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What is Product Led Growth and How Does it Work?

September 8, 2023

Mile Zivkovic

‍Looking for a more effective way to sell and market software? Find out what a product led growth strategy is and how you can use it yourself.

Ever since software became a commodity, much has changed about the way we purchase and use it. As software got into the cloud and consumers became more educated, the way businesses sell software had to change. The traditional sales-led growth model is clunky and does not fit into a world where customers want self-service. Enter product led growth.

People like buying, but they hate being sold to. SaaS companies can take advantage of this with the product-led growth model for adoption, acquisition and conversion.

What is product led growth (PLG)?

Product led growth or PLG is a business and sales methodology where the users themselves do much of the product acquisition, activation, conversion and retention. For many companies, it is a sustainable growth model, when compared to traditional sales-led growth systems.

product led growth model

Instead of sales being the only team working on acquiring new customers, product is put in the center of attention in this business strategy. Product, marketing, customer success and support, all work together in refining the product so that it solves customers’ pain points and pushes them through the sales funnel on their own.

How does product led growth work?

A frequent assumption is that just offering a free trial or a freemium SaaS is enough to get started with product. But it goes deeper than that - it is a bottom-up principle compared to traditional sales.

The typical sales process starts from monetization. You ask for money and provide the product later in exchange for that money.

Instead of forcing customers to talk to sales or sit through lengthy demos, the PLG model gives them access to the product immediately. The customer can start their free trial, try the app themselves, reach their activation moment and you’ll see your conversion rate go through the roof.

Because the SaaS product is the one doing all the heavy lifting, this means it needs to excel at solving a certain pain point. It needs to have an amazing onboarding experience, an easy way to get to the activation and superb features that make qualified leads go from free trials to paid accounts.

If we had to sum up PLG strategy in one sentence, it would be this: creating an amazing self-serve product that provides so much value that prospects buy themselves, without the involvement of sales reps or someone from your team.

The benefits of using product led growth in Saas

There are many SaaS businesses switching from sales-led to product led growth, and for a good reason. Here are some of the many pros of switching to a product led growth strategy.

Lower cost of customer acquisition

In sales-led models, your sales team interacts with a wide variety of leads. This is not only a burden to your sales team but also forces you to hire more people. As a result, you end up spending more time and money to be able to sell effectively.

the increasing cost of acquisition in SaaS
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The typical CAC for SaaS businesses can go anywhere from around $60 to thousands of dollars. Saving money on acquisition gives you more room to work on your product or invest in other channels such as marketing.

Larger total addressable market (TAM)

With PLG, you can use one and the same product to address different types of customers. From freelancers, small businseses, individuals, to enterprises. Everyone can interact with the product in the same way to get started. Should the potential customer need more assistance (e.g. when it’s a bigger account), a sales team member can step in.

A constantly improving product

Since the product is its own salesperson, this forces your business to constantly work on it and make it better: by adding a new functionality or new integrations, or something entirely different. From onboarding to user experience, you constantly need to refine the product and make it more accessible. This is one of the fundamentals if you want to skyrocket your growth metrics and have the product essentially sell itself.

Faster growth

How many sales calls and demos can one person have per day? Some sources state that it’s anywhere from 80-100 per day. On the other hand, your product can work as its own salesman and serve hundreds and thousands of potential customers per day.

If the product demand grows, your product can handle it. Compare this with a traditional sales model, where you would have to hire, train and onboard additional sales staff. It’s clear which model is better suited for quick growth.

Better experience for high-value customers

The product is the one doing the sales for smaller accounts and SMBs. This means that your sales team reaches out only to high-value accounts. This means two things.

One, there is a higher close-rate for sales-led deals. As the sales staff can focus more of their time on these end users, they can craft a more personalized approach and close more deals.

Two, you’ll only approach customers that really need the attention. You won’t waste your time or your customers’ time by talking to prospects who are obviously not a good fit.

