Discovering product-led growth metrics offers valuable information to enhance user retention and boost revenue. By leveraging these metrics, you can strategize and achieve customer success. Let’s delve into the specific metrics and explore methods to enhance them effectively.
TL;DR
- Product-led growth is a strategy that centers on leveraging the product for customer acquisition, activation, conversion, and retention.
- By integrating pirate metrics into the Product-Led Growth Flywheel model, you can gauge performance at each customer journey stage.
- The PLG Flywheel comprises seven critical steps: Aha!, Activated, Selected, Paid, Basic, Pro, and Advocate.
- The success of a product-led approach can be assessed using ten key metrics: 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.
- Implementing five effective strategies can enhance your product-led growth metrics:
- Elevate your number of product-qualified leads (PQLs) by offering enticing free trials.
- Enhancing the onboarding experience by personalizing it reduces the time taken to realize value.
- Guide users with checklists to lead them to activation points more efficiently.
- Improve feature adoption and discovery through in-app messages that prompt users.
- Employing Net Promoter Score (NPS), surveys bolster loyalty and gather valuable customer feedback.
What is a product-led growth strategy?
A product-led growth strategy is a business approach that centers around the product as the primary driver for customer acquisition, conversion, activation, and expansion throughout the customer journey.
The strategy capitalizes on the product’s virality, features, and performance to promote and sell it effectively. The conversion process becomes more seamless when users experience the product’s value through free trials or freemium models.
How to gauge product-led growth using the pirate metrics framework?
To measure product-led growth, one can employ the well-known pirate metrics framework. This framework seamlessly integrates with the Product-Led Growth flywheel model, enabling measurement of success at every stage of the customer journey.
Developed by Dave McClure, the framework encompasses five crucial stages:
- Acquisition: Focusing on acquiring new customers effectively.
- Activation: Ensuring users experience the product’s core value and become active users.
- Retention: Nurturing strategies to retain existing customers over time.
- Referral: Encouraging satisfied customers to refer others, promoting organic growth.
- Revenue: Maximizing revenue generation from customers.
Product-led growth flywheel
The Product-Led Growth Flywheel presents a robust framework to drive your business’s growth by prioritizing a product-led user experience.
To fully unlock the potential of product-led growth, embracing the flywheel model is crucial.
Let’s delve into the stages in more detail:
- Aha!
The Aha! moment marks the pivotal point in the user journey when your product’s value becomes crystal clear to your users. Ideally, this revelation occurs during the user onboarding process.
- Activated
Activation represents the subsequent phase in the customer journey. It occurs when your users engage in key events within your product and genuinely experience its value.
- Selected
With over 8,000 Martech SaaS businesses today, most individuals test out 2 to 3 tools before deciding which one to adopt. At the moment of selection, a customer commits to choosing your tool and is prepared to become a paying customer.
- Paid
Paid customers are those who have completed a transaction. They recognize the value in your product and are willing to invest in it to continue using it. This milestone is critical from a business perspective since generating revenue is the ultimate goal.
- Basic
Users are categorized as “Basic” when they regularly utilize some of the tool’s features, gain value, and express satisfaction. However, they haven’t been completely blown away yet.
- Pro
A “Pro” user, often a power user, embodies the ideal customer. They:
- Utilize a majority of your product’s features and achieve success with them.
- Integrate your platform into their workflows and utilize it alongside other apps.
- Regularly anticipate and explore new updates even before you officially release them.
- Provide valuable feedback to aid in product improvement.
- Advocate
The Advocate stage is the final step, where a Pro user begins to recommend your product to their network enthusiastically. They willingly engage in word-of-mouth advertising and offer glowing reviews.
Understanding product-led growth metrics
Let’s explore 10 significant product-led growth metrics that provide valuable insights to drive actionable outcomes. Take a moment to familiarize yourself with them.
- Product qualified leads (PQLs)
Product qualified leads (PQLs) represent users who have experienced and found value in your product. Typically, these are individuals who have activated through a free trial or freemium offering. Identifying PQLs is crucial, as they are more inclined to become paying customers in the future.
Unlike the SQL and MQL models, which focus on converting every target user persona or lead, the PQL model recognizes that not every lead is a suitable match for your company.
By utilizing the PQL model, you can implement more precise conversion tactics to attract the right users, ensuring they receive exceptional user experiences. Consequently, this approach will enhance both your conversion and retention rates.
- Time to value
In SaaS, “Time to value” (TTV) refers to the duration it takes for a user to reach the AHA! Moment and begin to realize the anticipated value of your product.
A product’s effectiveness in guiding users to their activation points and increasing the conversion rate is directly linked to its ability to achieve a shorter “Time to Value” (TTV). When customers quickly reach the AHA! Moment, they progress through the product adoption journey, ultimately leading to a higher customer lifetime value.
