What is the difference between a lead and a product-qualified lead?

Understanding the difference between a lead and a product-qualified lead is crucial to helping you tailor your growth strategy and grow your revenue using the correct method.

This article will cover the key differences, how their customer journeys differ, why this difference matters, and more.

Buckle up for an enlightening ride!

TL;DR

1. A lead is a person who shows some interest in your product or service, e.g., signing up for your newsletter or attending a webinar. This doesn’t mean they will definitely buy, but they might do so.
2. A product-qualified lead (PQL) is a person who has used your product, derived value from it, fits your Ideal Customer Profile (ICP), and shows buying intent. Every PQL is a lead, but not every lead is a PQL.
3. A lead’s journey involves several stages: Visitor -> Marketing-Qualified Lead (MQL) -> Sales-Qualified Lead (SQL) -> Opportunity -> Customer -> Evangelist.
4. A PQL’s journey is less complex and involves: Awareness -> Free Trial/Freemium -> Activation/PQL -> SQL (optional) -> Customer -> Expansion & Renewal -> Advocacy.
5. Key differences between a lead and a PQL:
   • PQLs are identified based on product usage, buying intent, and characteristics. They are typically more engaged as they’ve used your product.
   • Leads are identified using both outbound and inbound methods and qualified based on engagement with marketing material or sales team. Their engagement level depends on the stage.
6. The distinction between leads and PQLs is important as their buying habits differ. PQLs prefer trying before buying and usually don’t like sales interference. Traditional leads like to be guided throughout the process.

Understanding the basics between a lead and a product-qualified lead

At the fundamental level, a lead is someone who shows interest in your product or service.

That interest could mean signing up for your newsletter, downloading an ebook, attending a webinar, etc.

Remember, a lead does not mean they WILL buy from you. It means they MIGHT do so.

Now, let’s come to PQLs.

As we talked about in the previous article, a product-qualified lead is someone who has used your product and:

• Derives value from it
• Fits your ICP
• Shows buying intent

Every PQL is a lead, but every lead is not necessarily a PQL. To be called a PQL, a lead has to fulfill the above three criteria.

This differentiation is a way to estimate the probability of someone buying. Ask yourself, who’s more likely to buy:

1. Someone who has just subscribed to your blog and checked your features page. (a lead)
2. Or someone who has used your product extensively, talked to customer success, and visited your pricing. (a PQL)

In most cases, no. 2.

The journey of a lead

You’re wrong if you think a person just magically finds you and clicks the buy button. 

Leads go through an entire journey before they are ready to buy from you. 

Here’s this journey:

Visitors

In this stage, the prospect discovers your company’s website for the first time. 

They aren’t a “lead” right now, as neither have they shared any identifying information nor have they shown buying intent, but further down the line, they can be one.

Right now, the prospect’s just learning about the topic or surfing the web around the topic.

For example, you sell SEO tools. I’m the SEO Manager at a company, and I came across your website while learning about a branch of SEO.

Marketing-qualified leads

MQLs are leads that the marketing team passes to the sales team when they think they’re showing buying signs.

A visitor counts as an MQL after they perform a series of additional actions that can ‘qualify’ them. The qualification criteria depend on the company. All that matters is that there must be some buying intent.

This could mean subscribing to the company newsletter, downloading gated content, attending webinars, etc.

Continuing our example, I’m just a website visitor for the SEO company. They might call me an MQL and pass me to the sales team after I subscribe to their newsletter, engage with it for two weeks, attend two webinars, and download gated content.

Sales-qualified leads

An SQL is a prospect your sales team has qualified as ‘ready-to-buy.’ The criteria again depend, but common things include requesting a product demo and booking a sales consultation.

I might request a live product demo session in the SEO company example, making me an SQL.

The only difference between all these stages is the contact’s readiness to buy. An SQL is much more likely to buy than a subscriber, and you need to find actions that point toward that.

Opportunity

Opportunity is the penultimate stage before you can finally touch the cash. It’s when you have this feeling:

The prospect shows very high buying intent, like confirming that:

• They like the product, and it fulfills their needs
• The price is within their budget
• The prospect has decision-making authority
• They are looking to get started quickly

…and more.

For example, at the SEO tool business, I might say that I’m looking for a solution like theirs after the product demo, the price is reasonable, and I want to get started urgently.

