The PLGeek Guide to Product-Influenced Revenue (PIR)
The critical PLG metric you probably aren't yet measuring
In PLG, the product is the primary driver of acquisition retention and monetisation, with monetisation being the ultimate goal.
But not all PLG revenue is self-serve.
The most successful PLG companies leverage product-led sales methodologies to augment and efficiently scale beyond the limits of self-serve revenue.
Yet when all is said and done, how do you know how well your product is supporting your growth?
This was a question I asked myself at Snyk and one that initially I didn’t have a good answer for.
After some exploratory analysis, I landed on something that, at the time, I called Product Driven Revenue, but as we operationalised it, we evolved to call it Product Influenced Revenue.
It is revenue that is influenced by product usage, regardless of the monetisation channel.
Product-Influenced Revenue is defined as the total ARR where meaningful activity was measured in the product before any sales interaction.
Thanks for reading The Product-Led Geek! Subscribe for free to receive new posts and support my work.
As an absolute $ value, it measures the overall monetisation impact of your PLG motion.
As a % of overall revenue, it lets you understand the relative contribution of PLG to your topline growth.
It tells you how well your product supports your ability to acquire, activate, and monetise new users/teams through any and all of your monetisation channels - self-serve or otherwise.
You're probably not measuring PIR today.
In this post, I’m going to help you understand PIR, why you should care about it, and how to measure and leverage it.
Why is Product-Influenced Revenue important?
In a word, efficiency.
I’ve seen time and time again that in scaling PLG companies (where the product takes care of a bunch of heavy lifting), the sales process has less friction.
Yet Average Contract Values (ACVs) for Product-Led Sales can reach the same upper limits as traditional Enterprise Sales motions.
Comparing the motions for any given contract value, buying friction is the inverse of selling efficiency.
Similarly, customers who start their journey with you in the product are more likely to retain and expand over time.
At Snyk, Net Revenue Retention (NRR) of the cohort of accounts where the land was PIR was double-digit percentage points higher than it was for the cohort of customers acquired through non-product channels.
I’ve seen the same phenomenon elsewhere in companies where the product does a great job of getting users to realise and build habits around the core value.
Similar to an assist in football (⚽ to avoid any confusion to my friends in the US), PIR sets the sales team up for an easier goal.
When you have insights like this, it’s easy to understand the importance of tracking PIR as a percentage of total revenue and strategically aiming to increase that percentage over time.
I’ve observed that it also helps culturally in cross-functional alignment between product growth teams who might own a self-serve revenue target and sales teams with their own quotas.
Since PIR is definitionally inclusive of revenue from both channels, it can act as a unifying bridge between both groups by providing a higher-level objective that both are aligned with instead of them being in competition. That helps incentivise desired motions such as self-serve land to sales-touched expansion.
What does meaningful activity mean?
Recall our definition of Product-Influenced Revenue - the total ARR where meaningful activity was measured in the product before any sales interaction.
Meaningful is an important word there. This can’t be the lowest common denominator of any and all activity (e.g. all logins). That’s too wide a net and would begin to include revenue from sales-sold deals not materially influenced by product usage.
Instead, you need to define a usage milestone for the account that is demonstrative of a real exchange of value. It doesn’t need to be as far as habit formation (your activation event), but it should be value-based and something implying high intent.
At Snyk, we defined this milestone as an account that had seen vulnerabilities that the product had detected. This implied them having connected their SCM and imported code from their repositories - significant motivation required, and high intent.
How to measure PIR
To measure PIR, you need to
ensure that your product is instrumented to track the signal of the milestone you identified as the meaningful activity, and
ensure that you can report on that at the account level, and
ensure that you can report on that with a time dimension.
You need to be able to answer the question, “When did an account reach the meaningful activity milestone?”
You also need to be able to report on when (if at all) a seller first engaged. At Snyk, we used the Salesforce opportunity creation date, so revenue was treated as PIR if meaningful activity predated opportunity creation.
Your source for the meaningful activity milestone will be product usage data. Your source for seller's first engagement date will be your CRM.
It’s typical to aggregate this data in your data warehouse to be able to report on PIR.
Account vs Opportunity measurement
You will need to make a call on whether the revenue segmentation happens at the account level or the opportunity level.
If measured at the account level:
Only the original land is assessed and bucketed as PIR or non-PIR
If the original land was PIR, all future account revenue will be treated as PIR.
If the original land was non-PIR, all future account revenue will be treated as non-PIR.
In PLG companies, when expansion occurs, even in non-PIR accounts, the product usage usually influences (and is leveraged by sellers) that expansion deal. But with account-level PIR, this revenue would be excluded.
So account-level PIR is the conservative measurement approach.
