What is product-led growth?
In product-led growth (PLG) companies, product usage drives business growth, including customer acquisition, retention, and expansion. The goal is for a product to deliver value so quickly and easily that it essentially "sells itself."
It’s an approach that’s gaining rapid traction in the software industry, especially with the rise of self-service SaaS products that business users rely on to do their everyday work. Product-led companies like Slack, Calendly, Airtable, Notion, Trello, Zendesk, Shopify, Webflow, and countless others are all examples of the revenue-generating power of a PLG model.
In product-led companies, customer acquisition strategies and customer usage behaviors differ from their sales-led counterparts. Sometimes dramatically. This means that different metrics are needed to determine whether the company is meeting its goals, financial and otherwise.
This guide will break down some of the top PLG metrics that product-led organizations can measure, monitor, and move. It's an extensive list, but it doesn't need to be overwhelming – it's more important to track the right metrics than to track all the metrics.
We’ve broken these metrics down into two main categories:
- Executive-level PLG metrics
- Operational PLG metrics
Let’s look at each category.
💵 Executive-level PLG metrics
1. Net Revenue Retention (NRR)
NRR measures the percentage of recurring revenue retained from existing customers over a specific period. NRR considers upgrades, downgrades, and Customer Churn to measure growth potential from the company's current customer base.
It’s a critical North Star metric because it’s a great indicator of a company's overall financial health. Any company, SaaS or otherwise, that hopes to secure venture funding would be wise to measure, monitor, and push for improvements to its NRR.
Here’s the formula:
Net Revenue Retention = (Starting Monthly Recurring Revenue [MRR] + Expansion MRR – Churned MRR) ÷ Starting MRR x 100
NRR isn’t just for the executive team, either. It’s also a key operational metric.
2. Natural Growth Rate
Natural Rate of Growth (NRG) measures how quickly a company would grow without any investments, both internally in the form of sales and marketing initiatives and externally via outside investments.
NRG helps PLG companies determine how much recurring revenue comes from organic channels and how well the product drives user acquisition, conversion, and revenue expansion.
Use the following formula to calculate your NRG:
Natural Rate of Growth = 100 x Annual Growth Rate x Organic Signups (%) x ARR from Products (%)
High NRG companies tend to make better use of their available capital resources. This leads to increased velocity as they invest more in features, as opposed to increasing spend for sales and marketing. A higher Natural Rate of Growth, all else equal, is also associated with higher valuation multiples.
3. Gross Margin
Gross Margin answers the question, “For every dollar of product we sell, how much do we earn?” It measures the percentage of a company’s retained revenue after subtracting direct expenses, like Cost of Goods Sold (COGS) and Cost of Sales (COS).
A high Gross Margin shows that the company has enough revenue to cover other expenses, like salaries, office rent, interest payments on debt, and research and development (R&D) while still pulling in a profit.
The calculation for Gross Margin is as follows:
Gross Margin = (Revenue - Cost of Goods Sold) ÷ Revenue
Note that this metric goes by a few names – you might also see Gross Margin referred to as Gross Profit Margin or Gross Margin Ratio.
4. CAC Payback Period
We’ve all heard the old saying, “you need to spend money to make money.” In the PLG world, the money you need to spend to attract new users are referred to as Customer Acquisition Costs, aka CAC. CAC includes total investments made in sales and marketing, and CAC Payback Period shows you many months it will take to earn back money spent in acquiring customers.
Calculating your CAC Payback Period is a multi-step process requiring cross-departmental collaboration with sales and marketing. You need to get the numbers for content creation, paid advertising, staff overhead, and other related costs.
While it can be tricky to get an accurate assessment of your total spend, the calculations are relatively simple and straightforward:
CAC = Total monthly sales & marketing spend ÷ Number of customers acquired during that month
Once you have your CAC, divide it by Monthly Recurring Revenue (MRR):
CAC Payback Period = CAC ÷ MRR
In the scenario where you have both a sales-led motion (with sales + marketing allocated) and a product-led motion (with no sales resources allocated), comparing CAC payback between the two can be instructive for resource prioritization.
5. Burn Multiple
Burn Multiple measures the efficiency and sustainability of a company's growth model. This PLG metric contextualizes growth as it relates to investment, which is why it pairs well with growth metrics like NRG.
Here’s a calculation you can use to find your organization’s Burn Multiple:
Burn Multiple = Cash Burned ÷ New Annual Recurring Revenue (ARR)
In this case, a higher number isn’t better. Because Burn Multiple measures your company's capital efficiency, you want to keep it as low as possible. A high Burn Multiple means the company is burning through capital to achieve growth, whereas a lower Burn Multiple suggests more efficient growth.
