Senior Writer: Paras Kela
Different businesses use different growth models depending on their goals, product type, budget, and other factors. Some businesses focus on providing personalized customer service, some on affordable pricing, and others on products. Whatever growth model you choose, the ultimate goal should be overall business growth.
In this blog, we will discuss one such major growth model known as the product-led growth model. We will learn about the various facets of this subject, such as the benefits of product-led growth methodology, product-led growth examples, and tips for improving product-led growth, among other things.
Let’s get started without any further ado.
What is Product-Led Growth (PLG)?
Product-led growth is a business strategy in which the company places the highest emphasis on its products in order to drive customers, generate revenue, improve customer retention, increase business sales, and so on. In other words, in product-led companies, the products are positioned as a critical factor in improving all business metrics.
Sales teams are the primary revenue generators in product-led businesses because they are responsible for marketing the product to prospects and converting them to customers, generating revenue.
Just like the sales team, the product team also plays a critical role in product-led companies because they are responsible for continuously upgrading and improving the product to maintain a competitive edge.
Slack and Calendly are two product-led growth examples.
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Product Led Growth vs Sales Led Growth: What’s the Difference
Let us now examine how the sales-led growth model differs from the product-led growth model.
As previously stated, the product-led growth model focuses on the product as a driving force for customer acquisition, retention, and monetization. Product development and sales teams are the two teams that typically lead product-led organizations.
The product team works hard to make the product or products more user-friendly, sophisticated, and feature-rich. At the same time, the sales team ensures that the product is effectively marketed to prospects and that all of its features and benefits are accurately communicated.
In a nutshell, the success of product-led companies is in the hands of the product team and the sales team, where the development team works to improve the product, and the sales team works to market the product’s USP and unique features.
Now, let’s talk about the sales-led growth model.
In a sales-led growth model, the emphasis is on the sales & customer success teams to drive the business and growth. Unlike in product-led growth companies, the driving force in sales-led companies is the sales team or sales reps.
Besides that, in sales focused growth companies, customers are acquired through various traditional sales methodologies. In addition, the sales team generates leads via inbound and outbound efforts, qualifies and converts them via online demos, and so on.
This model works best when introducing a new product or when customers need to be educated on the value proposition. In other words, the sales-led growth model is recommended when engaging with customers – sharing white papers and running online demos.
What are the Key Benefits of Product-Led Growth?
As one might expect, the product-led growth model offers multiple advantages to the company, including lower customer acquisition costs, faster growth, higher customer success and satisfaction, and more.
1. Word-of-Mouth Promotion
The first significant advantage that product-led growth enterprises have is free word-of-mouth marketing. Since the basic version of the product is usually free for everyone, users will definitely recommend it to others if the product is good. This will create a referral marketing chain, allowing you to acquire users for free. Besides that, the free trial allows you to attract customers without needing any marketing efforts.
2. Lower Overhead Costs
The next major advantage of the product-led growth model is that companies do not need to invest heavily in sales and marketing teams. Since the emphasis is on the product rather than sales, they require either a small sales team or none at all. This budget can be diverted to product development, making the products more comprehensive and sophisticated.
3. Improved Customer Satisfaction
You must have realized by now that product-led growth (PLG) companies focus their resources and efforts primarily on product development. This approach will undoubtedly assist them in developing cutting-edge products that exceed users’ expectations. As a result, when users receive products as good as these, their satisfaction is bound to skyrocket.
4. Scaled Accelerated Growth
It has been evidenced that product-led growth companies grow faster than sales-led growth companies. This is due to various factors, including high-quality products, low costs, and short time-to-market. These companies can quickly accommodate customer requests while maintaining product superiority over competitors.
5. Reduced Customer Acquisition Costs (CAC)
You can expect your expenses to drop drastically when you don’t have to spend money on a sales and marketing team or marketing campaigns with recurring costs. Moreover, free marketing and product access will help product-led growth enterprises attract customers and upgrade them to premium plans. All of these factors will reduce the cost of acquiring new customers.
7 Product-Led Growth Principles
What distinguishes successful PLG companies from unsuccessful ones is that successful companies follow product-led growth principles, whereas unsuccessful companies do not. If your PLG company has not achieved the desired results, we recommend that you follow the PLG principles listed below.
- Create a product that does not necessitate a marketing campaign. Rather, the product should be able to sell itself without the need for any outside assistance.
- Keep the sign-up process as simple as possible. By keeping the user onboarding process simple, users will be able to experience the product and its benefits right away. This will improve the time-to-value.
- Adopt the ‘try it before you buy it’ strategy. Offering the product for free to customers is an excellent way to attract new customers. It allows customers to try the product for free before upgrading to the paid version.
- Always keep the end-user experience in mind. These users’ suggestions based on their experiences will assist you in making the product more user-friendly.
- Keep the initial targeted use case and solution narrative as simple and precise as possible. This is because PLG involves little to no sales rep intervention to sell a product’s value proposition.
- Build a product that is able to get viral through networks, word-of-mouth, or referrals. The referral flywheel not only provides more value to individual users but also generates revenue.
- Make the SaaS pricing structure as transparent as possible. To avoid confusion during the purchasing process, pricing models should be clear, simple, and easy to understand for end users.
These are the seven key product-led growth principles that businesses must adhere to in order to achieve the desired results and business goals.
