Why should you think about changing course towards a product-led growth strategy?
- 50% of SaaS PLG companies hit $100 ARR within the first five years.
- The PLG market capitalization has grown from $1 billion in 2012 to $687 billion in 2020.
- A medium index PLG company is worth more than the median SaaS index company.
That said, not everyone should switch or use a PLG model.
In this guide, I'll navigate you through a comparison between PLG and other growth strategies, the core business benefits, the key components of a successful PLG market strategy, and the nuances in metrics.
By the time you're done, you'll have a clear idea of whether PLG is the right strategy to follow and how to implement it in your business.
What is product-led growth?
Product-led growth (PLG) is a GTM that relies on your product to acquire, convert and retain users.
PLG was officially coined in 2016 by Blake Bartlett, VC at OpenView. Over the next couple of years, the concept made waves in the SaaS world and with software companies, quickly becoming one of the biggest trends in SaaS.
What does a product-led model look like in practice?
Instead of trying to get a prospect to jump straight on board with a paid subscription, PLG focuses on offering a free trial, freemium, or demo model.
Removing friction like discovery calls, tailored demo requests, and hidden fees empowers users to start using your product immediately and become "sticky" by demonstrating your value.
I'll walk you through the best PLG tactics for your organizational structure to help lighten the load on your decision framework.
With all the typical sales icebergs out of the way, it's plain sailing to self-convert users into customers.
Plus, if you're an early-stage SaaS start-up and unsure about your product-market fit, it's a good growth strategy to test the waters.
Why is PLG the future of SaaS?
In the early days of the product-led growth model, all you had to do was whip out your credit card at the end of the trial period and select the plan or features you liked.
But over the years, the product-led growth model has developed with a single goal in mind: to put the customer first.
We have more companies allowing the customer to pay for usage rather than features, offering Beta testing to power users to convert on release, and using tools like Intercom to identify leads based on usage patterns.
"As more and more companies deploy this style of selling, it's the companies who truly understand what the customer wants, what the customer is doing, and why they're doing it, that will win the most," says Ryan Nutley, Director of Sales Engineering at Datadog.
Ryan predicts a more holistic product-led strategy approach will be the norm in the next ten years.
"Smart scoring algorithms will consider every customer touchpoint; support tickets, visiting documentation pages, webinar attendance, chatbot interactions, product feature usage, etc., and auto-convert customers through conversion funnels. Only the most qualified leads will be brought back to revenue-focused teams."
How does PLG compare to other SaaS growth models?
Is the product-led growth model right for your SaaS company? Here's a quick overview of the pros and cons of using one over the other.
PLG vs. SLG
In a traditional sales-led growth model, the process revolves around the salesperson.
It's a top-down selling strategy that's all about the "push."
Your team must find leads, pitch your product or service, book demo calls, deliver contracts, and onboard the customer.
Product-led growth, on the other hand, is a "pull" tactic.
It relies on your software product to attract users, the buyer to self-educate, and ultimately sign up for the plan that best suits their needs.
That being said, a PLG isn't a one-size-fits-all approach.
"You need to consider your buyer personas," says Christian Bloomberg, B2B SaaS Go-to-Market Advisor, and Board Member.
Another thing to remember is your product's complexity, especially regarding the onboarding process. If it's not possible for users to self-educate or see value immediately, a sales-led growth strategy is the better fit.
But if you make value obvious in every product iteration, you'll have plenty of conversational bumpers that keep leads returning to sales and customer success departments.
PLG vs. CLG
In the customer-led growth (CLG) model, the customer's preferences are at the forefront of your decision-making process.
Its success relies on extensive customer feedback and department research to deliver value at each touchpoint. Imagine an efficient model-driven and sustained by your entire team.
The only downside?
It's not cheap, regardless of what people tell you about "a capital-efficient model."
Let's start with the upfront costs. You need to invest in a large sales team to staff your dominant growth strategy and see results.