If measured at the opportunity level:
Every transaction (the original deal or expansion) is assessed and bucketed as PIR or non-PIR
If the original deal was PIR, definitionally, all future revenue will match the rule and so will be treated as PIR
If the original deal was non-PIR, each expansion opportunity is assessed individually
But because the meaningful activity milestone is likely to have occurred before any expansion deals in a PLG company, most expansion revenue would be counted as PIR, regardless of whether the original deal was PIR.
I believe this provides a more accurate view of PIR, but dependent on your perspective and the likelihood of expansion revenue not being influenced by successful product usage, opportunity-level PIR has the potential to overestimate the revenue contribution of the product.
Of course, you can always look at PIR on a net new revenue basis only, regardless of the measurement approach you choose - more details on this are in the section below.
Ultimately though, this isn’t about taking credit away from sales teams. It’s not trying to devalue the role of sellers in expansion revenue just because that revenue was influenced by healthy product usage. To that end, your measurement or attribution of PIR should not impact compensation plans.
Your choice of measurement of PIR at the account or opportunity level may ultimately reflect the cultural norms of the sales teams at your org and whether reps can land and expand, or have distinct hunter or farmer roles.
How to leverage PIR
You can apply and leverage PIR in a few ways.
First, you can cohort PIR to compare period to period to help you assess the efficacy of your efforts to improve the metric over time.
Just as you might look at cohort retention by new user signup dates, you can look at cohort PIR by the date of first new user signup within monetised accounts.
Tip: Make sure your analysis is period longer than your typical sales cycle length
Segmenting other metrics by PIR
Segmenting other metrics by PIR allows you to create a more nuanced and actionable understanding of the performance of your PLG motion.
Apply the segmentation to
Gross Revenue Retention (To what degree does the PLG motion impact renewals?)
Net Revenue Retention (To what degree does the PLG motion impact renewal and expansion?)
NPS or CSAT (To what degree does the PLG motion impact customer satisfaction?)
Tip: Make PIR a binary flag at the account/opportunity level in your DW to make self-serve segmentation easier for folks.
Net new PIR / overall PIR
If measuring PIR at the opportunity level, most expansion revenue will be counted as PIR. This is usually desirable - with product-led sales, it’s highly unlikely that expansion deals do not leverage ongoing meaningful activity within the account.
However, you can subset your PIR analysis by just net new revenue to more accurately assess how the product and PLG motion is supporting new logo acquisition.
Time to convert
You can look at the time delta between the meaningful activity milestone and conversion for PIR accounts. Slicing and dicing this in different ways (ICP vs non-ICP, revenue band, customer size, vertical etc.) can reveal interesting insight that becomes valuable input to refining the product-led sales process.
Where PIR fails
As you can likely tell, I’m a huge fan of PIR. But as with all metrics, it’s not without limitations.
Like all revenue measures, it’s a lagging indicator. As such, it makes it less applicable for use as a north star metric. Instead, for PLG companies, I prefer to use the core engagement/retention metric in the form of daily/weekly/monthly (natural problem frequency) active users (teams for B2B) where activity is the core value. For Snyk, this was Weekly Fixing Orgs.
It’s hard to measure it with 100% accuracy. There’s an inherent grey area to attribution here. Consider the situation where a team within an account started using the product before any sales outreach - hence it is included in PIR. But actually, that usage was completely independent of the deal that happened. There will be some margin of error, but from experience, this is typically low enough not to impact the utility of PIR.
It can create internal friction where doubters think PLG is ‘taking credit’ for revenue it didn’t contribute to. This is similar to the age-old partner-influenced debate. It won’t be an issue in healthy product-led sales-oriented orgs where the sales process is fueled by product usage and sales teams and sales leadership appreciate and support the dynamics of the motion. Of course, unlike partner-influenced revenue, gaming the PIR metric has no variable compensation reward.
Product-Influenced Revenue is a metric that can unlock important insight for PLG companies striving to build efficient GTM engines. If you invest in the necessary measurement infrastructure and commit to analysing the data with awareness of its limitations, you can get a rich and nuanced understanding of how your PLG efforts connect to revenue.
Note: Thanks to CJ Gustafson (Mostly Metrics) and Kyle Poyar (Growth Unhinged) for the review and feedback on this post as it came together. Check out their newsletters and subscribe if you don’t already - they’re consistently brilliant.
1 interesting listen:
Ada Chen Rekhi on How to make better decisions and build a joyful career on Lenny’s Podcast
3 interesting reads:
Shomik Ghosh on Why incumbents LOVE AI on Software Snack Bites
Tomasz Tunguz on How you should staff your startup in 2023
Tamara Ceman with Kyle Poyar on Product-led marketing to reach 400K users
Have you seen companies use a PIR approach for product-led sales only motion? With no self-serve, their focus remains on qualifying leads, i.e., PQL/PQA through their product only?
This is a must read for anyone trying to link revenue back to product activity pre sales interaction. Great job.