Product-led growth can be defined as a business methodology where a variety of functions are driven largely by the product itself, such as user acquisition, consumer retention, expansion, and conversion.
Using product-led growth, the teams within a company enjoy alignment across its different teams, such as marketing and sales to production and manufacturing. Over recent years, PLG has gained massive popularity due to its ability to deliver scalable and sustainable business growth.
The future of SaaS and the role of product-led growth
PLG offers a unique and innovative perspective for growing a SaaS business.
The most important message for any business in today’s competitive marketplace is learning how to survive. It should be noted that the business concepts for SaaS companies are undergoing a drastic revolution. Product-led offers the ‘winning strategy’ by placing customers as the top priority.
In this regard, learning about product positioning is crucial. Product positioning is the cornerstone of product-led growth, defining how a product meets user needs and differentiates itself, crucial for driving user adoption and fostering sustainable growth.
The strategic advantages of being product-led in business
As the product paves the way throughout the organization, it offers a range of benefits:
- The PLG approach dramatically reduces the sales cycle. When users are onboard themselves, there is a noteworthy reduction in converting free users on the site to paying consumers. The time-to-value and sales cycle shortens in length, and it takes less time for the users to fulfill one of their core outcomes using the product.
- Product-led growth offers meaningful and valuable experience to users when the products are developed for them to onboard themselves, without the need for additional assistance.
- A self-serve model that comes with the PLG approach decreases the overall cost of customer acquisition. This is possible when customers are able to upgrade with minimal interaction with the company teams.
- The overall revenue generated per employee also increases when you can achieve a higher annual rate of return with a relatively smaller number of people on the team.
The challenges facing SaaS businesses and the relevance of product-led growth
It is difficult to remain profitable while being a SaaS company. The following section highlights some of the daunting challenges faced by SaaS businesses and how product-led growth can come to the rescue.
It is costly to grow start-ups. It may sound contrary to common sense, but building a SaaS company is relatively cheaper and thus poses a weak barrier to entry. This increases the competition, which makes it costly to acquire customers. Marketing costs are escalating higher than ever, while consumer interest in paying for features is declining significantly.
In other words, the profitability decreases while the expenses rise. This may be dangerous for the business, especially if there is high churn.
The Trend of Self-Educating
Most consumers for the business-to-consumer (B2C) and business-to-business (B2B) spaces now opt to self-educate themselves when using a paid version of an app, rather than learn through a salesperson. Nowadays, people are largely uninterested in undergoing a time-consuming sales process to test the software product and would simply buy it on their own.
Thanks to free trial and freemium modes, users are now conveniently able to decide on purchasing a product.
Expectations for a Smooth Product Experience
From the free trial period to renewal, the product experience entails everything that a consumer experiences throughout the period. Seeking assistance from salespersons when purchasing software will only slow down the user’s journey and add ‘friction’ to the process. Most of the onboarding and upgrading experiences are administered efficiently by the product itself, thereby limiting the need for human involvement.
In light of these challenges, it is crucial for SaaS businesses to choose strategies that will help them overcome these hurdles in the long run and place the business higher than the competition.
The risks of a sales-led strategy in the current market
Depending largely on the sales team is a risky scenario because each product sale would rob your consumers of the self-education experience. Also, a sales team tends to increase the friction of an otherwise smooth sale in today’s business landscape.
A high-touch sales model translates to escalating customer acquisition costs. Most sales cycles are lengthy. A profitable sales model would mean that the lifetime value of each customer should be large enough to cover the high-end acquisition costs. Ultimately, this leads to charging heavy premiums from consumers and making your product/solution more expensive. A key tip here is to look out for competitors that are working with a more efficient approach to acquiring customers.
The customer acquisition model is criticized for being leaky.
Marketing-qualified leads do not typically result in finalized business deals or sales.
It simply indicates content consumption and falsely translates it to ‘consumer intent’.
It creates unnecessary friction in the buying process.
There is a sheer absence of the connection between marketing and sales. You see, simply downloading the whitepaper for a product does not translate to an actual purchase in most cases.
Understanding how the product-led growth model functions
The four stages of the product-led growth model include the following:
When you provide a free or trial version of your product to the users, it provides an opportunity to engage with the value proposition before it is monetized. A successful product-led business ensures that consumers cannot imagine their lives without the product. During the free trial, consumers can conveniently find solutions to an expensive pain point and would do anything to continue using it. Hence, monetization should come naturally after engagement.
Going further, product differentiation is paramount here. Not only does it distinguish your offering in a crowded market, but also ensures sustained user engagement by solving distinct pain points.
PGL calls for a mass culture shift within the organization. The focal point shouldn’t simply be the maximization of revenue growth. Rather, the company should focus on maximizing user success and aiming for a natural flow of revenue growth.
To achieve the aim of the ideal experience for your consumer, the product team should efficiently engage with all business teams and departments.
The primary benefits of adopting a product-led growth approach
As mentioned above, the PLG approach offers lower costs of acquisition as well as a powerful growth engine as compared to the competitors.
Customer acquisition costs tend to be lower due to the following reasons:
A free trial version of the product serves as a natural tool for acquiring customers, and supports and even replaces other paid acquisition strategies. The power of ‘virality’ does wonders here, and the product gets right to a variety of prospects. Rather than striving to secure the top position in social networking platforms or search engines, people will unsurprisingly talk about your product with their teams and professional networks.
The sales teams can now interact only with high-value deals and prospects. The product itself is independent enough to tackle its market on its own. From providing paid versions of the software to upgrading features, the product leads business by reducing interactions with sales teams and CACs.
The minimum viable product (MVP) is instrumental in product-led growth, allowing for rapid iteration based on user feedback. It accelerates time-to-market and ensures user-driven development. Besides, it can also help in customer accumulation.
Key metrics for navigating product-led growth transitions
As you embark on a PLG transition for your business, it is important to note the following metrics.
Also known as the Aha! moment, it identifies when the user has experienced significant value while using the product.
This is the number of users who sign up for the free product experience.
Free-to-Paid Conversion Rate
This is the percentage of customers that purchase a paid account after the trial period ends.
This is the time taken by new users to reach activation.
Customer Lifetime Value
This predicts the amount of revenue that one customer can bring to the business throughout the relationship.
This is one of the most significant levers for SaaS growth and measures the revenue data coming from existing customers in the form of cross-sells, upsells, and add-ons.
Net Revenue Churn
Typically shown as a percentage, this measures the money lost after accounting for new and expansion revenue.
Average Revenue per User (ARPU)
This is calculated by dividing the monthly recurring revenue by the total number of customers. It offers a useful perspective on business health.
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FAQs on product-led growth strategies
What is meant by product-led growth?
Product-led growth is a business strategy where a company prioritizes its product as the primary driver of customer acquisition, retention, and expansion. Instead of relying heavily on traditional sales and marketing, the product itself serves as a key catalyst for user adoption and business growth. Furthermore, it is noteworthy that to achieve product-led growth it is exceedingly important to give due care to product design as well.
What are the three pillars of product-led growth?
The three pillars of product-led growth are acquisition, expansion, and retention. In this strategy, a company's product plays a central role in attracting new users (acquisition), encouraging existing users to utilize more features or upgrades (expansion), and ensuring customers remain satisfied and loyal over time (retention).
What is the difference between product-led growth and sales growth?
Product-led growth (PLG) and sales growth represent different strategies for business expansion. Product-led growth relies on the product itself as the primary driver for acquisition, retention, and expansion. In contrast, sales growth emphasizes traditional sales and marketing efforts to drive revenue and market share, often relying on a dedicated sales team.