Product-Led Growth Metrics in SaaS & 5 Tips To Improve Them
What are product-led growth metrics and why should you track them?
Product-led growth metrics provide you with valuable insights that you can use to improve your user retention and increase revenue.
So let’s find out what these metrics are and how you can improve them to achieve customer success.
TL;DR
- A product-led growth strategy focuses on using the product to acquire, activate, convert, and retain customers.
- By applying pirate metrics to the Product-Led Growth Flywheel model, you can measure success at every stage of the customer journey.
- The PLG Flywheel has 7 steps: Aha!, Activated, Selected, Paid, Basic, Pro, and Advocate.
- The 10 key product-led growth metrics are product qualified leads, time to value, average revenue per user, feature adoption rate, customer lifetime value, retention rate, net revenue retention, expansion revenue, Net Promoter Score, and product virality.
- Here are 5 strategies to improve your product-led growth metrics:
- Offer a free trial to increase the number of product-qualified leads (PQLs).
- Personalize the onboarding process to reduce the time to value.
- Use checklists to direct users to activation points.
- Use in-app messages to drive feature discovery and improve feature adoption.
- Send NPS surveys to collect customer feedback and improve loyalty.
What is a product-led growth strategy?
Product-led growth strategy is a business methodology that places the product at the center of the customer journey and is used as the main driver of customer acquisition, conversion, activation, expansion, etc.
Much of this strategy relies on the virality, features, and performance of the product to promote and sell it. After a user experiences your product’s value through a free trial or freemium model, it becomes much easier to convert them.
How to measure product-led growth using the pirate metrics framework?
Product-led growth can be measured with the well-known pirate metrics framework. The pirate metrics can be easily applied to the Product-Led Growth flywheel model to measure success at every stage in the customer journey.
Developed by Dave McClure, the framework consists of 5 stages:
- Acquisition
- Activation
- Retention
- Referral
- Revenue
Product-led growth flywheel
The Product-Led Growth Flywheel is a framework that helps your business grow by investing in a product-led user experience.
It’s critical for you to adopt a flywheel model if you want to fully unlock the potential of product-led growth.
Let’s go over the steps in detail.
Aha!
The Aha! moment is the point in the user journey where your product’s value becomes clear to your users. Ideally, this should happen during the user onboarding stage.
Activated
Activation is the next step in the customer journey. It’s when your user performs the key events in your product and actually experiences the value.
Selected
With more than 8,000 Martech SaaS businesses today, most folks are trying at least 2 to 3 tools before selecting which one to use.
At the point of selection, a customer decides to choose your tool and is ready to become a paying customer.
Paid
Paid customers are those who have made a payment. Because they see value in your product, they are willing to invest in it to keep using it. From a business point of view, it’s a very critical milestone since you’re here to make money.
Basic
We classify someone as a ‘Basic’ user when they regularly use some of the features of a tool, get value, and are generally satisfied. But you haven’t blown them away yet.
Pro
A ‘Pro’ user, also called a power user, is your ideal user. They are the ones who:
- Use the majority of your product’s features and gain success with them.
- Integrate your platform into their workflows and use it in conjunction with other apps.
- Check for new updates regularly before you even release them.
- Provide valuable feedback.
Advocate
This is the final step where a Pro user starts referring your product to their network. They are happy to do some word-of-mouth advertising and give you great reviews.
What are product-led growth metrics?
Here are 10 product-led growth metrics that will give you actionable insights. Let’s have a quick look at them.
Product qualified leads
Product qualified leads (PQLs) are users who have tried your product and gained value from it. They are usually users who have activated via a free trial or freemium model. Those who qualify as PQLs are most likely to become paying customers in the future.
Contrary to the SQL and MQL models that aim to convert every target user persona or every lead, the PQL model emphasizes that not every lead is a good fit for your company.
You can use the PQL model to adopt more targeted conversion strategies to grab the right users and make sure they get superior user experiences. This will boost both your conversion and retention rates.
Time to value
Time to value (TTV) in SaaS is the amount of time taken by a user to reach the AHA! moment and start experiencing your product’s expected value.
The shorter the time to value, the better your product is at leading its users to their activation points and the higher the conversion rate. Customers can then advance on the product adoption journey and eventually create high customer lifetime value.
Tracking and decreasing TTV can greatly improve user experiences, drive customer success, and reduce churn.
Average Revenue per User
The Average Revenue per User (ARPU) is the average revenue you earn each month per paying customer. ARPU is especially important for SaaS businesses since their business models depend on monthly subscriptions.
To measure the ARPU, divide your monthly recurring revenue by the number of paying users.
The ARPU helps you understand which users are the most profitable for your business. This allows product-led companies to direct their customer acquisition expenses toward the right targets.
Many companies don’t realize that they can’t lower the customer acquisition cost without accounting for the revenue generated by a customer. After all, it’s wiser to spend $100 on a user that generates an MRR of $800 than spend $50 on someone who brings in only $200.
The metric further sheds light on your pricing plan. If your ARPU is above the middle pricing plan, it suggests that most users get value from higher-priced plans. So it might be time to update the subscription plans.
Feature adoption rate
The feature adoption rate tells you how fast your users are adopting a specific feature because they find it valuable.
To calculate this metric, divide the number of monthly active users for the feature by the number of user logins in a given period, and multiply the ratio by 100.
This rate gives a clear idea of how well your customers value the features you’ve created.
If customers aren’t adopting a certain feature, they aren’t finding enough value in it, or they haven’t even discovered the feature yet.
In both cases, you need to develop adoption strategies that involve gathering user feedback. You can use the information collected to either improve the feature or stimulate feature discovery.
