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PQLs: The Metric Low-Touch Models Need To Improve Sales Efficiency

Improving sales efficiency is one of the most common growth levers that feature in PE investment theses. There is huge potential for growth here if you improve conversion rates throughout your sales funnel. However, you can’t improve sales efficiency if you don’t have data on how prospects are moving through the pipeline towards closed-won.

In high-touch sales models, getting data on pipeline status is as easy as shooting an email to someone on your sales team. But in companies with low-touch models that have small or nonexistent sales teams, this can be more complex. How do you know if a lead is moving through the pipeline if you don’t have a salesperson to collect that feedback?

In a low-touch, ‘try before you buy’ SaaS model (for example using free trials or freemium plans) you’re likely dealing with small deal sizes and short sales cycles. There are thousands of people who want to try out your product: The challenge is converting these users into paying customers. 

The risk here is that Marketing stops tracking campaign performance past free trial or MQL status, and instead just tracks overall conversions of the entire cohort of prospects in the free trial. This won’t give you detailed data on which acquisition channels are working or how you can improve the way you nurture leads. Any investment you make to increase sales efficiency would be based on guesswork. 

For companies that focus on a self-serve model and leverage product-led growth as the acquisition engine (for example, Shopify, Trello, or Zoom), this data gap can be bridged by tracking Product Qualified Leads. Since your product effectively plays the role of the sales team, it makes sense to build this into your metrics. 

Product Qualified Leads (PQLs) are one of the most under-leveraged data points. PQLs track the number of leads who cross specific milestones in a free trial or freemium product, indicating a higher potential of converting to a paying customer. PQLs can be an accurate way to track how the company’s activities are delivering and converting viable leads.

Source: Purple Rain

Let’s take a look at how to start tracking PQLs, how to use that data to improve the efficiency of your sales process and unlock the growth potential here.

When you're ready to start tracking your PQLs and conversion rates, you can download our PQL tracking spreadsheet template.


Setting Your PQL Criteria

To determine who is a Product Qualified Lead, you need to set PQL criteria. These are the milestones users can cross in the product that indicate they are likely to become paying customers. 

Your criteria may be specific actions in the product. For example, Wix milestones might include the moment a prospect chooses a website template, adds their logo, or creates their first page. In Shopify, a key milestone could be when merchants connect their Stripe account so they can start receiving payments online. Your criteria may also include frequency metrics (e.g. logging into their account every day), or volume metrics (e.g. an account having 80 contacts out of a maximum of 100 on the free plan). 

It could be that one milestone supersedes all, or there could be a combination of milestones that cause a prospect to cross the threshold and become a PQL. Critically, the criteria you choose to qualify leads as PQLs need to be connected with an increased conversion to closed-won. 

To set your PQL criteria, follow these steps:

1. Collect data on the actions users take in the product 

You should already have data on which customers are using each feature in your product and how often, but it’s likely not being leveraged by Marketing at the moment. Marketing needs to be connected with product teams to get visibility into these metrics and build usage reports. 

PE teams can help here by making the implementation of PQLs as a metric a cross-department initiative, and, if necessary, allocating extra resources to set up the data tracking in a way that Marketing can actually use. You may benefit from investing in a product analytics platform like Mixpanel or Gainsight so it’s easy for Marketing to segment the data they need.

As well as supporting Marketing and Sales efforts, it’s also in the interest of both Product and Customer Success to make this data more available. Once you know which product actions are correlated to increasing sales, Product and Customer Success will have an indication of where they can focus development and offer extra support to help users cross these product milestones and increase conversion.

2. Choose the milestones that are linked to closed-won

Filter your user data to reveal which in-product milestones were crossed by users who then converted to paying customers. Pay special attention to the milestones your best customers cross—the customers who upgrade their plans, buy add-ons, and are long-term users of the product.

For example, you may see that 70% of people who become paying customers previously connected their payment gateway during their free trial. This connection between a product action and a future close is what makes this data so valuable from a sales perspective. 

Use this information to identify four or five key milestones that were crossed by the highest number of converting customers. These should be your PQL criteria.

If your product is B2B, bear in mind that the decision to buy will come down to how the account as a whole is using the product, as well as the individual users. Make sure you’re tracking product usage data at the level of both users and accounts.

 

Using PQLs in Your Marketing Data Framework

By filtering this user data to show which leads arrived from each Marketing channel and campaign, you can see which Marketing activities are connected with particular user behaviour and are delivering PQLs. This allows you to analyze marketing spend and campaign performance in a much more meaningful way, and to identify opportunities for efficiency. 

For example, it could turn out that far more users connect their payment gateway if they started a free trial after they come from one particular Facebook ad campaign. This connects the ad campaign with sales success and suggests that investing here is likely to bring in more PQLs. 

You can use these insights to improve marketing’s ROI by incorporating them into your data framework. We’ve covered the data framework you need to grow marketing in detail in a previous article. The key is to track the performance of each marketing campaign and channel through to closed-won to see which activities are worth extra investment and which are a waste of budget. 

By building PQLs into your campaign reporting, you should end up with something like this:

 

In this example, the PQL data is critical to improving sales efficiency. This company is getting roughly the same amount of customers through Facebook ads and SEO content, but the PQL data shows that these channels are performing very differently. 

A high percentage of the leads coming through Facebook ads convert to PQLs, but the conversion from PQL to closed-won is low. This indicates that there is great opportunity here, but at the moment, there isn’t enough nurture content to bring people in the free trial to a full account. 

On the other hand, leads coming through SEO content have a lower conversion to PQL, but the conversion from PQL to closed-won is much better. This means that by focusing on better targeting the SEO content to people who are likely to become PQLs, they’ll likely deliver many closed-won deals. 

Without including the PQL data in your analysis, you would likely be putting more time and resources into these channels in ways that weren’t making the most impact. With PQL data, you can target your investment much more effectively.

 

The Revenue Impact of Using PQLs

Since Sales is low-touch or nonexistent in these kinds of business models, Marketing needs to work with product teams to gather and refine these metrics. Setting this up may take time and resources, but it’s worth this initial input to get data on how your pipeline is actually performing. Using PQLs can lead to increased numbers of closed-won deals, for three key reasons: 

1. Improved demand generation efficiency

Marketing will be able to employ their resources more efficiently by focusing on demand generation channels that are delivering the most PQLs. When there is extra budget available, you’ll have data to show you the most effective way to use it.

2. More effective customer nurture

Marketing will know which users need the most nurturing, and where the customer journey needs reinforcement. 

For example, if leads connecting their payment gateway is a key PQL criterion, consider in-product messaging to highlight this function. Or, if sending their first email is a PQL criterion, Marketing could run a webinar guiding users through this process. 

Once Marketing knows the in-product actions that correlate to closed-won deals, they can focus on nurturing customers to complete these actions and so increase the conversion rate.

3. Prioritized sales engagement

Even in blended models where the customer is in the product and there is a sales team as well, adding product qualification to the sales pipeline stages can be a huge asset. That way, Sales can prioritize who to contact first in their pipeline. For example, if the PQLs who come through Facebook ads have the highest rate of conversion to closed-won, Sales should speak with these leads as soon as possible to unlock the easiest wins. 

All these outcomes will put you on the path to revenue growth. 

 

Ready to start using PQLs as part of your marketing metrics? Click here to download our free PQL Tracking Spreadsheet Template. 

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