What is a PQL, Anyway?
Written by: Brian Mackay
Product Qualified Leads (PQLs) have gained a lot of interest within the technology industry in a short period of time. So why are PQLs getting so much attention? For one thing, PQLs convert into paid customers at a much higher rate than any other lead sources. In this article, we will delve deeper into the concept of a PQL and explore how to implement a PQL funnel to maximize the effectiveness of your sales team.
What is a PQL?
A PQL is a user who has engaged with and experienced the value of a product as a result of a free trial or access to limited features. For example, Slack will give customers access to their platform for free with limited features. Slack customers will PQL once they hit the 2,000 message limit while Hubspot will PQL someone once they start using certain features. The PQL is much more likely to convert into a paying customer as they have experienced the product firsthand and understand the value it provides to them and their business.
Data consistently shows that PQLs convert at extremely high rates – often between 15-30%. Given the higher conversion rate of PQLs compared to the typical 2-4% conversion rate of a Marketing Qualified Lead (MQL), it is clear why PQLs have produced such intense interest among sales and marketing professionals.
Generating PQLs is mainly dependent on your company’s business model, product, and how you define your value metrics. Understanding the definition of a PQL for your business is challenging; however, it will provide the foundation for how you operationalize PQLs in your sales strategy.
Product Led Sales
Incorporating PQLs in your sales funnel can improve your conversion rates and ultimately lead to increased revenue for your company. Typically, as Product Led Growth (PLG) Companies get larger (over $5 million ARR) they will begin to incorporate a product-led sales strategy so they can serve more complex buyers.
We have worked with several companies that have incorporated product-led sales into their sales strategy. Some of these companies were able to generated revenue seemingly effortlessly, while others struggled to achieve a return on investment. When incorporating a product-led sales strategy into your sales funnel, there are four key factors to consider:
- When to involve sales
- How to balance sales capacity with product usage
- How to provide sales teams with the right information
- How to measure effectiveness.
When should sales get involved?
Sales teams should reach out to product-qualified leads (PQLs) as soon as possible once these individuals have been identified based on your company’s qualification criteria. By initiating contact with PQLs quickly, sales teams can capitalize on the interest and engagement these leads have already shown in the product.
However, it’s important to strike a balance when reaching out to PQLs and avoid overwhelming them with excessive sales calls or emails. By carefully planning outreach and providing valuable and relevant information to PQLs, it allows the customer using the product to reach that aha moment, which will significantly increase the likelihood of conversion.
We have seen situations where potential customers have been bombarded with emails from different teams, such as marketing, product, and sales because internal teams were siloed. It’s important for companies to ensure that their departments are aligned and that their rules of engagement are clearly defined so companies can ensure that their interactions with customers are effective and professional.
How do you balance sales capacity with product usage?
Sales capacity refers to the amount of time, effort, and resources that a company is able to devote to its sales efforts, while product usage refers to the extent to which PQLs are actively using the company’s product. It is important to understand the number of PQLs that have been identified in a given time period and then estimate the time and effort required to convert these leads into customers based on historical data.
I worked with a company that lacked clear data on their PQL volume and the conversion rate of these leads into booked meetings. After analyzing the data, I discovered that the AE (account executive) team was operating at less than 50% capacity because they were not receiving enough leads for the size of the sales team.
Having a clear understanding of your sales capacity and the number of PQLs will allow you to maximize your company’s profitability by allowing leaders to make informed decisions about how to allocate resources and ensure that your sales team is operating efficiently.
How do you get sales the information they need?
Keeping your sales team informed about the latest customer information can significantly increase the likelihood of converting potential leads into paying customers. However, adding a large number of data points to your CRM won’t be helpful; it is important to identify product data that is correlated to conversions or can be used to tell a compelling story. Once you have identified the data points that will provide value to your sales team, you can begin to create automation to keep your customer relationship management (CRM) system up to date. This can involve setting up a connection between your CRM and the data sources, such as a data warehouse or other databases.
I have seen companies build their own ETL tool to integrate your data warehouse with the CRM tool. This method will take longer to implement and will be more expensive to maintain, but it will offer greater flexibility. Alternatively, using a third-party application to integrate your data warehouse with your CRM tool may be quicker and cheaper, but it may not offer as much flexibility. Deciding between these methods will depend on your product’s complexity and the size of your business.
The availability of product data in your CRM will help sales reps to be more informed and effective in their roles. Additionally, storing this information in your CRM will improve reporting and business insights.
How do you measure effectiveness?
It is crucial to track the performance of your Product Qualified Lead (PQL) funnel in order to measure the return on investment (ROI) of the program and identify areas for improvement. By monitoring the success of the PQL program, you can gain a better understanding of its effectiveness and make ongoing improvements to increase its impact.
For your PQL funnel, you should track all the standard metrics such as conversion rate, average deal size, time to close, and customer satisfaction. This type of data will enable your team to evaluate the effect of strategic changes that have been implemented. In addition to monitoring standard sales metrics, it is also important to track higher-level company metrics to gain a complete understanding of how PQLs impact your business performance. There are three key metrics to track:
- Net Dollar Retention (NDR) – A metric that recalculates Annual recurring revenue (ARR) to include growth and customer churn. It shows how well a SaaS business retains, engages, and upsells its customers
- Gross Revenue Retention (GRR) – The percentage of revenue you can retain from customers without taking expansion into account. The lower the GRR, the higher your revenue loss from downgrades and churns
- Customer Acquisition Cost – One major goal of PLG is to lower CAC. If your product is truly selling itself, it becomes much cheaper to acquire customers.
By gathering these insights, your team will better understand the PQL program’s effectiveness and be able to make informed decisions about how to optimize it for maximum impact.
The Bottom Line
By focusing on product adoption, your sales and marketing teams can prioritize leads that have expressed interest in the product, are actively using it, and are likely to become valuable customers. When beginning to implement PQL’s or improving your current PQL funnel it is important to remember the following:
- Get sales involved at the right time
- Understand PQL volume and operate your sales team at capacity
- Get sales the data they need to have compelling conversations
- Align on metrics to measure the effectiveness of your program
This approach can help your sales team focus on high-value customers who have raised their hands and are more likely to convert into paying customers, ultimately leading to increased revenue and customer satisfaction.