Everybody is PLG crazy right now; companies are building it from the ground up, enterprises are trying to pivot and open their apps to freemium users and consultants are working hard to advise on the latest strategies. If you are a leader in SaaS, check out our Guide to Product-Led Growth for SaaS Leaders.
So let’s assume you have a product-led growth strategy set in motion for your business. You haven’t built your PLG platform or you are pivoting into that space and you are wondering what metrics you need to track in order to keep the organisation aligned and on track.
I’m going to discuss 8 key PLG metrics to focus your strategy and underpin your new go-to-market motion.
What is Customer Lifetime Value (CLV) or Lifetime Customer Value (LCV)?
Customer lifetime value is the total monetary/revenue value of a customer to your business during the entire period of that relationship. This is the lifeblood of your SaaS business and needs to have extreme focus.
What I like to look for is:
- How well are we managing the relationship?
- Are there any problems and if so how long did it take to remedy those issues?
- Are they showing signs of churn; if so have we explored why?
- Have they renewed previously and if so is there an opportunity for upselling or cross-sell at renewal?
By building strong collaboration between marketing, sales and customer success you can mitigate unwarranted churn quite easily. Remember renewals should be easier than net-new business and far more cost-effective.
Tactics to consider are:
- Reward your best customers
- Start a loyalty programme
- Get constant feedback from customers and action the suggestions
To calculate CLV: take the customer revenue per year and multiply it by the duration of the relationship. Subtract from that the customer acquisition costs (CAC) and you have your CLV.
Measure your conversion rate
Conversion rate is the most obvious of the metrics that you need to measure and track. Focusing on how many trial or freemium users you can upgrade to a paid account is the goal. However, you need to have goals to actively move people to premium services otherwise you could be giving too much value away for free.
What I look for is:
- Is this a single user at a lone email domain or are there multiple free users?
- Does this user frequently hit the freemium tool usage ceiling?
- Can we track usage trends and identify which users could benefit from the upsell and automate that outreach?
- Can we track usage trends and establish the type of user and show them premium tools that users like them upgrade to? On top of that can we provide 7-day or fixed-period access to those features as an additional free trial?
- Are we seeing friction in the signup/onboarding process and is this impacting the appetite for the paid account?
By focusing on your onboarding and in-app usage you can understand a lot about your users and how usage is impacting conversions, positively or negatively. Conversion is not going to be pinpointed to one thing unless you are a way down your onboarding optimisation and its small iterations that will make big improvements.
Tactics to consider here are:
- Reduce sign-up friction
- Improve access to time to value (TTV) for your user
- Make it easy for your user to differentiate the value of your premium vs freemium product features
Focus on Time to Value (TTV)
Time to value is key to any and every SaaS business and it’s the biggest challenge founders face when they try to balance collecting data, personalisation and reducing zombie accounts during the registration process. Too lengthy a signup process and you lose accounts, collect no data at all and add burn-through hosting costs and then it can be complicated to capture data down the line.
But don’t get too caught up in that as plenty of platforms provide products and services without registration and one I use consistently is befunky.com even though I have both Figma and Adobe Photoshop.
So here is what I look for:
- Can you open your product up in full and then reduce from full to reduced access - so full free trial to reduced access freemium? Does it even make sense to do so?
- Can you get started on your product immediately and see value without registration? The point is, the value, and time to value are so good that I want to sign up for more.
- Although product value should be fast so should educational value have you balanced your onboarding with access? Have you tested whether a wizard or checklist is best for your audience? Have you tested whether your wizard and checklist should be permanently accessible and what triggers should prompt your user to access them?
There is plenty more that you can consider and I think we touch upon that in this article on how to evaluate your onboarding process I urge you to take a look at your own leisure.
How to calculate Churn Rate
Churn is a key metric for SaaS growth. Understanding it from the outset will help you keep tabs on your run/burn rate, give you insights and understand how or why the value of the product is or isn’t adopted, and learn if your sales team are misselling your product (if a sales-led motion is in play).
Here are what I look for:
- How many freemium and premium users churned? Set a fixed period of absence from their last sign-in or activity to give you a period during which you focus on reactivation. Say 30/60/90 days or less. If you go 90 days you may never retrieve them so this is an extreme depending on how active in your platform the user needs to be.
- Measure how engaged users are during the onboarding period with your wizard, checklist etc. Compare that with your churn and see if you can correlate low engagement to your churn numbers.
- If you identify the user's need during onboarding, do you see a trend where that user was active in the platform and where it matched their use requirements (goals/need) or were they not active where you expected them to be?
- Average time to churn from initial registration as freemium or premium. If upsold, again how long from upselling to churn?
These again aren’t exhaustive but you can see I’m not just trying to look at the number of users dropping out of the revenue funnel, I want to correlate loss to specific activities or lack thereof.