However, note that Burn Multiple is highly sensitive to a company’s size and stage. For example, an early-stage company attempting to find product-market fit will likely have a higher Burn Multiple in the beginning.
6. Revenue per employee (RPE)
This PLG metric is pretty self-explanatory. RPE is a helpful metric that can give you a rough estimate of how much money each employee generates for the company. The formula is straightforward:
RPE = Total revenue ÷ Current number of employees
A high RPE suggests that the organization uses its staffing resources efficiently and effectively. In product-led companies, the product itself does most of the heavy lifting, which generally leads to an increase in RPE.
👥 Operational PLG metrics
You can break organization-wide PLG metrics down into five categories:
Let’s take a closer look at the PLG metrics you can measure in each category.
Acquisition PLG metrics
Acquisition PLG metrics answer the question: How efficiently can we find prospective new customers?
7. Percentage of Leads from Organic
Use this metric to measure the efficiency of your marketing efforts within the context of the volume of organic leads (aka leads that you get at low/no cost).
% of Leads from Organic = Leads from Organic Sources ÷ All Leads
The calculation is deceptively simple, however.
For starters, you need to align on a clear definition of what constitutes a lead before you can calculate this metric. Additionally, lead attribution is often more of an art than a science. The modern buyer’s journey is increasingly complex and involves multiple touch points. Sometimes, it’s impractical (or downright impossible) to determine the origin of a lead.
That doesn’t mean you shouldn’t try to determine how many leads come from organic sources, like searches on Google or social media. It does mean that you should keep the above caveat in mind when analyzing and discussing the Percentage of Leads from Organic metric.
8. Product Qualified Leads (PQL)
A PQL is a lead who has received value from a free trial or freemium version of your product. Because these leads have received value, they’re far more likely to convert into paid users.
According to data from OpenView, “PQLs convert at extremely high rates–often 15-30%–and are far more valuable than MQLs [Market Qualified Leads].”
In addition to using your product, most organizations also count a lead as product-qualified if they:
- Match the company’s ideal customer profile (ICP)
- Behave in a way that signals intent to buy
What this looks like in action will vary from one PLG company to another. For example, some organizations include employee count, industry, and technology in their ICP. On the behavioral side, you might include actions like logging into the app or website at certain times/intervals, inviting colleagues to use the product, or other product usage patterns.
9. Cost Per Lead (CPL)
This metric measures the cost-effectiveness of your top-of-funnel lead generation campaigns and how effectively those campaigns generate new leads. Your top-of-funnel sales expenses typically include the cost of your SDRs (Sales Development Representatives) or lead generation services.
These leads aren’t necessarily product qualified – they’ve simply indicated an interest in your product by completing specific actions, like filling out your contact form or sharing their email address to download an ebook or white paper.
To calculate CPL, use this formula:
Cost Per Lead = Marketing + Top-of-funnel sales expenses ÷ Number of leads received
By segmenting by campaign and channel, you can get more granular with this metric, which will help your sales and marketing teams prioritize expenses. You can also use qualified leads instead of all leads.
10. Free Trial Conversion Rate
The goal of a free trial is to provide so much value that the user opts to continue with paid service once their trial is over. Your Free Trial Conversion Rate measures progress towards that goal.
The calculation is straightforward:
Free Trial Conversion Rate = Number of free trials that converted to a paid plan in a specified period ÷ Number of all free trial users within that same period
While the calculation is simple, you’ll get far more useful information if you segment your trial audience based on factors like persona, type of plan, company size, and industry.
A high Free Trial Conversion Rate combined with a low Customer Acquisition Cost to Customer Lifetime Value ratio (CAC:LTV) and low Customer Churn indicate a sticky product with staying power in the market.
Activation PLG metrics
Activation PLG metrics answer the question: How quickly can we demonstrate value to our new customers?
11. Activation Rate
Activation Rate measures the percentage of users who complete a specific milestone in your onboarding process. Activation will vary from one PLG company to another. At AirOps, we count a user as activated when they set up a sync from their data warehouse to an operating document, like a Google Sheet or Airtable base.
To calculate your Activation Rate as a percentage, use this calculation:
Activation Rate = (Number of users who complete the activation milestone ÷ Total number of users who signed up for the product) × 100
This is a critical PLG metric because it helps determine whether your onboarding process is successful. A low Activation Rate suggests that your onboarding flow is too complex or that users don’t receive value quickly enough.
12. Activation Velocity
Activation velocity is a curve that shows how (and when) users reach a key onboarding milestone: activation.
