How to identify product-qualified leads for your business

Let’s start with a myth: A product-qualified lead is a lead that moved through your free trial or freemium model and decided to upgrade. 

And, a fact: A PQL (product-qualified lead) is a little more nuanced than that. 

Now we’ve sorted that out, let’s look into what a PQL really is and how you can define, track, and effectively nurture these valuable leads. 

What is a PQL (product-qualified lead)?

Essentially, a product qualified lead is a lead who has experienced their ‘aha moment’. They’ve seen the value first-hand, and they’re most likely going to be ready to commit to your product.

This means that the PQL you set for your product today may need to change as your product changes, and that’s ok. The important thing is that this metric is one that’s optimized towards and identified, and that the lead is properly nurtured. 

PQL vs SQL vs MQL

Like a PQL, the definition of a Marketing Qualified Lead (MQL) or Sales Qualified Lead (SQL) is specific to the business model and product. For argument’s sake, we’re going to work with the very general definitions below:

What is an MQL

A Marketing Qualified Lead (MQL) is a lead who has had a meaningful interaction with your marketing materials. It could be downloading an eBook, signing up to a newsletter or landing page, or engaging with your brand’s social media content.

What is an SQL

A Sales Qualified Lead (SQL) takes things one step further, reaching out through a sales funnel, like a landing page, to ask about pricing or request a free trial. They may also reach out to a salesperson directly over LinkedIn or email. 

Establishing a PQL, as defined above, will change the way both Sales and Marketing teams work. The marketing department will tweak their strategy to push users to take the product-qualified action, while sales teams will be responsible for encouraging high-value PQLs to upgrade. 

Benefits of PQLs

“OK, but don’t we have enough metrics to track and chase!?” you might be saying. 

Well, yes, but there are several compelling reasons to prioritize PQLs over other qualifying metrics and while the initial set up may feel time-consuming and even confusing, it really will worth its weight in gold. 

Here are just a few reasons PQLs will transform your business for the better:

• PQLs help sales and marketing teams prioritize their efforts: Afterall, 80% of your company’s future revenue will come from just 20% of your existing customers

• Actions speak louder than words: Customers may tell sales people that they’ve seen the value of your product just to be nice or in a bid to get off the phone. A product-qualifying action is more reliable!
  

• PQLs are more likely to convert and less likely to churn: Think about it - a PQL has already invested time in your product and they’ve taken an action that indicates they’ve experienced the value making them more likely to stick around

• PQLs shorten the sales cycle: Since the prospect has used the product first hand, they’ve skipped ahead in the sales cycle meaning your team can get to more people and have more meaningful conversations
  

• PQLs have lower CAC and a higher ACV: When the sales cycle is shortened and the customer is convinced of the product, customer acquisition costs go down and annual contract values go up. Win win. 

How to identify PQLs for your business

In order to identify a PQL for your product, you’ll need to look at which action customers take before they become an active and engaged user of your product, and identify the behaviors that lead to them upgrading. 

This action will be unique to your business. To give you an example, here are some product-qualifying actions to consider:

• Hitting a usage limit on your product 

• Heavy use of a feature

• Use of a specific product feature

• Reaching success milestones (making a sale or driving engagements)

At first, identifying what exactly a PQL is for your business can feel daunting. After all, there are likely thousands of actions a customer can take with your product and many of them will be meaningful to the product experience. 

The best place to start is at the end. Take a look at your existing paying customers and start to identify some of the commonalities in their behavior by speaking to your sales, marketing, and customer success teams. 

You can then use this anecdotal information to guide your product usage exploration. Use data to discover what the most active customers have in common, which key features these customers use the most, when product usage begins to increase, and what freemium customers were doing with your product before they made the decision to upgrade. 

With this information in hand, you’ll start to paint a picture of the customer journey to define your PQL. 

Examples of PQLs

Since no two companies have the exact same product, no two companies have the exact same definition of a product-qualified lead. But it can be helpful to see how other companies might define PQLs and how simple could might be.

• Slack: A team sending 2,000 messages

• Zendesk: Populating their customer-facing help center with content 

• WorkOS: External connections (integrations) 

• Dropbox: Number of file uploads 

• Expensify: Number of invoices sent within one month

In each of these examples, you’ll see that a PQL definition is directly tied to the true value of the product. It is an action that shows us your user has reached their ‘aha moment’. 

Implementing PQLs using Ortto

As an Ortto customer, you’ll be able to set up a Custom Activity that tells you every time a user takes an action that is important to your business. This means that you can actually guide your existing customer database to get to your product-qualifying action, experience their ‘aha moment’ and become an official PQL. 

Let’s say we’re a video conferencing service and we know that our product-qualifying action is a user setting up a meeting, and then inviting someone to attend that meeting within the first 7 days. By setting up custom activities for key events such as signing up, creating a meeting, and inviting a guest, we can prompt a user to follow this journey. 

This is what the flow would look like:

• User signs up > this triggers a Welcome email promoting them to set up a meeting 

• User sets up a meeting > this triggers an email to prompt them to invite someone to their meeting 

• They send the invitation > we congratulate them for completing the process “Yay”!