Top metrics for measuring the success of your product led growth strategy

While traditional SaaS sales is more concerned with hard figures such as (monthly or annual) recurring revenue, PLG focuses on a different set of metrics. Besides revenue (MRR and ARR), PLG is concerned with a few other key metrics.

  • User acquisition: the number of new users who signed up for the free version product.
  • Activation rate: the percentage of customers that signed up for your free trial or freemium plan and reached the “aha” moment where they realize the value of the product.
  • Customer lifetime value (CLV): the total amount a customer spends over their course of being a customer with you.
  • Time to value (TTV): the time it takes for the customer to get activated and see the value in your product. The shorter the TTV, the better your product onboarding is and the quicker you solve customer’s pain points.
  • Expansion revenue: new revenue earned from existing customers. This is the revenue earned through renewals, upsells, cross-sells, addons and various types of upgrades.
  • Average revenue per user: a crucial metric for software companies that tells you how much money each user is bringing in. 
  • (Net revenue) churn: how many of your existing customers are gone, comparing the beginning and end of a period. 

Examples of product led companies

Here are some companies that ace product led growth, along with key learnings you can take away from each of them.

Slack

There are over 32 million people who use Slack daily in 2023, making it a giant not just in the messaging space, but SaaS in general. It has been around in 2009 and has been steadily growing, mostly through the venue of its product.

Slack has superb customer onboarding that guides you through the app as soon as you join, pointing you to the most relevant features. Even more importantly, it gives you cues to invite your coworkers and start chats with them, as well as create channels for group communication.

The free plan gives you all the freemium features except for one that is crucial: you need to upgrade and check out the pricing if you want more than 90 days of your chat history.

Dropbox

One of the best examples of PLG companies out there, Dropbox nailed virality as a strategy, all the while reducing their customer acquisition costs. Dropbox is a cloud storage service that allows everyone to store their files online and across devices. In the free plan, each user gets 2GB of storage.

dropbox's referral program
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Naturally, you run out of that pretty quickly. Their product-led strategy meant that each customer can invite their friends and get extra storage. So, for each friend you invite, you get an extra 500MB of storage, with the maximum being 16GB.

In fact, I just checked my own Dropbox account I have not used in years and I have 9.6GB of storage - so you can see how many friends I invited. It’s a great go-to-market strategy if your product allows for this kind of promotion.

Hubspot

This SaaS giant has a marketing team that does wonders. And if you think only their marketing is exceptional, you’ll be surprised when you go through the product experience. There are several different ways to use Hubspot: marketing, sales, customer service, CMS and operations.

hubspot's marketing flow

One thing that SaaS companies can learn from the Hubspot business model is that their freemium version is very rich in features. You get all the features for free that you would get in the paid plan.

But where is the catch? Each new customer has to transfer a bunch of data to Hubspot in order to fully use those features. For example, to use the CRM or the customer support module, you have to transfer all of your contacts to Hubspot. By the time you’ve reached that “aha” moment, you already invested significant time and effort into Hubspot. And hopefully, for Hubspot, it’s enough to get you to stay with them rather than consider an alternative. 

This product and marketing-led strategy are what helped Hubspot break through in a landscape with competitors such as Salesforce.

Typeform

No matter what you do in your line of work, you’ll need to create some type of form sooner or later. And instead of using Google Forms, you can get started with Typeform. Known for its superb design and user experience, Typeform has a self-serve model that shows you the product’s value immediately after signup.

typeform's onboarding flow

The onboarding takes mere minutes, and through it, you tell the app what you want to do and what kind of forms you want to create. Once you’ve gone through the onboarding, you’re just about ready to create your first form, which also takes just a few minutes. They provide a superb customer experience for free, without ever prompting you to pay for anything.

Wrapping up

Becoming a product-led company is a major feat. It requires changes in your customer journey, onboarding, marketing, sales, product management and more. But the good news is that there is an established framework and great examples you can learn from.

And even better, you can take baby steps to get there. For example, you can add an embedded analytics dashboard to your product and help your users see the value they get even sooner.

Why wait? Create your first dashboard today for free!

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