A note from Clair Byrd, Partner, Wing VC

Every year, Wing surveys top investors across the world to understand what’s driving the modern enterprise, and to identify the companies leading the way. 

It came as no surprise that this year—like the year before—80 percent of the fastest growing companies at every stage, from seed startups to monoliths like Stripe, have adopted or were built with a product-led growth model.

Product-led growth is ubiquitous in the modern enterprise. And yet, it’s often misunderstood. Its influence has spread beyond just a go-to-market motion, and now frequently comes up in talk about sales motions, product roadmap, even culture and team building. The way it is applied takes many shapes and forms, mirroring the unique challenges and opportunities that separate one company from the next.

No matter a company’s size or stage, though, it’s not easy to successfully execute on a PLG model. In this guide, HeadsUp shares a wealth of knowledge designed to empower any team to find success with PLG. We’ll enter into this journey through the avenue of Product Qualified Leads: what they are, why they matter, and what to think about as you consider how they fit into one’s organizational flow.

We’re proud to have worked with HeadsUp and Costanoa Ventures to bring this guide to life, and hope it helps you in your PLG journey. Good luck!

Introduction to this guide & who it is for

If software is eating the world, then Product Led Growth is eating enterprise software. In a world where the PLG companies are winning most of the awards, outperforming in the stock market, and being written about in multiple books, it’s almost cliched to write about them. PLG isn’t the future, it has already arrived. 

What exactly is a product-led growth strategy? PLG is when a company adopts an approach that focuses heavily on the product and end-user, and often features a self-service go-to-market motion. However, PLG at scaling companies often also have sales-assist, as well as enterprise sales motions.

Why is everyone going product-led? The numbers speak for themselves:

• PLG companies achieve on average 4% higher revenue growth every year
• PLG companies have higher net dollar retention (+10%)
• PLG companies scale better, posting $150m more revenue at IPO than other enterprise companies

What are the characteristics that allow PLG companies to perform so well? It likely comes down to a few factors.

First, their products are built in a way that allows new users to start using the product in a low-friction manner (‘self-serve’). This allows them to amass a large captive user base that they can generate revenue from. 

Second, they invest heavily in product development and growth. This allows them to build products with a better user experience, and many of them exploit growth loops. This explains the higher net dollar retention, as the products grow virally within organizations.

Finally, PLG companies are able to approach go-to-market with a lot more intelligence. This intelligence comes in the form of understanding how to best engage each account based on their usage of the product. For example, a growth team might offer an in-app video to customers who are thinking about buying, or a marketing team might send a piece of content to encourage deeper engagement that leads to conversion.

The way GTM teams can identify these specific accounts and users to engage is through Product Qualified Leads (PQLs).

PQLs are users who signal their buying intent based on product usage rather than just traditional marketing or sales qualification. Using PQLs, top-performing PLG companies are able to convert a high proportion of their user base into paying customers (up to 25%). By tapping into the usage data they collect, they can focus sales, marketing and customer success resources more efficiently. This allows GTM teams to engage with the right accounts at the right time with the right message based on what they know about them. 

After speaking to 100+ PLG go-to-market execs (and dozens of podcast interviews), it’s clear that many of the best companies are still figuring out how to best use PQLs. People often ask us - what are their peers doing when it comes to defining and using PQLs?

This guide aims to share the best practices we’ve learned from leading PLG companies, both what worked well and what were the pitfalls to avoid.

What kinds of companies should care about PQLs?

PQLs are not for everyone. 

Companies that don’t already have a significant base of users, for one, will find limited use in defining or using PQLs in their go-to-market motion. PQLs aren’t a means of user acquisition. 

Instead, the companies that will benefit the most from adopting PQLs are those trying to identify the right opportunities for monetization and expansion from a large pool of existing users, whether through self-service, or sales-assist and enterprise sales channels. In B2B SaaS companies, this often also is relevant to customer success functions that contribute to upsell revenue.

