Transformative power of Product-Qualified Leads (PQLs) in driving business growth and reshaping sales strategies
Jun 8, 2023

Transformative power of Product-Qualified Leads (PQLs) in driving business growth and reshaping sales strategies

PQL's and Product-Led Sales

Arjun Saksena, the Founder/CEO of Humanic and Priya Bhatia, a seasoned growth product manager lead at 7shifts recently engaged in a captivating conversation on the PLG revolution. They delved deep into the realm of Product Led Growth (PLG) and its profound implications for sales and marketing strategies. Their discussion shed light on the transformative potential of PLG and the vital role played by Product-Qualified Leads (PQLs) in driving business growth.

The key takeaways from the enlightening conversation are

  • What is PLG and PQL, and what are the frameworks resonating with product growth.
  • PLG empowers users to drive product adoption and influence buyers, shifting the balance of power within go-to-market
  • The adoption of PLG and PQLs faces challenges in gaining buy-in from sales teams, but new AI-based companies and tools are emerging to bridge the gap and support sales representatives in harnessing the power of PLG.
  • The integration of PQL data with customer relationship management (CRM) systems holds tremendous potential, promising a more seamless and cohesive user experience.

Read the transcript

Note: this transcript has been lightly edited for clarity

Arjun Saksena
Hi, welcome everyone to webinars like talks with Priya Bhatia. And a lot of people probably know Priya already in the blogosphere and LinkedIn and everything else. She has an awesome blog site. And I would actually start by introducing herself. So over to you, Priya.

Priya Bhatia
Yeah. Yeah, Arjun. Thanks for having me, and so glad to be here. So yeah, I'm Priya Bhatia. Arjun found me on LinkedIn, I think. I started writing very recently, sharing my learnings from whatever I have learned in this phase of growth. I am the Growth Product Manager lead at 7shifts, which is a B2B restaurant team management solution. We're based out of North America and we serve about 35,000 restaurant locations across North America. My role here has been to optimize and improve our growth model. We have a PLG model, which is product-led growth. So I have done multiple experiments trying to optimize our activation, monetization, convert trial to paid conversion, and pricing and packaging. So yeah, this is a field that I'm really passionate about. My past career has actually been in finance, and I switched to growth, which drew a lot of inspiration from my past career as well.

Arjun Saksena
Thank you very much. Glad to be talking to you. So real quick about myself. I'm Arjun Saxena, founder and CEO of Humanic. We're based in California, and we're building a PLG CRM. More about that later. But today, I want to start our discussion, Priya, with what is PLG. So I think we were just talking before this, and for a greater number of people who are not in this echo chamber of PQL, PLG, PQA, let's start with just the basics of what is PLG, and then we can dive into multiple nuances and layers that belong here.

Priya Bhatia
Yeah, yeah, for sure. PLG, according to me, also known as product-led growth, is our go-to-market motion. To put it simply, traditionally, companies used to sell software by defining MQL and SQL. Companies could be marketing-led or sales-led, but those models were flawed because they did not pay too much attention to the user. It was always the buyer who was just buying the software and then deploying it in the company. Beyond a point, that model got disrupted by companies like Slack, Zoom, and many other PLG companies where users adopt the product within the company, and then buyers are compelled to buy the software. So that model came to be known as product-led, where the user was in charge, and the power shifted back to the users of the product rather than buyers pushing something down in the organization. That, to me, is product-led in the simplest way.

Arjun Saksena:Cool, I think that's pretty clear the way you describe it. So let's get deeper into this. So PLG, you know, very pervasive these days, almost every company that is starting out, whether small or large, has some products that they're selling through sales or signups, etc. One of the next things that gets talked about is PQLs, product qualified leads, which you also mentioned. So I would like to know from you, what is the benefit of me defining a PQL for my company? Let's say my company is PLG and I am getting like 10,000 - 20,000 signups, you know, a month or something like that, whatever that number is. What is the PQL? And what is the benefit of me spending time defining PQLs? Let's start there.

Priya Bhatia: Yeah, for sure. So before we get to PQLs, it's important to add an additional layer of what PLG is in terms of the product. When we say PLG, it's assumed that the product has some sort of a free trial or freemium model, where the customer can start using the product quickly without giving their credit card or any payment method. In that sense, the product usage itself drives the user towards usage and conversion. That is an additional layer of PLG as well.