Tactics to consider here are:
- Speak to customers on a regular basis to understand their evolving needs with a customer insights strategy
- Communicate value in how your customers experience it, not like you are selling an upgrade
- Keep the product roadmap visible to your customers
- Keep an eye on your competitors with a defined competitive intelligence strategy
Focus on Monthly Active Users (User Activity Monitoring)
As I spoke about this in looking at churn, you can see those individual metrics do not give you an adequate opportunity to make informed decisions. Collectively you can paint an honest picture of product performance and only then can you improve your product-led growth motion.
Here is what I look for:
- Focus on daily, weekly and monthly active users/user activity
- Focus on what users are doing specifically
- Understand if you can group users into segments and offer pre-release functionality to test adoption and uptake based on your hypothesis
- Focus on average interaction time; that is the time a user is active and not dormant
You can hugely expand here dependent on the use of your platform and the number of user personas. Another thing you could look for in multiple persona platforms is how you can feed that back to your marketing and sales team to help them improve their messaging.
Tactics you can use here:
- Ensure your current users can share and invite new users and colleagues easily
- Research the value your product brings to the user's life on a daily basis and activate and iterate around that data
- Focus on stickiness, how do you give quick time to value but make the use of your product consistent
Optimisation of the user experience is the goal here and you have to keep that in mind whilst ensuring you don’t focus your product roadmap around a small highly engaged group of users as that can be misleading. Work with your product marketing team to keep gathering data from the widest possible voice of the customer.
How do you get virality for your product?
This is an ongoing problem for PLG companies. Encourage your users to spread the word through rewards and recognition. Rewards are great but only temporarily and do not carry longevity for your product. Firstly because your users will quickly feel like they are being bought and that could actually work against you and increase your churn rate. Secondly, the best gifts will be access to your premium features and this could become expected for those that could upgrade but wouldn’t use all of those features often. They will simply wait for the next offer and access your premium features periodically for no extra charge.
When it comes to virality what you are looking for is the rate of adoption by users who have been referred to or have seen the product shared by an existing user.
Here's what you can offer:
- [X] reward for [X] number of invites, registrations, invites that use the product for [X] period of time or a version thereof.
- Gift cards
- Other low-cost, high-uptake offers. Focus on offers that drive further adoption of your product and mix this up with a mix of net new offers and offers for freemium users to nudge them over the line.
Identify good product-qualified leads
This metric is key to your viability as a running concern. It’s not the only metric if you have a combined sales-led and product-led strategy but it will combine across the whole customer acquisition lifecycle to give you the metrics you need to focus on continued growth.
Your goal is to increase the number of users that can experience the value of your products before purchasing
What to look for:
- Freemium users with high engagement in your product
- Multiple freemium users from the same email domain
- Relevant users that remain engaged after a premium trial that returns to limited use (if that’s how your PLG approach works)
High engagement by freemium users is a clear indicator of the likelihood of upselling, so you have to focus there. But the other examples are also worth monitoring for a rounded perspective of growth opportunities.
Tactics you can use here:
- Free trial - Usage-based free trial
- Freemium - New product-led arm of the business
- Free trial then freemium - Sandbox model
- Freemium then free trial - Hybrid
Land and expand - Expansion Revenue
Land and expand, has been the playbook in the agency and consulting space for a long time. Analyse the opportunity, propose the right solution for right now and then build trust over time and upsell. This model is the same for product-led growth.
Most PLG companies still offer a sales-led motion so consultative selling has to be the strategy for them. High churn can also result from misselling your product in the first place, hence my constant call for a sales enablement strategy in SaaS.
So what is your goal here?
- To generate additional revenue from your existing customer base.
Tactics you can use here:
- Set your product up for an easy upsell or cross-sell
- Provide huge value in additional premium add-ons
- Set a rough target of 25-30% of your ARR to come from expansion revenue
- Build an inside sales team
I always say that your open-top model is simply a way to make it easier to evaluate the value of what you offer for your prospective customers. It’s one channel, not the ultimate channel, so build this in as part of your marketing mix in your customer acquisition strategy.
The Average Revenue Per User (ARPU)
ARPU or average revenue per user is a financial metric that shows how much each paying customer is worth to your business. This is a key metric to use to see if your pricing strategy is right, your retention rates are where you need to be, and ultimately if your business can maintain at its present velocity.
Your goal here is to calculate your number of customers by your monthly recurring revenue (MRR).
Your business objective is to maximise your revenue per average user.
Tactics you can adopt:
- Increase your opportunities to expand revenue; new products, new tiers, better pricing, adopt a competitive intelligence strategy, improve your value proposition, improve your positioning
- Reduce your cost of acquisition per customer; optimise your marketing channels, standardise your sales process, measure, test and iterate
That brings me to the end of the article. I hope that this has provided you with some value and has helped you go someway toward shaping your PLG initiatives. As you noticed, some of these metrics are commonly used and familiar, and some maybe not so top of mind.
Should you need any further help or insights don’t hesitate to reach out to our team. Thanks for reading, oh, and if you like it, please let me know and share it with your network.