)||63%||10%||28%+|
|High Growth (>100%)||61%||13%||26%+|
Instead, that growth team should be put to work doing what growth teams do best: running experiments. (Nearly a quarter of organizations with growth teams run 0 experiments!)
We found that running growth experiments did correlate much more strongly with growth rates.
Just having a growth lead or growth team could drive organizational complacency—so make growth a team sport instead.
“Getting engineers involved in the conversation was big for us. As a product manager, I surfaced a problem and outlined why I believed improving it would help our activation rate. One of our engineering tech leads suggested we implement Google Optimize and run an A/B test. From there, we were off to the races running experiments.”
“Creating a culture of experimentation requires a strong emphasis on psychological safety among team members. At HubSpot, we have regular experiment readouts where experiments are recapped and presented as stories to the rest of the team. More often than not, the most interesting and valuable findings come from experiments that don’t meet their success criteria, the ones that save us from building something that wouldn’t have created the value we thought it would. It takes time to build that culture of openness among a team, but once you do, the shared learnings that come from it are invaluable.”
We asked survey participants how they measure product metrics like activation, daily active use and more, and we found that product managers have a lot to manage in terms of technology stacks and reporting.
12% of respondents got creative and hacked together a stack to report on activation, 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.
Unlike in sales (Salesforce.com!), there’s no ubiquitous tool for product managers or growth leads… yet. Perhaps product managers face too many problems to be limited to a single, out-of-the-box tool?
There’s certainly a lot of stress in managing and owning a SaaS product. Even keeping the metrics and measurements up to date can be a full-time job for some.
Product leads who are taking a product-led approach—measuring usage, experimenting with new ideas and providing value for their users at low to no cost—end up building high-growth, enduring businesses.
Start building products people love—download the 41-page report now for even more objective data that lets you see how your company is performing and helps you maximize your product’s potential.
What’s in the full report:
Insights from CEOs and product leaders at over 150 SaaS companies
Benchmarks on best-in-class freemium and free trial conversion funnels
Advice on how to layer in sales to drive growth