We also like to measure Activation Velocity at the 48-hour mark, though you can use whichever time frame makes the most sense for your product. Here’s the formula for calculating Activation Velocity:
Activation Velocity = Percentage of leads activated within [X time interval] of account creation
When you plot activation rates in the context of time, you can easily see if there are any potential hurdles to user activation (e.g., gaps in the onboarding process).
13. Time to Value (TTV)
TTV measures how long it takes for new users to go from activation to adoption. In other words, how much time passes between activation and the “magic” moment that causes a user to see real value in your product? It’s another helpful metric that you can use to understand whether your onboarding efforts are effective.
TTV is usually expressed as an average, and the formula is:
TTV = Average(Time of Activation - Time of Signup)
By understanding which actions correlate with activation and ensuring your user onboarding experience focuses on activation, you can optimize your product and achieve faster TTV conversions.
Retention PLG metrics
Retention PLG metrics answer the question: How can we keep and expand usage for as many of our customers as possible?
14. Customer Churn Rate
Customer Churn is the rate at which customers stop using a product or service. It’s generally calculated as the percentage of customers that stopped using a product or service over a given period. It’s a key metric for businesses to understand, as you can use it to identify opportunities to improve customer retention and reduce churn (i.e., increase retention).
This is a simple calculation you can use to calculate your churn rate:
Customer Churn Rate = (Lost Customers During Time Period ÷ Total Customers at the Start of Time Period) x 100
Customers can churn for various reasons, including price, customer service, product quality, lack of personalization, lack of use, and more. For this metric to be valuable, you need to understand the root causes behind the numbers.
High churn is a cause for alarm, but it’s equally important to understand why customers stick around. That way, you can continue delivering more of the things customers love about your product.
15. New User Churn Rate
While it’s helpful to have a general understanding of Customer Churn Rates, your New User Churn Rate can provide even more insights. New User Churn Rate measures the percentage of users who churn within 30 days of being activated.
Here’s the formula:
New User Churn Rate = Users churned within 30 days of activation ÷ All newly activated users from the last 30 days
If you have a high rate of new user churn, it’s usually the result of a poor onboarding experience, lackluster customer support, product complexity, or a combination of all three.
16. Product Engagement Score (PES)
This metric shows how users interact with your product and measures the frequency, depth, and breadth of product usage. It's often measured with a 0-100 scoring system based on specific actions taken, frequency and volume of usage, and product features used.
Note that scoring criteria are subjective and may not correlate with attrition or the customer’s satisfaction with the product.
Usage measures the volume of specific usage metrics. Usage will look different for every PLG company – you define what it looks like and which features to track.
To calculate Usage, add the total number of usage actions completed for a given user or across all users.
Note that your selected product usage metrics may (or may not) correlate with the customer’s perceived product satisfaction. To measure customer satisfaction, look to metrics like Customer Satisfaction Score (CSAT).
18. Feature Adoption Rate
This metric tracks how much value your users get from your product based on the percentage of users that adopt key features.
Feature Adoption Rate = (Number of monthly active users who adopt a specific feature in a given timeframe ÷ Number of users logins during that same timeframe) x 100
This metric is most useful when combined with additional product analytics, like time to adoption. To improve your Feature Adoption Rate, you can:
- Send announcements about new features
- Create interactive product walkthroughs that show how to use a feature
- Schedule webinars to showcase and explain new features
- Revisit your customer onboarding process
- Collect regular customer feedback about which features they like and dislike
19. Net Revenue Churn
Net Revenue Churn measures how much revenue your PLG loses due to cancellations and account downgrades. It’s a good indicator of your ability to retain existing customers.
Here’s the formula:
Net Revenue Churn = (Churned Recurring Revenue + Downgrade Recurring Revenue ÷ Recurring Revenue at the end of the previous time period) x 100
Net Revenue Churn is frequently measured monthly. In this case, it’s called Net MRR Churn. A negative value indicates revenue growth, while a positive Net Revenue Churn rate shows that you're losing customers and revenue. Ideally, your churn rate will be below zero.
Revenue PLG metrics
Revenue PLG metrics answer the question: How can we capture more of the value our customers get out of our products?
20. Monthly Recurring Revenue (MRR)
MRR is a metric that helps companies track the amount of normalized, predictable revenue they can expect from active accounts on subscription-based contracts each month. It’s a handy data point that helps PLG companies assess their financial health and future revenue stability.
MRR is sometimes used interchangeably with ARR (Annual Recurring Revenue). In practice, there’s not a huge difference between them. There’s no hard and fast rule, but B2C SaaS companies generally track MRR, while B2B SaaS companies often prefer ARR.
