What is Product-led Growth & Why Should You Care?

Product-Led Growth (PLG) is a go-to-market strategy that relies on product usage as the primary driver of user acquisition, conversion and expansion.

- OpenView Venture Partners

The term was invented last year (2018) by OpenView Venture Partners. Even though Product-Led Growth is a new term, PLG companies like Slack, Mailchimp and Dropbox have been using Product-Led Growth for customer acquisition, activation and retention for many years now.

Product-Led Growth helps software companies in three ways:

  1. Acquire more users
  2. Activate their users
  3. Retain their users

Why Product-Led Growth is important?

Acquiring new customers becomes really difficult and expensive. Instead of focusing on sales and customer success team, PLG companies can focus on improving their product and expanding worldwide. Here are some of the benefits of Product-Led Growth for SaaS businesses:

1) Product-Led companies have a wider Top of the Funnel (TOFU)

Offering a free trial of a freemium model can help you attract more people who are earlier in their customer journey. It can speed up the process of Activation and get more new users at your door. When you don’t charge for product features, but let users experience the value of your product, you will constantly get new users who will want to try out your SaaS product.

2) Product-Led companies attain rapid global scale

Product-led Growth gives you an edge over the competition. While your competitors are trying to hire sales reps, you are trying to refine your user onboarding and collect user feedback on how your product team can improve your product.

3) Product-Led companies have a shorter the sales cycle

By having users onboard themselves and experience value right away, you won’t need to spend time on demos, follow-up Emails and calls. This way, you’ll get free users to update to one of your paid plans quicker and without any friction points.

5) Product-Led companies have a lower Cost to Serve & higher Revenue per Employee (RPE)

If your product is self-served, you won’t need to hire more customer success people or salespeople. Also, you’ll have fewer support tickets, which means a higher profit margin per customer.

6) Product-Led companies connect the volume of user engagement with revenue

By offering a value-metric-based pricing model, you educate your users and give them the right incentives to keep using your product. This way: 1) You educate users on how to get the most out of your product and don’t alienate product metrics, and 2) You have a more fair pricing, as it is volume rather than feature-based.

How Does Product-Led Growth Works?

In order for Product-Led Growth to work for your B2B SaaS business, you need to understand the value that your product brings to users. Once you understand what value you can bring to users, you have to communicate that value effectively. Product-Led Growth is a way to reduce customer acquisition costs (CAC) and use your product as the main growth lever for your business.

The 6 Steps to Achieve Product-Led Growth

To attain Product-Led Growth, you need to follow the 6 steps that follow:

Step 1: Choose a Pricing Model

To achieve Product-Led Growth, you have to choose a pricing model for your product. Your options are:

  • Free trial (i.e. Zapier)
  • Freemium model (i.e. Mailchimp)

Mailchimp Pricing. Screenshot.

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You must avoid pricing models that are based on demos. A pricing model based on demo is usually ideal for enterprise solutions, with long sales cycles and decision makers who are usually C-level employees. Choose between a free trial and a freemium model.

Step 2: Connect Your Pricing Strategy With a Scalable Value Metric

Successful PLG companies connect their pricing strategy with a value metric. This strategy allows the average revenue per user to scale, since the value that the user gets scales and the user experience is significantly better. Product-led growth strategies are connected with value metrics that are scalable. As the product experience value for the user grows, so does the cost of the product:

Correlation Between Experienced Value and Pricing Plans. Illustration.

Let’s use Slack as an example. Take a look at Slack’s pricing plans and you’ll notice that it only charges you for active users on your account:

Slack Monthly Subscription. Screenshot.

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This way, you have:

  • A pricing that is fair, since you’re only charging for users who get value out of the product
  • Created a virality effect because you know users will refer the product to others, since they will be charged only if they use the product

Step 3: Stop Counting MQLs; Focus on Product Qualified Leads(PQLs)

Even though Marketing Qualified Leads (MQLs) and Sales Qualified Leads (SQLs) are important, they aren’t yet enough to measure product growth. Also, it’s unlikely that MQLs and SQLs indicate the intent of the user. Thus, you should start measuring Product Qualified Leads (PQLs), by taking into account the product experience value.

Step 4: Align Your Sales Strategy With Your Go-to-Market Strategy

If you want to follow a product-led growth strategy, you need to use scalable tactics that will attract leads who will be willing to use your product. For example, if you run a B2B SaaS and offer a 14-day free trial to all new users, you can’t use demos as a way to activate those users.

Having a sales team running demos should be avoided if you want to follow a product-led growth approach. The reason is simple: this process is not scalable and thus contradicts with what you’re trying to achieve through product-led growth.

Step 5: Develop Your Straight Line Through Bumpers

Growing a successful product requires you to get the ball (AKA the user) from Point A to Point B. The reason you want to do this is because that way, free users will experience the highest value possible in the shortest time frame possible, and thus will want to upgrade to a paid plan.

From Point A to Point B. Illustration.

Developing your straight line product means helping users to reach the first meaningful outcome as fast as possible. To do that, you need to follow these 3 simple steps:

1) Make screenshots of all the steps the user has to take, from home page to the first meaningful outcome.

Let’s take Ahrefs as an example.

The steps that someone has to take until the first meaningful outcome are the following:

1) Land on Ahrefs homepage

Ahrefs Homepage. Screenshot.

2) Sign up for a 7-day free trial

Sign Up for Ahrefs Free Trial. Screenshot.

3) Insert a keyword on Keywords explorer

Insert Keyword on Ahrefs Keyword Explorer. Screenshot.

4) Get a list of keywords you can use right away for your content

List of Keyword Ideas on Ahrefs. Screenshot.

Once you map out these steps, you can move on to the next step of the process, which is to categorize steps based on their contribution to the first meaningful outcome.

2) Categorize these steps based on how they contribute to the first meaningful outcome.

Here is how you can categorize these steps:

Green: Absolutely necessary

Yellow: Necessary but maybe for more mature users

Red: Must be skipped

3) Keep only those that are absolutely necessary.

Bumpers are methods of onboarding users in the best way possible so that they reach the first meaningful outcome as soon as possible, and thus upgrade to a paid plan. Bumpers are divided into two categories: 1) Conversational Bumpers and 2) Product Bumpers.

4) Use conversational and product bumpers to get users to the 1st meaningful outcome.

Bumpers are methods of onboarding users in the best way possible so that they reach the first meaningful outcome as soon as possible, and thus upgrade to a paid plan. Here are some examples of bumpers:

Conversational & Product Bumpers. Illustration.

Step 6: Align the Perceived Value With the Experienced Value

There are three drivers that make someone buy your product:

Functional Outcome: The Job To Be Done needed by the user

Emotional Outcome: How the user feels when this task is accomplished

Social Outcome: How the user wants to be perceived by others when performing and fulfilling this task

Product-led growth exists in the intersection of these three outcomes.

Value Gap. Illustration.

We have two types of product values:

  1. Perceived value
  2. Experienced value

With a PLG Strategy, you want the perceived value to be as close as possible to the experienced value. The closer the experienced value gets to perceived value, the higher the chances that someone will stick with your product.

Learn how Product-Led Growth Can help your SaaS business. Schedule a free consultation with one of our Product-Led Growth consultants here:

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