Customers start with the product whose features help them achieve their jobs to be done. Increased feature adoption rate translates into lower churn rates and higher subscription renewal rates.
Customer lifetime value
The customer lifetime value (CLV) is the revenue you can expect to earn from each user over the duration they’re a paying customer. It’s equal to the ratio of the ARPU to the customer churn rate.
CLV not only gives insights into past and present users but also lets you predict the profitability of new users.
For example, if the average CLV of a company is $5,000 over 2 years, each user is generating about $2,500 annually. So if the CRM expects to close 13 new deals and an average of 3 customers per month, each new month will generate an additional $25,000 for you.
Furthermore, you can compare this metric with the customer acquisition cost. Your CLV:CAC ratio should be at least 3:1 to maintain good business health.
Retention rate
The retention rate is the percentage of customers you’ve retained in a specific period. You can measure it by dividing the number of paying users at the end of the period by the total number of paying users at the beginning of the period and multiplying the result by 100.
This rate provides insights into how much customers are willing to stay with you. Tracking this metric at several points throughout your product-led marketing campaign can provide useful real-time feedback, which you can use to boost user engagement.
It should always be used with the customer churn rate to get enhanced visibility into the renewal rates. This lets you prepare a better revenue forecast.
A low retention rate typically indicates a low level of customer satisfaction. If you are losing more users than you’re gaining, you should find where the problem might be.
Net revenue churn
Net revenue churn is the percentage of revenue lost in a specific period due to churn.
To calculate the metric, first, find the difference between MRR lost and MRR gained from upgrades during the period. Then, divide the value by the MRR at the start of that period and multiply the ratio by 100.
A positive net MRR churn means that you earned less money than you did in the previous month. If this trend continues, it will suck the lifeblood out of your business.
Keeping the rate around zero is recommended, but the ideal rate is a negative figure.
Expansion revenue
Expansion revenue is the MRR generated from existing customers and ultimately results in a negative net MRR churn. For this to happen, the expansion MRR rate needs to be greater than the churn rate.
Find the difference between expansion MRR values at the end and beginning of a given month and divide the result by the beginning expansion MRR. Multiplying this ratio by 100 will give you the expansion MRR rate.
Expansion MRR leads to negative churn, where you make more money from account expansion than you lose from churn.
You can achieve this by using upselling, cross-selling techniques, and offering add-ons. Make sure that users really need that additional resources.
This, in turn, leads to higher retention and customer lifetime value. You can get more value from customers as well as maintain a high CLV: CAC ratio.
Net Promoter Score
The Net Promoter Score (NPS) measures user sentiment and loyalty.
An NPS survey simply asks users how likely they are to recommend your product on a scale from 1 to 10. This gives you 3 categories of customers as shown below: promoters, passives, and detractors.
The NPS metric is the difference between the percentage of promoters and detractors.
Promoters are your happy, loyal customers who are more likely to become brand advocates. Detractors, on the other hand, are disengaged and are at the highest risk of churn.
We would advise you to add a qualitative follow-up question in your survey to learn the reasons behind each score.
This allows you to make improvements to convert detractors to promoters. Passives might be indifferent to your product, but they’re not immune to becoming promoters either.
Product virality
Product virality refers to customers bringing in new users by inviting those in their network or sharing your product to raise awareness within the network.
It’s equal to the number of users at the start of a given period multiplied by the viral coefficient, which measures the conversion rate of invited new users.
5 ways to improve your product-led growth metrics
Let’s briefly look at 5 tactics you can use to improve the product-led growth metrics.
Provide a free trial to increase the number of product-qualified leads
The PLG flywheel relies upon the free trial or freemium model for success. Free trials, particularly, let users test your product before deciding to buy.
This ultimately increases the number of PQLs as customers already experience your product’s value, consequently improving conversion rates.
Personalize the onboarding process to shorten the time to value
Personalized onboarding reduces friction for each unique user persona and makes it easier for users to reach the activation points.
For example, welcome screens are a great way to not only greet users but also gather more information about their use cases. You can then use this to segment customers based on their jobs to be done and personalize their primary onboarding flow.
Personalized interactive walkthroughs also reduce TTV by appearing to users at the right time and steering them to activation milestones faster.
Use checklists to prompt users to the activation point
Checklists are an effective way of breaking down a relatively complex task into a list of to-dos. It makes users want to check off things, which will ultimately lead them to the activation point.
Short checklists can boost engagement and take users step-by-step through the user journey, for instance, from signing up to activation.
Use in-app messages to drive feature discovery and improve feature adoption
Secondary onboarding is used to introduce advanced features to users who have already interacted with the basic ones. This drives continuous value over time and increases the conversion rate for freemium accounts.
In-app messages in the form of tooltips and modals can also boost account expansion if they are triggered at the right time.
You can use tooltips to highlight relevant features a customer should try. Check out the example below.
You can also use modals to make new feature announcements.
Send NPS surveys to collect customer feedback and improve customer loyalty
An NPS survey can be used to collect both quantitative and qualitative user feedback to understand potential churn reasons. A follow-up question can help you identify friction points and issues.
By analyzing the NPS data you can fix the friction points, launch new features and create a better customer experience. By doing so, you’ll show that you really care about your customers and that their voice really matters. This will improve customer loyalty and retention.
Conclusion
The product-led growth strategy can help you grow your customer base by focusing on your product and delighting users.
Track and measure the product-led growth metrics regularly to get an overview of your PLG strategy and see if it drives value.
Want to collect invaluable insights into your customers’ in-app behavior, or create personalized product experiences for them, then get a Userpilot demo and see how you can achieve sustainable growth.