In comparison, PLG doesn't need a fully-fledged enterprise sales team to kick off rapid growth. Twilio, a SaaS start-up grew to $250M ARR with a PLG strategy and 12 full-time salespeople.
But after its IPO, the product-led company switched to a CLG approach and increased its sales team to 800 people.
If you're a fledgling start-up, the product-led approach frees you from the initial cost of investing in a large sales team and gives you room to redirect funds toward product-led growth marketing and product development.
If and when you're ready to take the financial hit, you can blend the best of SLG and PLG by investing in CLG and a hybrid method of growth.
4 benefits of a PLG strategy
In 2019, the top SaaS IPOs used a PLG approach.
...But what's the allure? What's causing these mature companies to report higher revenue growth, gross margin, and net dollar retention?
These are the main benefits of a product-led approach.
Lower CAC (customer acquisition cost)
Dreaming of $0 customer acquisition costs?
PLG is your ticket to making a flawless user journey happen.
"For me, the biggest challenge with a sales-led strategy has to be the cost of customer acquisition," says Ryan Nutley.
When your product is the main customer magnet, you can run a tight ship with only a handful of employees (like Twilio) as the core of business growth.
It gives you space in your budget to re-invest your profit to create an excellent customer experience and strengthen your product magnet. You'll develop the disruptive growth strategy people will one day write about.
Shorter sales cycles
The PLG strategy stems the tide of lost deals by removing hurdles like onboarding, demos, and discovery calls. This magnet for customers fosters user motivation across your addressable market.
What you're left with is a lean, mean sales machine that is:
- Self-onboarding: Speeding up customer stickiness and reducing time-to-value.
- Removes barriers of entry: A freemium version or free trial options allow more end-users to see the value of your product instead of a select group of decision-makers.
- Easily scalable: Want more users and a beefier market share? Globalize your product to include different languages and currencies and make your marketing content visible.
There is a variety of bottom-up selling strategies to choose from. Still, these three points assure a happy experience for companies looking to turn non-paying customers into power users.
Better user experience
Want to know how to make a successful product-led business?
Follow this simple recipe:
- 1/2 cup of solving the end user's pain points.
- 2 tablespoons of user-friendly UX.
- 1 giant cup of meaningful value.
Mix it all together to make a tangible difference in the end-users life.
It's much easier for your customer success team to upsell a paid product when you can make someone more productive, streamline tasks, and hit their goals.
Thanks to your empathetic customer development, your users already know, like, and trust you, making the time-to-value (TTV) customer journey smooth sailing.
"We've found a PLG strategy has been crucial for the adoption of our product after purchase," explains Ryan Nutley.
Key components and tactics of the PLG approach
If you're thinking, "So PLG means building a good product that seems simple enough."
However, if you want to avoid being caught between the devil and the deep blue sea, there are some PLG key components and tactics you need to accelerate your revenue growth process and ensure you're creating a bottom-up approach.
Let's look at some top examples of product-led strategy tactics to improve the user experience and reach your key outcomes.
Get rid of friction
What's the most annoying thing about your local DMV?
I bet you find it tedious, inefficient, and, let's face it, soul-draining.
Imagine if you could remove all the friction with renewing your driver's license.
You would have a delightful time at the DMV, your cortisol levels would be much lower, and your life expectancy would probably go up.
Your experience might even drive you to leave a 5-star Yelp review.
If you want your end-users to feel the same way about your product, you must make the entire process as pain-free as possible.
Remember, people are lazy, and time is our most valuable resource.
- Ditch a complex sign-up process: Ask for a name and email address. Take out as many steps as possible and streamline the process with single sign-on (SSO) functionality.
- Make user onboarding emails & training easy: You want your users to use your product as quickly as possible.
- Keep it simple: Eliminate any unnecessary features or steps.
These are only the tip of the iceberg.
Comb through your product to weed out points of friction that stop usage and limit your product growth potential.
In short, your competition demonstrates value early on, removes usage friction, and creates a positive experience.
...All while you are still trying to book a demo call.
How do you help users find value in your product?
Let's use Tailwind, a Pinterest scheduling tool, as an example.
