Product-led growth (PLG) is one of the most popular growth models used by tech companies today. Companies employing a PLG model drive growth using their product by offering it for free with an ever-present option for a premium upgrade. Under this model, however, it’s not immediately obvious the strategy is working.
Are you using a PLG strategy for your company and looking for ways to measure progress? In this article, we’ll cover how to measure product-led growth using product value metrics, or PVMs.
Understanding product value metrics
The first key to measuring growth while using a PLG strategy is to understand product value metrics. Under a PLG strategy, your product is initially offered for free. To drive sales and grow the company, it’s imperative to convert free users of your product into paid users. This is where product value metrics come in.
Value metrics tell you how much value your customers can derive from your product. They help you hone in on the wants and needs of your ideal customer and help you determine how to price your product around those wants and needs.
What are the metrics to track growth?
Now that we understand what product value metrics are in general, it’s time to focus on the metrics that measure growth.
There are dozens of metrics that can be used to track growth, but which ones matter the most? Let’s take a look at five of the most important metrics that you can implement for a successful PLG strategy.
Monthly recurring revenue (MRR)
Monthly recurring revenue is the total monthly revenue generated from all active premium subscriptions to a product. MRR is a giant indicator of whether or not your product’s pricing strategy is working. Steady increases in MRR suggest your product is delivering the proper value your customers are seeking. Decreases or middling in MRR suggest a possible drop in value for customers.
Renewal rate
You’ve spent a ton of understanding your ideal customer and developing a product just for them. But now you’re concerned with tracking how happy your customers are with the product. How do you measure their happiness? Renewal rate is the answer.
Renewal rate is the percentage of customers retained after the end of their subscription to your product or service. For example, suppose your product brought in 150 new subscribers at the beginning of this month. If 140 of them renew their subscriptions, your renewal rate for the month is 93%. A steady or climbing renewal rate over time indicates customers find tremendous value in your product.
Time to value (TTV)
Time to value is how long it takes for customers to get value from your product. Ideally, TTV should be short. Customers need to find value in your product almost immediately. If your product is exactly what they’re looking for, you can expect TTV to be very short. In addition, properly onboarding customers will help them gain value from your product because they will fully understand it.
Customer churn rate
Churn rate, or customer churn, is the percentage of customers who leave every product subscription cycle. High churn rates are a negative indicator of health for your company and may indicate the premium version of your product is overpriced. To reverse your churn rate (or keep it low), it’s a good idea to continue to consistently deliver value. This can get done by adding features, offering incentives, or changing the price point.
Customer lifetime value (CLV)
Are all customers equal? This is the question customer lifetime value seeks to answer. CLV is a calculated prediction of how revenue is brought in by a single customer over the lifetime of their account. You can calculate the CLV of your product by multiplying your customers’ average lifespan, purchase value, and purchase frequency.
CLV is important because, if determined correctly, it gives an accurate understanding of how much an individual customer is worth. It also helps to predict how much a customer would be worth in the future.
Measuring growth doesn’t have to be complicated
You’ve taken on the risk of using a PLG strategy for your business fully believing it will pay off in the long run. You fully understand your target audience and have come up with a product they’ll instantly fall in love with. To make sure your company is on—and stays on—the right path, you must aggressively and consistently track progress. Product value metrics are how you will achieve this.
There’s no shortage of ways to measure growth using PVMs. However, the metrics listed above will put your company’s product way ahead of the curve. Implement these ideas and your company’s product will see no shortage of success.
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