Now you have a PQL and can continue to automate actions in order to nurture the lead or trigger a slack message notifying your sales team that a user has completed the key actions, and automate a new deal to be created in your CRM.

Prioritizing your PQLs 

For some businesses, especially those with a large volume of users on their freemium product, this product-qualifying action could be just one piece of the PQL pie. 

Along with the actions you can pass a range of attributes, such as where they are located, which plan they signed up for, what UTM parameters were in their referral URL — whatever data your team would like to see. This information can help prioritize your leads and direct them to the right place at the right time. 

For example, perhaps you already know that 75% of your biggest customers are in the B2B space and 80% of them are located in a city with a population of over 5 million. By layering company information on top of your product-qualifying action data, you’ll be able to quickly identify product-qualified leads in the B2B space who live in a large city. 

Now you can set up a workflow to ensure that your sales team knows this lead is hot, hot, hot! 

Converting PQLs into paying customers

Thankfully, the hard work is done and you have a prioritized list of PQLs ready for nurturing. Your goal should be to develop a playbook for different types of PQLs, using multiple channels for outreach. 

It should go without saying that those PQLs you’ve identified as top priority will be directed to your sales team who can reach out with a personalized message that references the stage of the customer journey they are in, the actions they’ve recently taken, and an offer to help them unlock more from the product. 

In another instance, the PQL may be better placed in a trigger-based nurture journey that automates a series of emails and pop-ups to nudge the lead in the right direction, helping them self-serve and educate their way to paying customer status.

In a product-led growth model, the product itself will do the majority of the talking, with your sales team stepping in to do everything the product can’t — creating custom plans, navigating financial questions, or helping users find solutions to very specific problems. 

PQL metrics that matter

While we’re on the topic of conversions, there’s more to PQLs than the lead itself. Once you have a definition in place and a process implemented, you’ll want to take a look at some of the metrics your teams can obsess over.

Raw PQLs

How many PQLs you are acquiring within an agreed-upon time period. It’s a good idea to track weekly PQLs as well as monthly so that you can see the actions marketing and product teams are taking are making an impact. 

Time to PQL

In some cases, your PQL will be time-based (e.g. created a template within one week). If not, calculating how long your sign-ups are taking to reach PQL status can help you improve the product experience. 

PQL Rate

This is the percentage of new sign-ups that reach PQL status in a given time period. Let’s say you get 250 sign-ups, but only 25 became a PQL within a month. That means your PQL Rate is 10% and you probably have some work to do to ensure that your marketing messages and product experience are matching up, your onboarding and activation process is easy to understand, and your customer journey is guiding users to their aha moment. 

PQL Conversion Rate

To calculate your PQL conversion rate, you’ll want to look at the total number of PQLs that converted to a paid model, divided by the total number of PQLs. If this number is not favorable, take another look at the workflow you’ve put together for your PQLs and see how it could be improved upon. If it is consistently low, you may want to take another look at how you’ve defined your PQL and whether that product-qualifying action is still relevant to your product experience. 

Use the table below as a guide for measuring your PQL metrics. 

Product-qualifed leads FAQs

1. What is product-led growth? 

Product-led growth relies on the product itself as the main vehicle to growing and retaining your customer base. 

2. Will PQLs replace MQLs? 

The short answer? Maybe.

To start, it’s likely PQLs will be tracked alongside MQLs while you iron out the kinks and align your team. Eventually, however, your marketing team may prioritize activities that drive raw PQLs and increase the PQL rate — that is, how many people who sign up for a free trial or freemium model because of a marketing message actually make it to PQL status. If that rate is low,  your marketing team will need to shift their message to ensure that the message and initial product experience marry up. 

3. Will PQLs replace SQLs?

High-priority PQLs are the leads most likely to close, so the sales team will be motivated to chase these leads like it’s the last mile of a marathon. That doesn’t mean that SQLs will disappear. After all, if someone has reached out to your team directly, they’re still a qualified lead with a lot of potential. 

4. Which metrics are the most important for defining PQLs? 

The action the user takes is the most important part of the PQL equation and, to start, it might be all you track as you move towards a more sophisticated PQL model. 

5. How will a PQL change KPIs across the organization? 

It’s likely that your teams are already thinking about the product actions that users are taking and how they correlate with the customer’s growth.

A PQL will give them a more tangible goal here, helping marketing teams optimize towards a specific action, giving customer success teams a qualifying action to work towards, and helping sales team prioritize their leads. 

The PQL metrics above should be tracked and, eventually, will become KPIs across the organization. It’s very much a team effort! 

6. How do I start to identify my PQLs? 

Start by talking to your teams and customers to get a sense of what that product qualified lead could look like. This anecdotal information will give you a place to start when you’re sifting through the data to identify your PQL. 

The final word 

Product-qualified leads will be the simplest leads to convert. They’re past the point of ‘aha’ and far more likely to be ready to commit to the product. The magic comes when we are using activity-based marketing to hit these users with the right message at the right time. When messaging is relevant to the actions they are taking, the lead is more likely to follow them and become a loyal user or shift into a paid subscription.

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