The most important element for product-led growth is company alignment: When your entire company is aligned and focused on building a better product, the product itself fuels growth. The best way to keep everyone aligned is to agree on the right set of key product-led growth metrics.
Time to value (TTV)
Time to value is the amount of time it takes for users to reach their aha moment—the moment of insight within your product when users realize how much value it can offer them. The shorter the TTV, the faster new users realize your product’s value.
To track TTV, you first need to define your product’s aha moment by looking at your product from your user’s point of view. Look for patterns in behavioral data: Can you identify the action that long-term users take that churned users don’t? Once you’ve identified this, you’ll have your product’s aha moment, and you can begin calibrating to shorten your TTV.
Product-qualified leads (PQL)
Once users have completed an activation event—the action that causes them to have their aha moment—they become PQLs, or product-qualified leads. PQLs are important to track because they understand the value your product can bring them, and they’re more likely to become paying customers.
To define and track PQLs, you need to know your product’s activation event and aha moment. Once users have passed that activation point, they shift from being an evaluating user (evaluating the value of your product) to an activated user who understands the value your product offers.
Expansion revenue (or expansion MRR)
Expansion revenue is additional revenue from users who are already paying for your core product, generated through upsells, add-ons, and cross-sells. It’s especially important for SaaS products since many use a freemium or free-trial model, and is a key indicator of healthy SaaS growth. Upselling an existing customer is also 2x cheaper than acquiring a new one.
It’s one of the most valuable metrics to track product-led growth: Users have their aha moment in your product, and the value your product brings them convinces them to invest in add-ons to gain additional value.
Average revenue per user (ARPU)
ARPU is a pretty self-explanatory metric: It’s the average amount of money you can make from each user. It’s calculated by dividing monthly recurring revenue by your number of users.
ARPU is a key metric for evaluating the health and growth of any SaaS company. Business analysts frequently use this metric to compare SaaS companies.
Customer lifetime value (CLV or LTV)
CLV is the total revenue you can expect from a user over the entire duration of their subscription to your product. It helps you gauge how valuable a user is right now and how valuable they are likely to be in the future. Though there are multiple ways to calculate CLV, the simplest way is:
You can use CLV to identify especially valuable user segments and analyze those users’ behavior with product analytics. With that information, you can make adjustments to your product to increase adoption for other, lower-performing segments. CLV can also help you evaluate your acquisition and maintenance costs.
Net revenue churn
Tracking net churn rather than gross churn gives you an overall view of your company’s health. And focusing on revenue churn rather than customer churn gives you a more accurate financial picture. After all, not every user has the same value (or spends the same amount) on your product.
The formula to track net revenue churn is:
Monitoring churn, and especially net revenue churn, is a key to tracking product-led growth. Digging into your analytics can help you uncover all sorts of valuable data about why your users are churning. Once you have more insights into why, you can use those to remove friction and create a better product experience.
Virality
Virality is one of the most important metrics for product-led growth: Virality occurs when each user brings new users to your product, and the product adoption rate increases exponentially. The more likely something is to be shared ( and “go viral”), the more virality it has.
Virality is calculated with this formula:
C(0) = number of customers at the beginning of the period you are measuring
k = the number of new users each user brings to your product = i*c
i = the number of product invitations each customer shares
c = the conversion rate of those invitations
For a product to be considered viral, the viral coefficient k must be greater than 1.
Network effects
Similarly to virality, Network effects depend on users sharing your product. Network effects occur when “increased numbers of people or participants improve the value of a good or service.” In other words, the more users adopt your product, the more useful the product becomes for everyone.
The communication platform Slack is a classic example of this: If a few employees or a single team at a company adopt Slack, they are likely to get some limited value out of the product. But if all of a company’s employees use Slack, the entire company can share information easier. Each user gets more value from the product as adoption increases.
Network effects is a strong contributing factor to product-led growth—it incentivizes users sharing and promoting your product within their networks.