To see if PQLs are useful for your company, consider these three criteria:

1. You need to have sufficient users and data

Identifying PQLs relies on finding the usage patterns that correlate with intent. For example, Dropbox realized that when a certain number of files were uploaded within an hour of a sign-up, that indicated the user was likely to want to upgrade to their paid service. To find such patterns effectively, you would want to have a large enough dataset to identify correlations. 

Furthermore, we’ve found that startups with less than 1000 active users, or less than 100 accounts, typically understand individual customers well enough. These companies can often get by without formally defining a PQL. They know most users well enough to tailor their go-to-market approach manually. 

2. You want to achieve more expansion revenue

You have to believe that there is a lot of potential in achieving additional revenue through upselling existing users, converting free users to paid users, or encouraging users to consume more of your product. 

Some PLG companies we spoke to were more focused on outbound sales or driving inbound demand via marketing. For these companies, PQLs would not be impactful as they help to identify areas of opportunity within the existing user base, instead of customers that have never used the product.

3. Your product has tiered or usage-based pricing

For some companies who only have 1 set price for each customer, like hiring platform Deel, for example, there is limited opportunity to use PQLs to generate expansion revenue. Companies typically look to PQLs to drive revenue by moving users between tiers (e.g., free to paid) or increase usage (e.g., more API calls).

Which teams should work with PQLs?

There is no one-size-fits-all approach to PQLs. They could help sales teams reach out to the right users, but similarly they could enable marketers to send out content to deepen user engagement. We’ve seen a wide variety of teams work on them, and typically it is a cross-functional exercise. Teams might overlap and across companies the setup can be very different.

Broadly, functions that touch the PQL definition and use PQLs in their day to day work include go-to-market (marketing, sales, ops) and growth teams. 

Sales teams use PQLs to focus on the right accounts and tailor their messaging. This is often called ‘Product Led Sales’, which involves enabling sales teams within PLG companies with product usage data. Here are some examples of sub-teams within sales and how they use PQLs:

• BDRs/SDRs might use PQLs to prioritize their outreach.
• AEs might receive fewer accounts or high-quality accounts that have stronger intent as a result of PQLs. Based on each PQLs usage patterns, AEs also customize their engagement.
• Sales-assist teams, which are part of some PLG org charts, focus on helping self-serve users as they progress through the customer journey to increase engagement and monetization. Sales-assist teams usually rely on PQLs to identify the users they could have the most impact on. 

For example, document automation platform PandaDoc invested in a PQL system to help its sales team focus on higher potential opportunities to drive revenue growth by way of increasing close rates, rather than inefficiently scaling headcount.

In experimenting with our PQL model, we are hoping that we can drive increased conversion for our sales team by giving them a smaller number of opportunities to work on day-to-day; so we can focus on improving the quality of messaging, and increasing the close rate. 

Bernard Desarnauts, VP of Product, PandaDoc 

Marketing teams also use PQLs to focus their efforts and customize their campaigns. For example, the marketing team at data workflow tool Prefect uses PQLs to identify highly engaged users. They then send content that is specific to how these users are using the product through emails, slack messages or ads.

We try to provide our PQLs with content that will help them get more value out of Prefect. Perhaps there are things they didn’t know that they could use — integrations, automations, or our API. There are customers out there who want help, but for some reason are reluctant to ask or don’t know where to go to get it. We try to make that available to our PQLs through a content programme and targeted ads. 

Chris Reuter, Head of Growth, Prefect

GTM operations (marketing ops, sales ops, revenue ops) teams often oversee the setup and operation of the PQL engine. This might include determining the objectives and strategy, establishing the tech stack, and changing existing qualification and GTM processes to accommodate the PQL.

Growth teams tend to work on using an experimental and data-driven approach to define the criteria for a PQL. Their responsibilities might also overlap with operations teams when it comes to setting up and operationalizing PQLs in go-to-market workflows. 

Now that we understand who this guide is for, you might wonder – how exactly do PQLs result in greater go-to-market effectiveness? Read on to learn the mechanics of how PQLs impact key outcomes like conversion rate and expansion velocity.

...to read the rest of the book and see how companies like Hubspot and Heroku use PQLs, leave your email below! (Don't worry, we hate spam as much as you do.)