Customer

Hurray! You did it! They’re a customer now 🙂

Now, you must hand them off to the customer success team to retain them. Apart from that, I don’t think this stage needs any more explanation 😉

Evangelist

The job’s not done yet, folks! Just getting someone to sign up isn’t as significant as it is to retain them and make them an advocate of your company.

These evangelists lead to word-of-mouth customers by referring others, sharing about your product on social media, and writing reviews/testimonials.

The journey of a product-qualified lead

Let’s come to PQLs now. They follow a different and less complex journey compared to traditional leads.

Here’s how they become customers:

Awareness

A contact reaches this stage when they discover you for the first time. It can be through SEO, video, social content, ads, etc.

Right now, the contact is probably educating themselves about the topic. They might subscribe to your blog/newsletter if they find your resources valuable.

Here’s how Joran, the founder of Reditus (a PLG company), spreads awareness about his business:

“As we are a marketplace, awareness is really important for us. Hence we do a lot of different things at Reditus. To give some ideas: 

• We have two blogs, one for SaaS companies and one for Affiliates. As they both have different ICPs, we have separated them. 
•  We run the Grow Your B2B SaaS podcast, which focuses on providing value to our ICP. No selling! 
• I’m (the CEO) active within the SaaS community, hosting the SaaStock Local Amsterdam. I’m part of the SaaStock Founder Membership group, a speaker at B2B Rocks in Paris, and spoke at the SaaS Leader Summit in Berlin.  
• A big awareness channel is Linkedin, where I currently have around 12k followers. I’m growing the company and podcast pages so everything won’t be tied to me.”

Free Trial/Freemium

A prospect reaches this stage once they’ve signed up for your product’s free version or free trial.

The prospect might research your company, read reviews, look at your website and features, read your blog, etc., which develops trust and leads to a sign-up.

You can gauge additional interest in the product by asking for credit card numbers during the free trial signup.

Activation/PQL

Activation is the most critical stage in this entire process. It’s the “Aha! moment” when the user realizes your product’s value.

You can only call users PQLs once they’ve reached the activation stage. So, how do you know when a user is ‘activated’?

First, determine how one user segment would get your product’s value. For that, you need solid ICP documents. You must clearly understand your ideal customer’s jobs to be done, struggles, fears, etc.

Then, you must design an onboarding journey introducing prospects to features that can solve their pain points.

We call this the ‘activation’ journey, as the user explores your product to find features to help them.

If you have five features solving your user’s pain points, and the user has discovered three, they’re 60% activated. Tracking product usage is an essential component of this process.

SQLs (Optional)

SQL mean your lead is not also qualified by sales.

Sometimes, you need a sales-assisted PLG strategy, especially while targeting enterprise customers. 

After these accounts have reached PQL status/activation, a salesperson may reach out to schedule consultations or product demos specific to their needs.

These accounts often need a lot of stakeholder approval, onboarding/CS support, customized solutions, and legal proceedings, which is why a human guide is necessary.

SQOs (Sales-Qualified Opportunities)

A sales-qualified opportunity is what comes right after you’ve got a sales-qualified lead and just before they become a customer. It is the phase when a lead go further in the sales funnel, and where a high opportunity to convert.

When we compare sales-qualified lead vs opportunity, it reveals that the most prominent difference between them is the awareness levels, buying intent levels, and willingness to make a payment. At this stage, it’s not just a lead anymore; it’s a real opportunity to make a sale.

Customers

Awesome job! The prospect has finally converted! Now, your job is to retain them and ensure they continue getting value out of your product.

Expansion & Renewal

Expansions and renewals are the keys to more profitability and revenue. You’ve already done the hard job of convincing the user to buy your product; now, it’s a matter of showing additional value to extract more revenue from them.

You have two options here: Upselling and cross-selling

Upselling means convincing users to upgrade to a higher plan than their current use.

Cross-selling, on the other hand, refers to selling complementary products along with your primary solution.

Let’s say you sell a video editor with three tiers: starter, premium, and unlimited. Convincing the user to pay more to upgrade from the starter to the unlimited plan is upselling, whereas selling them a photo editor with a video editor would be cross-selling.

It’s 9x cheaper to upsell to existing customers than to acquire new buyers, and it can significantly increase your LTV.

This blog post does an excellent job of explaining how other companies do this.

Advocacy

Brand advocates identify with your company and share positive messages about it everywhere.