Now, where does PQL come into place? PQL, by definition, is a product qualified lead. As I mentioned, companies traditionally had a marketing-led or sales-led culture, and they used to have something called marketing qualified leads or sales qualified leads. These leads only focused on the buyer. In the past, software selling was solely focused on the buyer of the product, considering factors like fit, whether customers have visited the website, seen a blog, or have certain firmographic characteristics. These factors were used as an indication of which customers to target.

As things shifted towards the user in the product-led model, a PQL or product qualified lead came to be. A product qualified lead is a user who has started using your product, interacting with it in some way, and doing the actions you want them to do, thereby creating a habit around your product. This becomes an indication of their buying intent, suggesting that they might be interested in your products. Instead of randomly targeting leads, you're channeling your resources towards the right leads. That's what a PQL is at a basic level.

The way companies define PQL can vary based on resources, the complexity of the GTM motion, and the majority of the company. In my organization, I define PQL or product qualified lead as someone who has taken XYZ actions based on our activation definition. PQL can be a spectrum, ranging from simple cases where a customer who has signed up for a free trial can be considered a PQL, to more complex scenarios where customers have taken additional actions like inviting a team or performing specific actions on their trial or free plan. It can be as simple or as complex as desired. We can discuss the details further if needed.

Arjun Saksena: Cool, I think that was a great answer. One of the key things to highlight is that initially, SQL and MQLs focus only on the buyer, but with PQLs, you're trying to understand what the person is trying to achieve using the jobs-to-be-done framework. Now...

Priya Bhatia: Absolutely.

Arjun Saksena: If you have PLG and you have defined these PQLs, do you see that PQLs are organized into activated, aha, habit, as you mentioned, and dormant based on your product's definition of those terms? Maybe there is some experimentation involved before you settle on your definition of activated habit. However, there is another force, which is sales-led, where a typical CRM has stages like pricing sent, demo booked, deal in process, and so on. Do you see these two universes colliding? Where do they end up? And what is the Yin Yang? How should a company that has both these constructs coexist harmoniously instead of colliding? What is your perspective based on your advisory experience, and what guidance would you give to someone caught in this situation?

Priya Bhatia: Yeah, for sure. That's a great question, and I can speak from my experience. To answer your question of whether these things can collide, I don't see why not. We innovate so much that it's likely to happen at some point. Let's go back to fundamentals and consider what we're trying to achieve with PQL metrics. What happens as the next step? The key thing to note is that ultimately, we define PQLs to improve sales when your product is PLG. You may have some self-serve monetization, but when you add a sales motion or a sales assist, PQL becomes important. Once you've established that you're adding a sales team to your PLG motion, you start thinking about which signups your sales team should focus on, and that's where PQL becomes relevant. However, I believe that very few people realize that operationalizing PQL, or defining it, is not as easy as it seems. You need the buy-in from the sales team to operationalize it. That's when the CRM or PLG CRM becomes more relevant. Today, teams try to create a lead scoring model, which is also a form of PQL. They define the lead score, pipe it to Salesforce or HubSpot CRM, or whichever system they use. This sends an indication to the sales rep about customers who have a higher propensity to purchase or other relevant information the score indicates. Essentially, you're feeding product usage data back to the CRM. However, in the future, there could be a shift where all stages and product usage are properly tracked within the CRM itself, eliminating the need for the data team or product team to manually feed that data back. This would provide a singular view where you can see that customers are taking actions within the product, and those fields are auto-populated in the CRM. The score is assigned, the sales rep is assigned, and their engagement is tracked, and so on. That's where I see these two worlds colliding in the future.

Arjun Saksena: Cool. I think that's a really key observation that you're making. Instead of having the sales not touching the sales motion and just feeding them through a pipe, exactly. There is a future where we reincarnate sales to have this wholesome experience about product usage because that's what is going to drive more revenue, versus trying to retrofit the product usage into an existing sales-led approach. That seems like a very enticing future, and obviously, Humanic is very aligned with that. But do you see any blind spots or do you see a timeline in the industry where that becomes the standard model? Because, you know, sales-led has been around for such a long time, and what are some of the challenges you see, or reservations that might not be conducive to this future becoming a reality?