This is because B2B companies have longer sales contracts and less churn. MRR is more sensitive to month-to-month changes. That’s why early-stage startups tend to prefer it while they’re fine-tuning their product and operations.
Most organizations will track MRR in a tool like Salesforce. You can also use this basic formula to calculate Monthly Recurring Revenue:
MRR = (Average revenue per account that month) x (Number of active accounts for that month)
21. Lead Response Time
Lead Response time is a sales metric that measures the average time it takes for a company to follow up with a lead.
Most PLG organizations track Lead Response Time with a ticketing tool like Salesforce or Zendesk (where it’s called Ticket Reply Time). This is the math that underlies those calculations:
Lead Response Time = Total amount of time between lead creation and the first response ÷ Total number of leads your team responded to
We categorize Lead Response Time as a revenue metric because it’s an input metric that directly affects revenue outcomes like Customer Lifetime Value (CLV) and Average Revenue Per User (ARPU). If your team doesn’t connect with PQLs in some way, whether via an automated email or a personalized demo, that lead is unlikely to become a customer.
Note: In the AirOps PLG Ops Scorecard, we get a bit more granular and refer to this metric as Time to First Contact for PQLs.
22. Customer Acquisition Cost (CAC)
CAC is a metric that measures how much a company spends to acquire new customers. Because it contextualizes how much revenue customers generate versus how much investment it takes to generate that revenue, it’s an important metric to the company and any potential investors.
You can use this calculation to measure CAC:
CAC = Spend on sales and marketing ÷ Number of customers
Your sales and marketing spend should account for everything that goes into each campaign, including the cost of ads, costs to create sales and marketing content, cost of employees, and other relevant costs.
Like many other PLG metrics, CAC is most useful when assessed alongside other metrics. It’s common for PLG companies to measure CAC and CLV.
23. Expansion Revenue
Expansion Revenue measures how effectively a company grows its revenue from existing customers through cross-sells, upsells, and add-ons. In other words, anything in excess of the initial purchase.
Monthly calculations for Expansion Revenue are known as Expansion MRR, but you can use any period that makes sense for your organization, including annually. This is the formula:
Expansion Revenue = ARR from cross-sells + ARR from up-sells
Increasing Expansion Revenue often leads to lower Customer Acquisition Costs and higher Customer Lifetime Values.
24. Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is a metric that measures how much revenue a company can expect to earn from a single customer throughout its relationship with the company. It’s also sometimes referred to as Lifetime Value and abbreviated as LTV.
There are a few different ways to calculate your business’s CLV. Here are two of the most common:
Customer Lifetime Value = Annual Recurring Revenue x Average Customer Lifespan (in years)
Customer Lifetime Value = Average Purchase Value x Average Purchase Frequency x Average Customer Lifespan (in years)
CLV comes with a few caveats, however. When calculating CLV, it’s important to:
- Account for Customer Churn; otherwise, you risk overstating the lifetime value of your customers.
- Include all relevant factors, including acquisition costs, customer retention costs, and the lifetime value of any customer referrals.
- Use customer segments based on behavior (e.g., average order value, number of purchases, engagement).
25. Average Revenue Per User (ARPU)
ARPU tracks the average amount of revenue generated by each active user of a product.
It's a key indicator of profitability and growth used by PLG companies to measure the organization's ability to drive product usage and capture value from that usage.
Average Revenue Per User = Total revenue generated during the specified time period ÷ Number of active users during the same period
When tracking ARPU, customer segmentation is critical: You should always segment users to get the most value from this PLG metric. For example, when you segment ARPU based on pricing models or how much different customer cohorts pay, you'll gain insights into which customers and plans are most profitable. Understanding user spending patterns can simplify the process of monetizing users.
Here’s another example for subscription-based PLG businesses: If your ARPU is above the mid-tier pricing plan, it suggests that the majority of users receive value from higher-priced plans. If your ARPU is below the mid-tier plan, it indicates that most of your users are consuming lower-priced plans.
26. Net Revenue Retention (NRR)
The metric so nice we had to list it twice!
As we mentioned way back at the beginning, NRR measures the percentage of recurring revenue retained from existing customers. It’s a solid indicator of overall financial health and considers upgrades, downgrades, and Customer Churn to measure growth potential from the company's current customer base.
NRR is an important operational metric for PLG SaaS companies because they typically have higher churn rates than other types of businesses. For this reason, SaaS companies must continuously work to improve their offerings and keep their customers engaged if they want to maintain a high NRR.