Word-of-mouth marketing depends on nurturing more and more customers as brand advocates. And it’s pretty important, considering that 88% of people highly trust brands recommended by friends or family.

According to Shabahat Ali, founder of Rumors, there are two approaches to this:

• Synthetic advocacy
• Earned evangelism

The former involves leveraging tactics so that the usage of the product has advocacy built in. Products like Slack and Calendly are perfect examples.

In this scenario, the user doesn’t necessarily have to be an advocate at heart to refer the product. Just using it is a means of advocacy.

Earned evangelism depends on delivering an experience wherein the product experience is so good that it gets people talking and sharing about it.

Key differences between a lead and a product-qualified lead

Key Difference	PQLs	Leads
Source and identification	Used in a self-serve model, thus customers sign up for the product themselves. You can identify PQLs based on their product usage, buying intent, and characteristics.	You can find leads using both outbound and inbound methods. They are qualified based on their engagement with the company’s marketing material or with the sales team. (MQLs and SQLs)
Engagement Level	PQLs are more engaged as they’ve used your product and experienced its value.	Lead engagement depends on the stage. If they’re MQLs, they’re less involved compared to PQLs. Whereas SQLs show buying intent and are more engaged.
Conversion Probability	25 – 30% of PQLs convert from free to paid.	The average lead-to-customer conversion rate is 2.9%
Sales processes and nurturing	Most PQLs are self-serve. The product does the job of selling to the customer. However, a sales-assisted strategy is sometimes needed, where the sales team follows up with PQLs to drive more conversions.	The sales process is much more elaborate in this case. The lead is first qualified by marketing before the sales team works with them to set up consultations and demos. Then, based on their interest, further follow-up is done to close the prospect.

Why does this difference matter?

The distinction between PQLs and traditional leads matters because their buying habits differ.

PQLs prefer trying before buying and often don’t like interference from sales. It’s called the self-serve model.

On the other hand, traditional leads like to be guided throughout the process. They are hesitant to try the product before being sure it’ll help them.

For example, here’s how Joran, CEO of Reditus, handles this at his company:

“Offering demos works with bigger companies, as they tend not to set up an account before understanding the benefits. We could close bigger deals by selling services by talking to them, as they needed more help than self-serve companies.

I recommend talking to as many customers/prospects as you can. You should have the ‘book a demo’ option available, as it’ll give you more insights than just looking at product usage & other data.”

He would have lost large contracts if he hadn’t treated those leads differently.

Transitioning to a PQL-focused model

PLG is the future of B2B sales. 58% of B2B SaaS companies already have a product-led growth motion.

You might want to move from the high-touch, high-friction sales-led process to a product-led, PQL-focused model if:

• Your ICP increasingly prefers self-serve. You can find that by interviewing potential customers. It can also give you a significant competitive edge if all the other products use a sales-led approach.
• Your CAC is very high, and your ROI is lower. A PLG model can lower CAC by providing robust onboarding, self-serve resources, and a good user experience.
• Your sales team is getting more expensive to maintain and harder to scale. It can also lead to a higher CAC, in which case going PLG will be very beneficial. You can supplement it with a sales-assisted approach with a fraction of the resources needed.
• Your product has a free trial/freemium offering.

So, how do you transition from a sales-led approach to a PQL-focused one?

Start by aligning your entire organization toward this new goal. You can’t silo it to one department and hope it works.

After that, you need to start experimenting by offering a freemium or free trial offering. It doesn’t necessarily have to be a revamp of the entire product; you can start by trying it out on a set of features or another tool.

Once you’ve done that, you can apply those learnings to your main product. During your PLG experiments, you must clearly define user pain points and structure your onboarding process around them.

Make sure the user can quickly discover crucial features and that there are enough support resources to guide them throughout your product journey.

Then, test it out on a small batch of people, gather feedback, and iterate. Tracking product usage is crucial during this period as this can unlock many insights. 

Next, you can build a proper system to identify PQLs using product usage data and score them based on their buying readiness. Lastly, you’ll need to optimize all your messaging and marketing material to suit users based on their stage in the product adoption journey!

Conclusion

Leads are the most simple yet the most complex topic in sales. And the widespread use of PQLs has made this even more confusing.

But they are not the same, and we hope that this article helped you clear that up.

We covered how traditional leads differ from PQLs, how their journeys differ, why they matter, and how you can switch to a PQL-focused model at your company.

Good luck and happy learning.

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