Priya Bhatia: Yeah, I mean, I think it's going to be a journey of figuring it out right now. I think you're seeing a wave of these new companies who are trying to do more product-led sales. So again, they're trying to retrofit the data, the product usage data, or trying to sell companies these tools. What these tools do essentially is they help product teams, growth teams create these definitions of PQLs using their data, the product's data itself, and then sending a Slack message to the sales rep or creating these dashboards for sales reps that they can use to go after these qualified leads. And then it's supposed to give them feedback on whether a certain PQL is working or not. I think once we learn from this wave, we will probably realize whether this model works or if a PLG CRM model, which we've been discussing, is more viable.
And I'll tell you why. Again, I still see very little buy-in from the sales side of the organization. Again, these PQL tools, whatever they're doing, that's great. They are offering an AI-based model that tells you that this customer is ready to purchase, but who is to say that the sales reps are actually acting on it. In my experience, sales reps in the sales org are pretty rigid in terms of changing their existing methods to adopt these newer systems. They like to, in many cases, receive feedback that sales reps do not see the context that's added to that lead score. Ultimately, it's a lead score, and sales, again, is a very one-to-one interaction with the buyer or the customer. So they often say that the context provided or the lead score wasn't too relevant for the end customer, and it had to be a very in-the-moment conversation. That's the biggest problem in operationalizing anything like a PQL.

In the future, I think what will shift the balance is who decides what a PQL is, who creates the PQLs, how they operationalize it, and who gives feedback to whom. This is something that we're going to learn from this whole wave of PQL tools. Do you agree?

Arjun Saksena: Yeah, that is a fantastic observation. If I were to put it in my words, you're saying that the efforts so far have been to spoon-feed salespeople with lead scores instead of burdening them with more analysis data. However, what you're pointing out is that this approach assumes that salespeople are passive recipients. In reality, salespeople want to understand why they're being provided with this information and they want to trust it. When given a lead score, they may question its effectiveness and seek an explanation. Today, many salespeople are technically savvy and possess knowledge about the product. There's an overlap between product and sales, indicating that we need to stop treating salespeople as mere operators. This is particularly true in the Product-Led Growth (PLG) world. Salespeople are integral to product and growth, and they prefer streamlined tools and processes. They are not making hundreds of calls; rather, most leads come from inbound channels. Quality becomes crucial, and to achieve that, we must have a deep understanding of when to drive that quality. Simply feeding lead scores back into a CRM without rethinking the approach limits our potential for growth.

Priya Bhatia: I completely agree with you. We have also observed low adoption when lead scores are simply handed over to the sales teams. This lack of trust in the information provided by the growth team leads sales teams to pursue every lead individually. As a result, the self-serve motion gets cannibalized, which is a concern as it reduces efficiency and cost-effectiveness.

Arjun Saksena: Exactly. Building on that point, we believe there is wasted revenue when users receive a series of 14 emails immediately after signing up, without having shown any intent or activation. It not only wastes resources and time spent on configuring those emails (although the cost may be low), but it also creates a negative user experience. I would prefer not to receive those emails until I'm actually activated.

Priya Bhatia: Yes, I agree. That's a valid observation.

Arjun Saksena: Great. So, there are two approaches to entering the PLG space. If you're starting a new company, you have to embrace PLG from the beginning, regardless of the SaaS tool you're developing. But let's say you're an established sales-led company and you understand the value of PLG and want to champion it. Where should you start in terms of defining Product Qualified Leads (PQLs)? Should you begin with data instrumentation? What do you need and how do you get started? I'm curious to hear examples from your advisory experience and your previous job, and how you evangelized this concept. Breaking the habits of a sales-led company can be challenging.

