The Ultimate Guide to Product-Led Growth

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The B2B buyer journey as we know it is changing. In today’s world, buyers want to complete most of their journey independently.

Traditionally, sales teams have played a significant role in the buyer journey. Now, this new, undeniable trend of independence has increased the popularity of product-led growth (PLG).

In this article, we will cover:

What is product-led growth?

What is a PLG market strategy?

Why is the importance of PLG growing?

The benefits of a PLG strategy

What’s the key difference between sales-led growth and product-led growth?

5 PLG-specific metrics to master

When to avoid a product-led growth strategy

6 steps to transition to product-led growth

What is product-led growth?

Product-led growth is a popular business methodology in SaaS where the product itself drives user acquisition, expansion, conversion, and retention.

The goal is for the product to deliver value so quickly and easily that it essentially “sells itself,” creating revenue without a traditional sales cycle.

For this approach to work, company-wide alignment across teams must exist – from engineering to sales and marketing. Every team plays a role:

  • Engineering asks, “How can we create a product with a quick time-to-value?”
  • Marketing team asks, “How can our product generate a demand flywheel?”
  • Sales asks, “How can we use the product to qualify our prospects for us?”
  • Customer success asks, “How can our product help customers become successful?”

The result is a company culture built around enduring customer value.

What is a PLG market strategy?

At the center of PLG is a seamless user experience aimed at driving positive product engagement and customer referrals.

As a result, product-led growth works in one of two ways:

  • The end-user gets a free trial for a set period of time before needing to pay for continued access.
  • The other option is the “freemium” model, which allows the end-users to use it for free indefinitely. This gives users a chance to try out the basic features of your product before deciding if they want to upgrade to a paid subscription for additional functionality.

Spotify, Vidyard, Trello, and HubSpot are examples of companies that offer free trials or freemium versions of their software.

Why is the importance of PLG growing?

Building a profitable SaaS business is hard. There are three reasons why using a product-led growth strategy can sustain and grow your business.

For starters the cost of acquiring customers is more expensive than ever.

According to ProfitWell, in the five years prior to 2018, CACs have increased by over 55%. During that same period, customer willingness to pay for features has dropped by 30%. So, on one hand, we have rising costs; on the other, we have a lower willingness to pay.

Buyers prefer to self-educate.

Three out of every four business-to-business (B2B) buyers would rather self-educate and buy through an app than learn about a product from a salesperson, according to Forrester.

Expectations for a frictionless product experience have never been higher.

The majority of today’s customers today don’t want to deal with a salesperson when buying software unless they absolutely have to, because it just adds friction to the user’s journey.

The benefits of a PLG strategy

Product-led growth is increasingly a must-have in today’s hyper-competitive SaaS market. Below are five key reasons why the approach is so appealing:

1. Enables rapid growth

Product-led companies don’t need to invest in a large international sales team to grow on a global scale. The freemium model captures customers early in the buyers’ journey and allows them to self-serve.

2. Marketing can refocus on creating demand

Having a scaled-back sales team means there is less demand for ‘leads’ that sales can pitch to. This means your marketing team can focus on the things that matter – creating valuable content for your persona, building brand affinity, and ultimately, creating demand for your product.

3. Buyers self-qualify

Self-qualifying speeds up the buyer’s journey to purchase, lowers customer acquisition costs (CAC), and removes lengthy sales processes. It also leads to a shorter time to value (TTV) – customers onboard themselves and experience the product’s value faster, without the need for product comparisons, demos, and slide decks.

4. Product grows on its own merit

The product generates demand for itself and creates an acquisition loop that increases your customer base – built off word-of-mouth recommendations. If one person has a great experience, they recommend your product to a colleague or friend, who also signs up, and so on.

5. Improves end-user experience

Embracing a product-led approach means businesses must continuously invest in the development of their product and keep improving the experience for the end-user. Not only does this create happier customers and higher customer lifetime value (CLV), but it keeps a business competitive in a fast-evolving marketplace.

What’s the key difference between sales-led growth and product-led growth?

Sales-led growth methodology

In the early days of software adoption, sales owned the customer experience. A prospect would request a demo and become a marketing-qualified lead (MQL). The prospect would then speak to the sales team who would focus on selling the product based on its features and benefits.

One of the challenges to this approach in today’s market is that it’s lengthy for the prospect, time-consuming for your team, and misaligned with the way that B2B buyers want to buy.

A typical sales-led buyer journey looks like this:

  1. Visit the website
  2. Analyze the feature breakdown
  3. Request a demo
  4. Have an initial qualifying meeting with sales
  5. Have a product demo with an account executive
  6. Receive a cost and pricing breakdown
  7. Conduct software onboarding with customer success rep
  8. Start using the product

Product-led growth methodology

Product-led growth leans into the way B2B buyers want to buy, through self-discovery, self-education, and self-service.

Buyers are becoming less reliant on vendor-provided resources to learn about products – they much prefer independent sources, including review sites, communities and forums, and analyst rankings. They don’t want to speak to a salesperson – they want to self-serve.

