Editor's note: This article has been adapted from an original piece on the Product-Led Growth Collective.
Successful product-led companies are defined by alignment across cross-functional teams. One of the most tangible ways that companies can create alignment is by settling on the right set of metrics.
Metrics can provide a common language and reporting system that cross-functional teams can rally around, ultimately helping all departments navigate toward the same goal. In other words, the right product-led growth metrics don’t just help you measure success, they help you create it.
Below, we’ll take a look at some of the most important SaaS metrics for measuring and monitoring product-led growth.
How to measure product-led growth
First things first. To better understand how the metrics listed below can be leveraged by different areas of your company—and why folks across your business should even care in the first place—it can be useful to think of how each measurement fits into a wider framework. As it so happens, we've developed just the thing...
The Product-Led Growth Flywheel
The Product-Led Growth Flywheel is a framework for growing your business by investing in a product-led user experience. In the Product-Led Growth Flywheel, the goal is to focus company- and team-level strategy on optimizing the user experience to move users from one stage to the next—as more users become advocates, they drive more acquisition and growth increases exponentially.
We firmly believe that embracing the principles behind the flywheel is critical to fully realizing the potential of product-led growth.
The most important thing to remember as you read through the different metrics below is that none of them should be siloed—these are all numbers that can and should be reported on and affected by multiple departments and teams. Now let's get to it.
1. Time to value
Time to value (TTV) is the amount of time it takes new users to realize your product’s value. Your goal should be to reduce time to value as much as possible—the sooner users reach their first aha moment or activation event, the better.
To do this, focus on optimizing your user onboarding experience around the key actions within your product that correlate to activation—like inviting colleagues to your platform, importing customer data, or integrating with other tools in their tech stack.
TTV can also be defined as the time it takes a user to move from the activation to adoption phase in the Product-Led Growth Flywheel framework.
2. Product-qualified leads
Product-qualified leads (PQLs) are typically activated users. These are users who have completed a key action within your product, had their aha moment, and experienced your product’s value for themselves.
To define what a product-qualified lead looks like for your product, you’ll need to identify your product’s activation event and the actions that users take within your product that indicate they are ready to move on to the next stage in their journey. You can do this through a combination of user interviews, session recordings, and A/B tests to identify the user behaviors that correlate with conversion and retention.
In the Product-Led Growth Flywheel framework, time to value is associated with the activation stage of the user journey.
3. Expansion revenue
It’s a lot easier to get more money from happy, paying customers than it is to acquire new ones. And it’s more cost-effective, too: It’s roughly 2X cheaper to upsell to an existing customer than it is to acquire a new one—and over 3X cheaper to generate expansion revenue than new customer CAC.
That’s why expansion revenue is easily one of the most important levers for sustainable SaaS growth. Also called expansion MRR, this metric measures the revenue generated from existing customers through upsells, add-ons, and cross-sells. For a healthy SaaS business, ProfitWell recommends that at least 30% of your revenue should be expansion revenue.
In the Product-Led Growth Flywheel framework, expansion revenue is associated with the adoration stage of the user journey, when your regular users are looking for new ways to use your product.
4. Average revenue per user
Average revenue per user (ARPU) is the amount of money, on average, that you can expect to make from an individual user. ARPU is a good, high-level indicator of business health and is often used by analysts to compare SaaS companies.
ARPU is a straightforward metric, calculated as total MRR divided by total number of users.
5. Customer lifetime value
Customer lifetime value (CLV or LTV) is a prediction of how much revenue your business will receive from a single customer over the lifetime of their account. Lifetime value is used to identify valuable customer segments and gain a more thorough understanding of reasonable acquisition and retention costs.
There are many ways to calculate CLV, both historically and predictively. But however you do the math, customer lifetime value is one of the most important SaaS metrics that you can measure. It allows you to not only understand how much a customer is worth to you right now, but also to predict how valuable they will be to your business over time.
6. Net churn
Some people are going to leave your product, plain and simple. Unfortunately, you’re almost always going to have to report some churn. When you do, net churn is a more useful metric for SaaS business than gross churn, because it gives you a more holistic picture of your company’s health.
And, generally speaking, revenue churn is a more useful metric for SaaS growth than customer churn. Because, let’s be real, even though it sucks to lose your favorite customer, losing your most profitable customer hurts even more.
That’s why, if you only report one churn number, it should be net revenue churn—the amount of money lost after accounting for new, expansion, or reactivated revenue.
Churn and retention are concerns at every stage of the user journey, as visualized in the Product-Led Growth Flywheel, but are especially relevant for regular users who have adopted your product but have yet to adore it.
The terms virality and network effects are sometimes used interchangeably but are, in fact, very different (although they often occur hand in hand).
Product virality occurs when a product’s rate of adoption increases exponentially with each additional user. In order for viral growth to happen, users must be able to promote your product by using it.
Take Zoom, for example. By sending a Zoom video conference link to attendees who don’t already use the tool, existing users promote the product in the context of its use.
8. Network effects
A product with a network effect, on the other hand, becomes more valuable to users as more people adopt the product.
Think of an app like Instagram or 2-sided marketplace like Airbnb: The more people post photos on a regular basis or list their homes for rent, the better the product experience becomes for other users in the long run.
Both virality and network effects are closely associated with the advocacy stage of the Product-Led Growth Flywheel. By inviting other users to evaluate and adopt your product, your own customers help increase new acquisition.
How to leverage metrics for product-led growth
The metrics we’ve detailed above are certainly not the only numbers that your teams will be tracking. In a product-led organization, marketing will still monitor pageviews, sales will still track pipeline and bookings, CS and support will still measure NPS and response times, and product and engineering will still be concerned with delivering an exceptional product.
Product-led metrics aren’t meant to replace all your old measurements of success. As a rule, the more data you track, the more holistic a picture you’ll have of your business. What product-led metrics are meant to do is provide common, quantifiable goals that help every department understand and optimize the user journey as a driver of growth.
Take virality, for instance. In order for a product to go viral, users must be able to share the product in the context of its use—in other words, a product has to be designed and built with virality in mind. That involves designers, engineers, UX copywriters, and so on.
And then of course, there are the aftereffects of selling to and servicing invited users: If your growth model relies heavily on referrals, your customer-facing teams need to be working alongside marketing and product to think about the way you onboard and convert users who have been invited to your product. Because virality isn’t worth much if you’re not retaining the users you gain!
We could go through every one of the PLG metrics above and give examples of ways that they can be affected by different departments. But you get the point—metrics should not be siloed—they should be reported on and affected by cross-functional teams who can leverage the data to enact coordinated changes across your business.
Remember, the goal isn’t to improve your numbers for the numbers’ sake—it’s to leverage the data you collect to make better decisions and fuel growth by optimizing the user experience.