By monitoring and reducing TTV, significant enhancements can be made to user experiences, customer success, and retention, reducing churn and overall customer satisfaction.
- Average Revenue per User (ARPU)
The Average Revenue per User (ARPU) is a key metric that reveals the average revenue earned per paying customer every month, which is especially crucial for SaaS businesses reliant on monthly subscriptions.
To calculate ARPU, divide your monthly recurring revenue by the number of paying users. This valuable metric helps identify the most profitable users for your business, empowering product-led companies to allocate their customer acquisition expenses more effectively.
One crucial insight provided by ARPU is that customer acquisition costs cannot be reduced without considering the revenue generated by each customer. For instance, investing $100 in a user generating $800 in Monthly Recurring Revenue (MRR) is more prudent than spending $50 on someone contributing only $200.
Additionally, ARPU sheds light on your pricing strategy. Suppose your ARPU surpasses the middle pricing plan. In that case, it indicates that most users derive value from higher-priced plans, signaling that it might be time to update your subscription plans accordingly.
- Feature Adoption Rate
The feature adoption rate provides valuable insights into how quickly your users are embracing specific features due to their perceived value.
To calculate this metric, divide the number of monthly active users for the feature by the total user logins within a specific period, and then multiply the result by 100. This rate clearly explains how well your customers appreciate the features you’ve introduced.
If customers are not adopting a particular feature, it could indicate that they don’t find enough value in it or are unaware of its existence altogether.
In such cases, developing adoption strategies that involve actively collecting user feedback becomes essential. Utilizing this feedback, you can either enhance the feature to meet user needs better or implement measures to encourage users to discover and utilize the feature.
Customers are naturally drawn to products that align with their specific needs or tasks. A higher feature adoption rate correlates with lower churn rates and increased subscription renewal rates, as users are more likely to remain loyal to a product that effectively fulfills their requirements.
- Customer Lifetime Value (CLV)
The customer lifetime value (CLV) is a crucial metric that represents the revenue you can anticipate earning from each user throughout their tenure as a paying customer. It is calculated by dividing the Average Revenue per User (ARPU) by the customer churn rate. Notably, CLV provides insights into past and current users and enables you to predict the potential profitability of new users.
For instance, if a company’s average CLV is $5,000 over a period of 2 years, it implies that each user generates approximately $2,500 in revenue annually. Therefore, if the Customer Relationship Management (CRM) system expects to close 13 new deals, with an average of 3 monthly customers, you can expect to gain an additional $25,000 in revenue each month.
Moreover, a valuable aspect of CLV is its comparison with the customer acquisition cost (CAC). To maintain a healthy business, your CLV to CAC ratio should ideally be at least 3:1, ensuring that the revenue generated from each customer is three times higher than the cost of acquiring that customer. This ensures a sustainable and profitable customer acquisition strategy.
- Retention Rate
The customer retention rate refers to the percentage of customers who continue to do business with you over a specific period of time. Calculating this rate involves taking the number of paying customers at the end of the period, dividing it by the total number of paying customers at the beginning of the same period, and then multiplying the result by 100.
This metric serves as a valuable indicator of customer loyalty and the willingness of users to remain engaged with your offerings. Monitoring the retention rate at different stages of your product-led marketing campaign can provide real-time insights, enabling you to enhance user engagement effectively.
For a more comprehensive understanding, it is recommended to complement the retention rate with the customer churn rate, as this combination offers better visibility into renewal rates. By doing so, you can also improve your revenue forecasting.
A low retention rate is generally indicative of a lower level of customer satisfaction. If you notice that you are losing more customers than you are gaining, it becomes crucial to identify and address the underlying issues promptly.
- Net Revenue Churn
Net revenue churn is a crucial metric that measures the percentage of revenue lost during a specific period due to churn, which occurs when customers stop subscribing to your services.
To calculate this metric, you need to determine the difference between the Monthly Recurring Revenue (MRR) lost from customers canceling their subscriptions and the MRR gained from upgrades during the same period. Next, divide this value by the MRR you had at the beginning of the period and multiply the result by 100.
A positive net MRR churn indicates that you have lost more revenue than you gained in that particular period. This can be concerning as it means your business is earning less money compared to the previous month. If this trend persists, it can seriously impact your business’s financial health.
Ideally, you should aim to keep the net revenue churn rate close to zero, but the best scenario is when it becomes a negative figure. A negative net MRR churn implies that your upgrades and new customers are generating more revenue than the losses from churn, which is a positive sign for the growth and sustainability of your business.
- Expansion Revenue
Expansion revenue refers to the Monthly Recurring Revenue (MRR) generated from existing customers, reducing net MRR churn. To achieve this, the rate of MRR from expansion must surpass the churn rate.