For users to see value in the tool, it has to help people set up and start scheduling Pins at optimum times.
The onboarding process must show users actions to achieve that goal and have easy-enough-to-use functionality.
Tailwind checks all those boxes and, as a result, has grown to a customer base of 1M.
Features drive product demand
For your PLG strategy to succeed, you must focus on delivering value before the paywall.
...But doesn't that mean you're not monetizing your business?
By ungating your features, you're showing off the best of what you can offer. You're giving customers real hands-on experience with your product and a practical chance to see how you can change their lives.
You make money by charging for product usage rather than access to features.
Let's look at a few examples:
- Canva: The graphic design platform has a free edition with access to different templates, fonts, and free graphics. Canva's paywall is based on more advanced features for pro users, like team collaboration, brand kits, cloud storage, and access to 100+ million stock photos, videos, and graphics.
- Miro: Miro is a visual collaboration platform with a freemium offering. It includes unlimited users and integrations with other tools like Slack. The paywall kicks in if you want to use three or more editable boards.
- Bonsai: A freelancer's all-in-one product suite offers new users a 14-day free trial. During the two weeks, you'll have access to all of Bonsai's features, allowing you to experience the platform's full potential. After the trial, you can choose from 3 different pricing plans to continue using the product.
With features driving demand, you can attract PLG leads who will start using your product and monetize your high-value customers as they ramp up their usage.
And you can forget about traditional cost-plus pricing models. Product-led companies are about providing and receiving value, something your sales reps might gloss over in traditional sales cycles.
"It's in your best interest to drive as much product engagement and collaboration as possible since it'll ultimately benefit you in the long run," says Kyle Poyar.
What helped Slack become the go-to workplace messaging platform and the fastest-growing start-up in history?
It's freemium model.
Slack created viral product marketing gold by allowing anyone to create an account and use the software. Current users would invite new users to collaborate, effectively spreading the word on the app's behalf.
And the result?
When Slack launched publicly in February 2014, it had 60,000 daily active users and 15,000 paid users ten weeks after exiting its closed beta.
So before you launch your PLG strategy, think about how you can add a dose of virality to your product. Prompt your product teams to look at an attractive freemium model when designing your next market strategy.
How can you encourage people to spread the word and expose your company to a larger audience?
Here’s some inspiration for your marketing team from other product-led growth companies to get your helm turning:
- Zoom lets you invite up to 100 participants on its free plan.
- Google Drive shares links to files, exposing new people to the tool.
- Notion allows you to share boards with up to 5 guests.
This communal user experience is the bread and butter of product-led businesses' rapid growth.
From a psychological point of view, people love being recognized as a prime influence in their team or even company. Consider the social outcome for a user, i.e., how their colleagues and leaders will perceive them for using and promoting your product.
Freemium plan vs. free trial
Which is the better strategy to accelerate your PLG strategy?
Let's dive into the data and find out where your market share and key outcomes lie.
According to OpenView:
- Freemium tools generate 33% more free accounts for every website visitor.
- Activation rates for free trials are 40%, whereas freemium is 20%.
- Free trials generate a free-to-paid conversion rate of 14%, while freemium lags behind at 7%.
- A freemium product converts customers without sales 25% more than free trials.
So what do these examples of product-led growth tell us?
Suppose you want to open your TOFU as much as possible and reduce costs from a sales workforce standpoint. In that case, freemium is the way to go, especially if you have a product like Calendly or Slack that generates more value with more people using it.
But a free trial is the best option if you want to create a sense of urgency to purchase and focus on maximizing paid conversions and activation rates.
PLG is not no touch sales
A mistake SaaS companies make is working on the assumption that all you need to do is create a product, drive traffic to your website, and the product will sell itself.
Following that path will lead you to a bad user experience and a business model that relies on “hope.”
When you implement a PLG strategy correctly, you eliminate or reduce your sales team at the beginning of the sales cycle. You still need the human touch to step in and help you grow faster, sign bigger clients, and deliver a better user experience.
