The Importance of PQLs: Key to Driving PLG Success

As SaaS and other B2B products proliferate, the concept of Product-Led Growth (PLG) is gaining prominence. Until now, most BtoC products have been mass-oriented, and the assumption has been to keep the user story as simple as possible and to grow from the product's point of view. This concept has developed in BtoB and is beginning to be recognized as PLG. This article focuses on PLG and how to handle Product Qualified Leads (PQLs), which are key to its growth.

Explanation of PLG Typology

PLG is a go-to-market strategy for SaaS and other B2B products, where the product itself drives user acquisition, activation, and retention. Specifically, there are three main types of PLG: freemium, free trial, and demo.

Freemium refers to a system in which the basic functions of a product are provided free of charge, and users are charged only when they take advantage of additional functions or support based on their needs. A free trial allows the entire product to be used for free for a certain period of time, and the user is asked to try the product during this period and then decide whether or not to move to a paid plan. Finally, there are demos. The easiest way to recall this is for Sales to give individual product introductions to prospective customers. Other times, we may prepare a webinar or video introducing the product, or we may incorporate a portion of the product on our website so that it can be operated.

The common denominator of all types is that the customer is allowed to try the product in the pre-contracting phase and to decide whether or not to sign the contract.

In addition to the acquisition perspective, the Churn Rate can also be kept low by incorporating Customer Success Management (CSM) initiatives into the product as a tutorial, starting with the product itself.

In contrast to PLG, there is the concept of Sales-led Growth, which refers to the process of negotiating and receiving orders by Sales, as in the past, and by having Sales respond to PLG, more expensive products can be sold. In addition, the sales team's explanation of the PLGs enables the development of new markets that have not yet been established.

On the other hand, PLGs are unlikely to generate high ACV, but they can reach a wide range of target customers. Especially when the market is well known, it is possible to acquire leads efficiently.

Definition and importance of PQL (Product Qualified Lead)

As the SaaS industry gains momentum and the number of SaaS companies increases, competition intensifies naturally, and customer acquisition costs become a critical factor. Also, customers are changing. Companies are providing whitepapers and webinars to enable customers to learn and compare SaaS offerings on their own. In addition, the proliferation of PLGs has increased the number of products that offer freemium and free trials, which is a very strong input into the decision to purchase.

This is where the concept of PQL is beginning to emerge. This refers to a Lead who has tried the product in advance and understands its value, and can obtain basic customer information in the same way as a Marketing Qualified Lead (MQL) or Sales Qualified Lead (SQL). Conversely, one point that is completely different from MQLs and SQLs is the ability to check actual product usage trends. In other words, it is possible to determine whether or not a customer is a target segment as before, and furthermore, to determine through analysis whether or not a customer is likely to be charged based on the usage trends of the product.

This is especially useful for products for SMBs, not for enterprises, and for Horizontal SaaS, which has a larger number of potential customers. This is because freemium products can be deployed to reach a wide range of customers, and then, based on the usage trends of the product, customers with a particularly high willingness to purchase can be identified and approached with priority.

Comparing SQL and PQL

The comparison of SQL and PQL can be summarized as follows.

SQLs are typically better suited for explaining complex business solutions or introducing products that create new markets, due to the direct involvement of sales teams. Therefore, ACV tends to be relatively high, but on the other hand, it is difficult to acquire Lead, and orders can only be accumulated through repeated sales efforts.

On the other hand, PQLs are often deployed on a freemium or free trial basis, with self-billing and self-serve by customers, making it difficult to promote products that are too complex or novel, and making it difficult to deploy only products with low ACV. This makes it easier to acquire leads, and based on product usage trends, it is possible to hit potential customers with a high probability of orders simply by conducting in-house analysis.

Integrate PQL and customer acquisition strategies

In implementing PQLs, it is not enough for Product-side to offer freemium or free trials, which are the prerequisites for PLGs.

In order for the freemium or free trial to become a lead generator, it is necessary to collaborate with Marketing to design how much to offer as a freemium and how long the trial will last, and then work together to determine the messaging that will appeal to the target audience. Product-side will work not only with Marketing, but also with Sales, as we will obtain user usage trends from PQLs, and user feedback from PQLs will be an important input in improving the product in the future.

Furthermore, if the content supported by the CSM can be formulated and replaced with tutorials, the product will ultimately be able to be implemented on its own. Cooperation with CSM will be indispensable in making the product easier to implement.

Summary

In the area of Horizontal SaaS, which is compatible with PLG and PQL, if TAM can largely oligopolize the area, it is easy to create strong players and promote expansion in peripheral areas through M&A and new business development. However, such areas tend to be thin compared to core products, and one-point solutions by enthusiastic Startups have enough potential to turn them upside down.

Given the relatively small Total Addressable Market (TAM) in Japan, widespread PLG adoption may not have fully taken off yet. However, new players are starting to emerge in the Horizontal SaaS space. If they take another look at the PQL they can gain through freemium and free trials, it may be one way to build a competitive advantage over the oligopolistic players.