To calculate the expansion MRR rate, you need to find the difference between the expansion MRR values at the end and beginning of a specific month. Then, divide this result by the beginning expansion MRR. Multiplying this ratio by 100 will give you the expansion MRR rate.
The concept of expansion MRR leads to negative churn, meaning that you generate more revenue from upselling, cross-selling, and offering add-ons to existing customers than you lose from churned customers.
Implementing strategies like upselling and cross-selling helps provide additional resources that customers genuinely need, resulting in higher retention and increased customer lifetime value. This approach allows you to derive more value from customers while maintaining a high Customer Lifetime Value to Customer Acquisition Cost (CLV:CAC) ratio.
- Net Promoter Score
The Net Promoter Score (NPS) gauge user sentiment and loyalty towards your product or service.
To calculate the NPS, a simple survey asks users to rate their likelihood of recommending your offering on a scale of 1 to 10. This categorizes customers into three groups: promoters, passives, and detractors.
Promoters are satisfied and loyal customers inclined to advocate for your brand. On the other hand, detractors are disengaged customers who pose the highest risk of churning.
For better insights, we recommend including a qualitative follow-up question in the survey to understand the reasons behind each score. This valuable feedback can be used to make necessary improvements and convert detractors into promoters. Even passives, who may be indifferent initially, have the potential to turn into promoters with the right strategies in place.
- Product Virality
Product virality is the phenomenon where existing customers actively participate in expanding your user base by inviting others from their network or sharing your product, thereby increasing awareness within that network.
Mathematically, product virality can be calculated by taking the number of users you had at the beginning of a specific period and multiplying it by the viral coefficient. The viral coefficient represents the rate at which invited new users are converted and become active users. Simply, it measures how many new users each existing user brings in through their invitations.
5 ways to improve your product-led growth metrics
Let’s explore five practical strategies to enhance product-led growth metrics.
- Offer Free Trials to Attract Product-Qualified Leads
The foundation of the product-led growth (PLG) approach revolves around free trials or freemium models. By providing free trials, users can test your product before committing to a purchase.
This approach significantly boosts the number of Product-Qualified Leads (PQLs) since customers can directly experience your product’s value. Consequently, this leads to higher conversion rates as users have firsthand experience with your offering.
- Enhance Onboarding Personalization to Accelerate Time to Value
Tailoring the onboarding process to suit individual user personas minimizes hurdles and facilitates quicker attainment of value.
For instance, incorporating welcome screens provides a warm greeting and enables gathering valuable insights into users’ specific needs and use cases. This information can then be utilized to segment customers based on their unique objectives and customize their onboarding journey accordingly.
Additionally, personalized for each user, interactive walkthroughs play a vital role in reducing Time to Value (TTV). By strategically appearing at the right moments, these walkthroughs guide users toward reaching activation milestones more efficiently.
- Employ Checklists to Guide Users Toward Activation
Checklists serve as a powerful tool for simplifying a relatively intricate task by breaking it down into a series of actionable steps. The inherent desire to complete tasks on the checklist motivates users and directs them towards the crucial activation point.
By incorporating concise checklists, you can enhance user engagement and smoothly guide users through each stage of their journey, starting from the initial sign-up to the activation process.
- Leverage In-App Messages for Enhanced Feature Exploration and Adoption
By employing secondary onboarding, you can introduce users who have already engaged with the basic features to more advanced functionalities. This approach ensures a steady delivery of value over time and significantly enhances the conversion rate for freemium accounts.
In-app messages, presented as tooltips and modals, are crucial in driving account expansion when strategically timed. These messages can effectively guide users toward discovering relevant features they should explore and encourage them to try these valuable functionalities.
- Enhance Customer Loyalty through NPS Surveys for Valuable Feedback
Utilizing NPS surveys is an excellent approach to gathering essential customer feedback regarding quantitative scores and qualitative insights. These surveys aid in understanding the underlying reasons that may lead to customer churn. Adding a follow-up question allows you to pinpoint specific friction points and issues experienced by users.
Analyzing the NPS data empowers you to address these friction points effectively, introduce new features, and improve customer experience. Demonstrating genuine care for your customers and valuing their feedback fosters stronger customer loyalty and enhances retention rates. By actively listening to their voices and taking action, you build trust and strengthen the bond with your customer base.
Conclusion
Leveraging the product-led growth strategy is a powerful way to expand your customer base by focusing strongly on your product and delivering delightful user experiences.
Regularly monitoring and measuring product-led growth metrics provides valuable insights into the effectiveness of your PLG strategy and its ability to generate value.
If you’re eager to gain invaluable knowledge about your customers’ in-app behavior and create personalized product experiences, consider experiencing a Userpilot demo. Witness how this can pave the way for sustainable growth and enable you to cater to your users more effectively.