This is the calculation you can use to calculate NRR:
Net Revenue Retention = (Starting Monthly Recurring Revenue [MRR] + Expansion MRR – Churned MRR) ÷ Starting MRR x 100
Referral PLG metrics
Referral PLG metrics answer the question: How can our existing customers help us to acquire new customers faster and cheaper?
27. Average Resolution Time
Average Resolution Time tracks the total time it takes for a ticket to get resolved from the moment it's opened. It's a critically important metric because it's closely tied to customer satisfaction, which can significantly impact your customers' willingness to stick with the product and make referrals.
This metric is most often measured in a tool like Zendesk (note that it’s referred to as Full Resolution Time inside of Zendesk). You can also used this formula:
Average Resolution Time = Total resolution time for all tickets solved ÷ Number of tickets solved
It’s not uncommon for organizations to subtract the time a closed ticket spent on hold or pending when calculating their Average Resolution Time. This is because customer service agents don't control the time a ticket spends pending (waiting on the requestor) or on hold (waiting on someone other than the requestor).
28. Customer Satisfaction Score (CSAT)
Customer Satisfaction Score (CSAT) measures customers' satisfaction with a product, service, or encounter. While CSAT is a metric that the customer service function can heavily influence, CSATs aren't always related to service.
There are several ways to calculate CSAT, but the most common way is to ask customers to respond on a scale of 1-5 about their experience. The more satisfied your customer is, the higher your CSAT.
Most companies track CSAT in a customer support tool like Zendesk (or another ticketing tool), which streamlines the measurement and monitoring process. You can also use this formula to calculate CSAT:
CSAT = Number of satisfied respondents ÷ Number of total respondents
By listening to your users, you can get invaluable feedback on customer sentiment. However, CSATs alone won't be enough to measure customer sentiment accurately. After all, outliers who feel strongly (whether positively or negatively) tend to be the users who are most likely to respond to a CSAT survey.
29. Net Promoter Score (NPS)
Net Promoter Score (NPS) is a customer loyalty metric that measures how likely customers are to recommend a product or service. It’s calculated based on responses to the question: “How likely is it that you would recommend (insert company name or product/service) to a friend or colleague?”
To calculate NPS, take the percentage of customers who are "Promoters" (those who would recommend the company to others) and subtract the percentage of "Detractors" (those who would not recommend the company). NPS surveys use a 10-point scale; users who respond with a 9 or 10 are considered promoters, and users who respond with 0-6 are considered detractors.
The resulting number can be positive, negative, or zero.
The formula for calculating NPS is:
Net Promoter Score = % of Promoters - % of Detractors
NPS helps PLG organizations improve customer loyalty. For example, you can use this data to set goals for future marketing campaigns and feature launches that will (hopefully) drive positive word-of-mouth referrals and reviews.
30. Product Virality
Product Virality is the rate at which a product acquires new users and grows exponentially (i.e., how many new users on average are generated by each existing user). Virality occurs when users promote the product by posting about it on social media or recommending it to others.
The calculation process can be a bit complicated. Here’s a helpful breakdown from Culttt that explains how to find your Viral Coefficient, including some example numbers:
- Take your current number of users (e.g., 100)
- Multiply by the average number of invitations or referrals that your user base sends out (100 x 10)
- Find the percentage of referrals that took the desired action, for example, signed up to be a new user (12%)
- If 12% of 1000 invitations signed up for your product you would have 120 new users
- You started with 100 users and you gained 120 users. So you divide the number of new users by the number of existing users to find your Viral Coefficient (120 / 100 = 1.2)
For your product to grow virally, you need a Viral Coefficient greater than 1 (at the very least – if you’re hoping to “go viral,” you’ll need a coefficient in the 20+ range).
🚀 Track all of your essential PLG metrics in Google Sheets with the AirOps PLG Metrics Scorecard
Successfully growing a product-led company requires a lot of data, and wrangling all that information is rarely easy because the metrics live in disparate SaaS tools and other systems. This makes it incredibly difficult to examine your performance and growth accurately.
We’ve found that teams would much rather look at the data inside tools they already use daily, like GSheets, AirTable, Notion, and other core operating documents. Unfortunately, getting data into those documents is rarely quick or easy.
That’s why we developed the AirOps PLG Metrics Scorecard, a one-stop shop for all your critical PLG metrics. This template brings the data from your warehouse and SaaS tools into a single sheet; no CSV downloads or copy/pasting required.
Here’s a look at the two main views inside the template:
PLG Executive Scorecard
PLG Operations Scorecard
Want your own PLG Scorecard? Get in touch with AirOps using this form – we’ll help you get your data into the places where people want to use it, like GSheets, Airtable, or Notion.