4 Key Product-Led Growth Metrics
Once you follow the PLG best practices listed above, you should measure the outputs on a regular basis to determine whether any modifications are required. Some of the key product-led growth metrics are as follows:
1. Cost Per Acquisition (CPA)
Cost per acquisition is a metric that calculates the cost of acquiring new customers. It is calculated by dividing the total amount spent on sales and marketing by the total number of customers acquired.
2. Time-to-Value (TTV)
Time to value is another important product-led growth metric that measures the time it takes for a customer to begin deriving value from a product or service. The TTV should ideally be as low as possible. You can achieve this by keeping the onboarding process as simple as possible.
3. Customer Lifetime Value (CLV)
Customer lifetime value is one of the key SaaS metrics that predicts the net profit contributed to a customer’s entire future relationship. By comparing CLV to customer acquisition cost, you can estimate a customer’s profitability.
4. Product Qualified Lead (PQL)
A product-qualified lead (PQL) is a lead who has benefited from your product via freemium or free trial model and is now interested in purchasing paid plans or services. PQL can be measured by monitoring user behavior. For example, if, out of 100 new users, 60 have added their team members to the system within the first week, those 60 users can be identified as PQLs.
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Best Product-Led Growth Strategies
Here are five tips to help you quickly and easily create a best-in-class product-led growth strategy.
1. Prioritize the customer experience
When thinking about a product or designing one, keep the customer experience in mind. Everything from the product’s features to the layout, navigation, pricing, and customer support should be user-friendly.
Remember that a positive customer experience will not only assist you in converting those free users into paid users, but it will also provide you with free word-of-mouth marketing.
2. Quickly collect and implement feedback
Another thing you should do is collect user feedback about your product on a regular basis. You should use various methods to learn how satisfied users are with the product and what changes they expect. When you receive feedback, it is your responsibility to put it into action after conducting any necessary analysis.
3. Keep the onboarding process simple
As previously stated, the onboarding process should be as simple as possible so that users can immediately experience the product and its benefits. Instead of making users fill out a lengthy form, ask them for only the primary information, such as their name, email address, phone number, and password. You can collect more information as the user journey progresses.
4. Shorten the time to value
The fourth tip for increasing product-led growth is to reduce the time to value. You can accomplish this by assigning a dedicated customer success manager to each customer, investing in a best digital adoption platform (DAP), using behavior analytics and product data to make data-driven decisions, and slicing down the free trial period.
5. Constantly improve your product
Product development is an ongoing process that never ends. Continue collecting customer feedback, incorporating it into the product, and releasing the new version to the market.
When users find the exact product they are looking for or one that meets their needs, they are more likely to continue using your product or even upgrade to the premium version. Continuous product improvements also give you a competitive edge.
3 Examples of Product-Led Companies
The following are some of the major product-led growth examples that have successfully implemented the product-led growth model and achieved the desired results. Let’s take a look at them one by one.
Calendly is a meeting scheduling tool that helps people find mutually agreeable meeting times across and within organizations. The company has successfully implemented the PLG model. The product is simple to use and provides a quick solution to a common problem.
Furthermore, Calendly’s onboarding process is simple and quick. Another key reason for Calendly’s global success is that the product solves a nearly universal problem: meeting scheduling.
Atlassian is a software development and collaboration company that has successfully implemented a key product-led growth strategy. The company’s product portfolio includes Jira, Trello, and Confluence, with 15 million users worldwide. Atlassian reported $2.1 billion in revenue in 2021 and a more than $74 billion valuation.
Atlassian’s freemium model is a major reason for the company’s meteoric rise. Using the freemium model, the company successfully highlighted the key features to its first-time users and persuaded them to subscribe to the product.
The list of product-led growth enterprises would certainly be incomplete without mentioning Slack– a collaboration platform. Slack is an excellent example of how a business can use the PLG model to drive customers, revenue, and success.
Slack, founded in 2009, focused on the product and its value to grow its business. Because of continuous product improvements, the company now has 12 million active daily users and a $7 billion valuation. Just like Atlassian, Slack uses a freemium pricing model, which has helped them attract a large number of users.
Frequently Asked Questions
To be a product-led company means prioritizing the product over marketing and sales activities. Product-led growth enterprises strive to provide value to their customers through their products.
The main advantages of product-led growth strategy are that it allows businesses to grow faster by simplifying the onboarding process, lowering overhead costs, reducing time to market, and improving customer success and satisfaction.
The four major growth strategies are A. Market Penetration, B. Market Development, C. Product Development, and D. Diversification.
Slack, Atlassian, Dropbox, and Calendly are some of the most well-known and successful product-led growth examples.
In SaaS, PLG stands for product-led growth. This growth model prioritizes product over sales and marketing for user acquisition, expansion, conversion, and retention.
A product-led growth strategy entails leveraging your product to drive business and revenue growth. On the other hand, sales-led growth employs marketing and sales tactics to move customers through the funnel.
Product-led growth can be measured using metrics such as time to value, Product-qualified leads, Feature adoption rate, Expansion revenue, Acquisition cost, and others.
The key product-led growth metrics are product qualified leads, time to value, average revenue per user, feature adoption rate, CLV, retention rate, net revenue churn, and expansion revenue.