The low-touch approach becomes problematic when you hit hundreds or thousands of sign-ups and users. It’s impossible to expect your reps to touch base with everyone, so you need a frictionless experience that empowers users to go from sign-up to product without help unless someone needs you.
You also need a CRM with dynamic 360-degree lead scoring that’ll help you prioritize the right leads (like enterprise accounts) that match the defining characteristics of PQLs: fit, value, and intent.
PLG metrics you need to measure
Are you measuring the wrong PLG metrics?
Is your digital content generating huge traffic and emotional outcomes but minimal conversions?
While there is some alignment around sales metrics, not everything compliments a PLG strategy. You can't use broad strokes to paint your entire product model.
Let's take LTV/CAC, for example.
This metric doesn't work for PLG companies because it doesn't consider the low churn rate and opportunity for average revenue expansion from key accounts.
So how should you measure PLG instead? Which figures translate to a meaningful outcome? Here are some of the key metrics to keep an eye on.
Number of products
As you scale your PLG company and traverse the current market conditions, keep an eye on the number of products a customer uses.
It all comes back to stickiness.
The more features someone uses, the less likely they'll churn to a competitor. These functional outcomes increase your customer lifetime value (CLV).
"If a customer is adopting new products, alongside increasing spend, you're most likely to see a positive knock-on effect on all your other metrics," explains Ryan Nutley
One of the biggest mistakes PLG companies make is tracking sign-up growth.
While those new accounts look great on paper, it's all smoke and mirrors when you realize those sign-ups still need to translate into revenue.
Worse, you might be tweaking your pricing model and pricing strategies according to junk data.
What's a more meaningful and realistic metric?
This metric helps you see how many users understand the value of your product, continue to use it, and aren't likely to abandon ship.
...But that's not all.
- It weeds out the noise: Say goodbye to counting sign-ups from bots or competitors.
- It gives you better predictions: When you focus on the users investing time into your product, it becomes much easier to predict key outcomes like revenue and conversions.
It helps you adjust your strategy quickly: You don't need to wait 6+ months for a user to convert to see if your strategy works. Using activated sign-ups as a PLG metric means you can catch what to double down on or ditch within a much shorter time frame.
"What are the things a user needs to do to see value?" asks Christian Blomberg. "You need to track that and make sure people get across that hurdle at a high enough rate."
That's where TTV comes into play.
The metric looks at the time it takes for a new user to have their "aha moment" or activation.
The faster you get a user to see meaningful value using your product, the more likely they'll stick around and become a PQL that'll convert to a paid plan.
How can you reduce your TTV?
Implementing a solid onboarding experience and good UX accelerates the user journey.
Set sail for PLG
That's it for my product-led strategy guide, and I hope you appreciate that a successful product-led business is so much more than just a freemium plan.
"For the most part, any company looking to grow or expand will need to adjust their strategy to include a product-led GTM strategy or risk becoming irrelevant and stagnant," warns Ryan Nutley.
"They may not fail outright, but they certainly won't be considered market leaders and will likely be disrupted by more agile competitors who value their customers."
If you want to adopt a successful product-led growth strategy, remember that it's not easy.
Lower customer acquisition costs, tempting social outcomes, and optimized pricing strategies are just a few of the things that make up a successful product-led business, and they all take a good amount of time to establish.
The product-led business model completely disrupts how you market, sell, support, and operate your business. You need data to ensure your entire organization is aligned around your product and creating a unified customer experience.
With the availability of advanced analytics from CRM data to heat maps, you have all the customer insights you need to ensure you're reaping the enormous benefits of a hybrid growth strategy.
What's that? A hybrid approach incorporates all the elements of product-led SaaS growth while still supporting your sales and customer success teams to nurture relationships and expand accounts into enterprise customers.
Remember, your product isn't your sole growth channel. A good PLG strategy works with your sales and marketing teams in tandem.
Make sure everyone appreciates and instils the benefits of product-led growth into their strategies. Your primary driver of success might just be a hybrid model where everyone is on the same page.