Venture Capitalist at Theory

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2 minute read / Jan 15, 2013 /

The product qualified lead (PQL)

Many of the SaaS companies I work with are buzzing about a new concept: product qualified leads (PQL). It’s typical to see outbound sales teams create new leads by cold-calling - think Glengarry. And marketing also qualifies leads (MQL) using online advertising, branding, content, email and other channels. But the PQL concept is novel.

PQLs are potential customers who have used a product and reached pre-defined triggers that signify a strong likelihood to become a paying customer. A hypothetical example at Expensify might be if a user uploads 10 receipts and invites one friend, this user is a PQL and should be sent to the sales team.

Each product will have a different definition of a PQL because each product measures engagement differently. Also, the definition will change with time as product usage patterns evolve. The best definitions of PQL are informed by conversion correlation data, eg the behaviors trigger customers to convert paid.

PQLs are powerful because they are “free”, scalable, and highly qualified. If a product sells itself, the business wins free customer. (I’m ignoring software development costs and opportunity costs to develop features that may not impact PQL and sales performance directly.) They are scalable because they require no human touch and they are high-quality leads. When the sales team calls PQLs, customers typically convert at about 25 to 30%.

Also, PQLs are a fantastic management tool because they align the entire company around one goal: revenue. Typically, the product and engineering teams don’t have goals tied to revenue which bisects a team into revenue generating components (sales and marketing) and cost centers (eng and product). Aside from potentially creating cultural challenges, this structure is less effective than it could be. PQLs pull product and engineering into the fray. Everyone in the company has the same goal.

For product and eng teams, PQLs provide a rigorous framework for prioritizing development. Each feature can be benchmarked to determine the net impact to PQL which is ultimately funnel optimization. Of course, a myopic focus on PQL isn’t ideal either. The product and eng teams must balance their revenue goals with new feature development, engagement cultivation, infrastructure upkeep and so on. But product managers should be able to strike a reasonable equilibrium.

PQLs provide tremendous leverage for startups by aligning the goals of the product and engineering teams with the rest of the company. Consider implementing them as a management tool in your 2013 plans.

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