Priya Bhatia: It's interesting. I recently discussed this topic on another podcast, so I'll be transparent that I haven't fully implemented this in my advising journey. However, I'm currently working with a company that is heavily sales-led, and I can tell you, Arjun, that it ultimately boils down to culture. Layering PLG on top of SLG (Sales-Led Growth) is incredibly difficult. It requires strong buy-in and advocacy for PLG from someone at the executive level. Without that, it's challenging to make it work. However, there are a few things we can do, and these are the essential steps. In sales-led companies, there is often a lack of focus on data instrumentation, especially when it comes to product usage data, which is fundamental for PLG and PQL. So, my first advice is to get your data in order and establish the necessary data instrumentation infrastructure. Capture the right events to understand what your customers, including existing ones, are doing. You already have a large customer base, so analyze their actions, retention rates, and how they respond to new features. All of this is vital to begin thinking about implementing PLG. One low-hanging fruit that I'm currently experimenting with is starting with the customer success teams. Before involving the sales side, establish that PLG can work by collaborating with customer success. Let me provide an example. In the sales-led world, where there might not be a free trial or a freemium model, everything is paid, and the sales team is responsible for selling while the product team builds and marketing operates. After data instrumentation, start looking for signals within customer usage that align with the PQL goals you want to optimize for. These signals could include expansion opportunities, seat additions, or identifying customers ripe for higher-tier upgrades or add-on purchases. To identify these use cases, analyze the actions customers take within the product. PQL doesn't have to be limited to the pre-sales motion; even in sales-led companies, product usage data can be leveraged for PQL. Use product usage data to improve efficiencies and start with customer success since they have close proximity to customers and can provide quick feedback on the effectiveness of a PQL playbook. Use their feedback as validation to enhance your overall PLG strategy. This is what we're currently experimenting with.

Arjun Saksena: Cool, once again, great insights on how to start with PQL. For those who haven't heard of Priya before, she has an excellent blog on Substack that I highly recommend. She has one of the definitive guides on PQL and PQA, which provides a flowchart and a meta-level explanation of how to define PQL. So, if you're interested in defining PQL or PQAs, check out Priya Bhatia's blog on Substack. It clearly explains how to get started. Now, my final question is, let's say you have an idea and data instrumentation in place. What tools do you use? Do you start with an Excel sheet? How do you define PQLs, even with customer success? Where does someone start today, and how do you evangelize this way of thinking within an organization? Do you need a specific team, like analysts, growth people, or product managers? How do you conceptualize and evangelize within an organization?

Priya Bhatia:Yeah.

Arjun Saksena: What are the tactical steps? We've covered the high-level framing and why it's important. Now, how do we operationalize it?

Priya Bhatia: Yeah, get started with it. One obvious assumption is that you already have some sort of PLG motion in place, especially if you're SLG. I provided an example of where you can start. But if you already have a PLG motion, there are constraints to consider in PLG companies. If you lack resources or if the organization's complexity is a hurdle, you might receive feedback suggesting that you patch together existing systems and manually create your first PQL. That approach is acceptable until you reach a point where the manual process becomes challenging. It's then difficult to justify investing in a tool without hitting that wall. There are tools available, but it's important to evaluate whether your organization is ready for them. Don't rush into adopting tools just because they are trending. First, ensure that you are culturally ready to embrace the product-led sales route. This readiness can be achieved in a few ways. In my experience, growth teams, particularly product growth teams, play a key role in evangelizing this approach. They start by using the activation definition, identifying companies that show better conversion when activated. They collaborate with data analysts and teams to verify the correctness of these signals. Once a clear correlation between these signals and higher conversion is established, an Excel sheet is created as the simplest implementation. This sheet outlines a day-by-day sequence of actions that sales reps should follow. For example, if a customer hasn't taken a certain action by the seventh day, it triggers a specific response. This process involves collaboration with lifecycle marketing, sales reps, and other stakeholders. Once the first PQL playbook is operationalized, feedback is gathered to assess its effectiveness. My advice is to start small with what you already have. If you have a working definition of activation, derived from your product model, use that definition and try to operationalize it manually on the sales side. Collect feedback on whether the playbook worked or not, and iterate to improve it. The iteration process should be continuous. Once the first PQL playbook is established and refined, you can move on to creating additional playbooks. It's worth noting that companies can have multiple PQLs depending on their size and the size of their funnel. PQLs become particularly important when dealing with a large number of sign-ups each month, as you don't want sales reps wasting time on leads that will never convert.

Arjun Saksena: Cool, cool, cool. Once again, that was a very clear explanation. For everyone listening, one area where people often struggle is defining the activation and AHA metrics. If you find yourself in this situation, I highly recommend reaching out to Priya. She advises many PLG companies and has a wealth of knowledge to help you define those metrics. Once you define them in the context of your PLG company, many other aspects we discussed will start to make more sense. That's all I had. It's been a highly informative conversation, and I've learned a lot. I'm sure it clarified many things for our viewers as well. Thank you, Priya. It was a pleasure speaking with you. Thank you for joining us.

Priya Bhatia:Thanks for having me, Arjun. It was fun.

Arjun Saksena:Cool. Thanks a lot. Bye.