If you’re a SaaS company, your software product should be the most important thing about your company. Its quality, usefulness, and user-friendliness should determine whether or not prospective buyers become paying customers and drive product adoption. Naturally, attracting more customers is a top priority for any business. You’re probably familiar with the term ‘Marketing Qualified Lead’ (MQL), which is a lead generated by the marketing team who hits certain characteristics that qualify them as prospective buyers. In this article, we want to introduce you to the concept of ‘Product Qualified Leads’ (PQL), which is arguably a better way to attract potential buyers because it results in a much higher rate of conversion.
What are Product Qualified Leads?
Product Qualified Leads are users, businesses, or individuals who have already used your SaaS product and experienced meaningful value through a free trial or freemium model. These prospective customers take certain actions within your platform, which leads your sales team to identify them as potential leads for your business.
PQLs are different depending on the nature of your company but are rapidly becoming known as the best way to attract qualified leads. Customers are already familiar with your product’s value, so your sales team doesn’t have to work as hard to convince them to upgrade to a paid plan.
Offering something for free is a powerful way to convert new leads. The “try before you buy” model dominates the SaaS industry and underpins a Product-led Growth strategy. It gives them the opportunity to begin to adopt your product within their organization and engage with features that offer a strong incentive to convert.
PQLs vs MQLs vs SQLs
Traditionally, businesses have focused on Marketing Qualified Leads or Sales Qualified Leads. MQLs are leads that have been vetted using engagement marketing that represent a potential opportunity for a sale. SQLs have been qualified by someone from the sales team and are considered a likely candidate to convert with a reasonable Lifetime Value.
In contrast to MQLs and SQLs, Product Qualified Leads have already used your software product and understand its benefits. They are familiar with its features and use cases, meaning there is less surprise when you finally get these leads to convert. Usage patterns represent a much more meaningful indication of the likelihood of conversion than metrics like page views or email opens.
Benefits of Product-Qualified Leads for Business Growth
Although Product Qualified Leads require a shift in the sales dynamic, they offer several important benefits that make it well worth pivoting in your organization.
Makes churn less likely
Product Qualified Leads are already intimately familiar with your product and, therefore, less likely to churn once they have been converted. They have an understanding of what they are signing up for beyond marketing and sales collateral which will only ever present an incomplete picture. This means that your customer retention rates are likely to be strong when using PQLs.
Represents the ideal customer
Customers who have already signed up to use a free version of your product are much better targets for sales. Your software’s value is evident, indicating a strong fit for these PQLs who require no further persuasion. These types of customers will have the matching attributes and needs of your ideal customer, so your sales reps spend less effort converting them.
Higher rate of conversion
Product Qualified Leads convert at a higher rate than Marketing Qualified Leads and have stronger predictors of purchasing intent. Leads who are engaging with your product’s features and deriving value are much more likely to convert than leads who have downloaded an ebook, for example. Sales reps can use PQLs to save time and effort, excluding leads who are never likely to upgrade in the first place.
Sales cycle takes less time
In a traditional sales cycle, sales reps will take typical leads through in-depth discussions and demos to convince them of the value of the product. With PQLs, customers arrive at these conclusions on their own, resulting in a much shorter sales cycle for your business. Converting more leads at a higher rate increases profits.
What is Product-led Growth?
Product-led Growth is all about using the product to sell itself and, as such, goes hand in hand with Product Qualified Leads. According to Wes Bush:
“Product-led companies flip the traditional sales model on its head. Instead of helping buyers go through a long, drawn-out sales cycle, they give the buyer the “keys” to their product. The company, in turn, focuses on helping the buyer become so successful using the product that upgrading to a paid plan becomes a no-brainer.”
The experience a user has of trialing your product is so engaging that it’s virtually guaranteed they will upgrade to a paid plan. The hard work of marketing comes in when you need to convince customers to become trial users, and these individuals must be likely candidates for a paid conversion.
It’s all about filtering out those leads who will never be a good fit anyway and focusing on those ideal customer profiles that represent the most value in revenue.
How can you Build a Product Qualified Lead Strategy?
Locate your PQLs
The first step in building a Product Qualified Lead strategy is identifying those customers that fit the profile. PQLs are customers who take specific actions in-app that show they are close to purchasing. Depending on your particular SaaS business, this action will be different, it could be something like sending 500 emails or adding ten team members.
The way to identify your PQLs is to ask what represents a successful customer? What are they specifically doing in your product that suggests real buying intent? Your customer success team will be able to help you here, as they will know what it looks like when a customer is extracting value from your product.
Customers’ actions determine if they qualify as a Product Qualified Lead.. You’ll need to go backward from the result of a successful customer to arrive back at the action that is a predictor of conversion. You can even look at data from past customers to see what actions they took before they upgraded to one of your paid plans.
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Prioritize your PQLs
Not all PQLs are created equal, and you’ll need to spend time looking at different sorts of data to decide which ones are the best fit for your sales team to proceed with.
Luckily, HubSpot’s VP of Product, Christopher O’Donnell has discovered four distinct types of Product Qualified Leads which can help you determine which leads to prioritize:
- Free users who’ve reached a given PQL criteria
- In-product hand raisers (i.e., users who have asked for help from sales)
- Users who’ve hit a limit in their free tier
- Self-service users who’ve purchased a plan minus any sales intervention
The final category achieves a conversion rate of 100%, so ensure maximum acquisition of these leads as they originate from the lowest touch sales model.
Data such as demographic and company information helps you to tailor your sales process to meet the specific needs of individual customers. For example, you’ll want to find out information like location or company size. PQLs must fit well with your ideal target customer to reduce the chance of churn later down the line.
Convert your PQLs
You need to strike while the iron is hot. When customers reach particular milestones with your product, your sales or success team needs to send them targeted messages encouraging them to convert.
For example, PQLs who have reached success milestones within your app are great candidates for a sale. This means they have reaped meaningful value from your product, such as solving a customer ticket using your help desk software. When customers reach these milestones, you can show them how upgrading to the next tier will bring even more value.
You can also reach out to PQLs who hit their usage limit on their free trial or freemium plan. They may be running out of storage on their free plan or reached a limit on the number of messages. Show them how upgrading means they will be able to unlock premium features and expand their usage.
Product Qualified Leads brings all your teams together to help you focus on those users who will be most successful with your product. Leads that actually have experience of using your product are much more likely to convert than those who have simply heard about it from your sales team.
Emphasizing product adoption and Product-led Growth means your SaaS business is much more likely to expand rapidly and benefit from increased customer retention. Letting the product speak for itself means your sales team spends more time chasing leads that are actually valuable and able to offer more Lifetime Value.