According to Gartner, the B2B buying process show’s how only 17% of a buying group’s time is spent meeting with potential suppliers. The other 83% is spent researching independently and talking to the buying group.

A typical product-led buyer journey would look like this:

  1. Visit the website
  2. Sign up for a freemium product or free trial
  3. Start using the product
  4. Upgrade to a paid subscription through the software itself

5 PLG-specific metrics to master

Leads, MQLs, SQLs, opportunities, annual contract value (ACV), win rate, and so on are metrics typical of the sales-led motion. With PLG, what metrics you track changes significantly.

Consider these five:

  • Product qualified lead (PQL) – users that have registered for a free trial or freemium product and are likely to convert to paying customers in the future.
  • Time to value (TTV) – the amount of time it takes a user to reach the first moment when your product starts delivering value. This is usually tied to the moment that a specific feature is used.
  • Retention rate – the percentage of paying customers you’ve retained over a specific period of time.
  • Customer lifetime value (CLV) – the revenue you’re going to generate from each user over the duration of time that they’re a customer.
  • Customer acquisition cost (CAC) – the approximation of the total cost of acquiring a new customer.

When to avoid a product-led growth strategy

While in many respects, PLG represents the future of SaaS, it’s essential to understand that not all businesses should adopt this strategy. These are three reasons why:

1. Your product can’t be activated to self-serve

If your product cannot be easily set up on a self-serve basis or it requires intervention to activate specific features, then you’re not ready for a product-led growth strategy. Users want to be able to try and set up software without talking to anybody.

In this case, work on simplifying and automating the onboarding experience within your current motion.

2. You have to communicate product value with sales or customer success

For product-led growth loops to work, users and buyers need to experience and understand the product’s value in a self-serve way. For more complex products or those with a more passive usage or impact, it can be easier to showcase the value of your product through marketing and sales than through actual usage.

3. You operate in an industry accustomed to sales-led motions

SaaS companies that serve financial institutions, healthcare, energy, etc., often find that buyers and the buying process still expect a sales-led process.

For example, some large companies only buy through request for proposals (RFPs). Even in sales-led motions, customers expect a fast, smooth journey. In this case, be sure that you are quick to respond to inquiries and that your internal teams are aligned.

The 6-Steps to transition to a product-led company

By now, you have a better understanding of what PLG is and why it is a powerful methodology.

Here are six steps to help you gain traction, build momentum, and create excitement around product-led growth in your company.

While there are more than these six steps to become fully product-led (as the strategy varies per user type and product), it should be enough to show the potential for your company.

Step 1: Introduce an internal cultural shift

We mention the importance of culture to having a successful PLG strategy. The lack of cross-collaboration within their teams or stakeholder buy-in will block progress.

A PLG cultural shift requires everyone to consider how the strategy changes their traditional role in a company.

Here’s a brief rundown of some of the changes in departmental roles in a product led company:

  • Sales. The role shifts to being more product-minded and supportive. Sales are integral in speeding up a new user’s time-to-value.
  • Marketing. It’s not about being as loud as possible to attract everyone but connecting deeply with the right user segment that will value your product marketing.
  • Operations. In PLG, it’s beyond creating operational systems and extends to helping the team automate and create systems to collate, analyze, and read data faster.
  • Product. The product team is responsible for creating a product that solves real customer problems, which requires much more collaboration with marketing, sales, and customer success.
  • Customer Success. This is a crucial function for driving user value. As a result, the crossover with sales is increasing dramatically.
  • C-Suite. The major cultural shift starts with the C-Suite. Product success is not measured by outputs but by outcomes. This means focusing on specific metrics that help drive growth and retention.
  • Engineers and Developers. This group needs to dial up their UX skills. Having a good flow for onboarding is critical to a product-led growth strategy.
How do you communicate this change to your employees?

Knowing the best ways to communicate can be a challenge. Here are three ways you can explain the differences between a traditional sales-led mindset and a product-led mindset.

  1. Provide tangible examples of how the strategy worked for other companies.
  2. Show product-led growth principles in practice that demonstrate customer success.
  3. Outline the challenges that will arise with the transition and how to overcome them.

Step 2: Assemble a product-led growth team

It is important to note that even though a company may be product-led, success with PLG is a team sport. You need a team that understands the goal of creating great products that solve real customer problems.

  • Identify the champions. To start, identify the coworkers most passionate about the product and vision. These individuals will be able to lead change throughout the company and reinforce the efforts of those who are reticent.
  • Change Your Recruiting Focus. Having a good mix of skill sets within your product-led growth team will empower this division to relate its findings and strategies to each department. And even more importantly, help secure C-Suite buy-in.

Step 3: Define end-user success

A PLG strategy starts and ends with quality user research. Knowing your users is a big component of end-user success because what it means to be successful can vary per segment.

Once you’ve identified what it means to be successful for each segment, you can focus on shortening the path to their success.

Next, you need to understand the pain points in your onboarding process. Creating a smooth flow in your UX will decrease drop-off.

Here are four questions to consider for user onboarding improvement.

  • Why did your new user sign up?
  • Did they accomplish what they wanted to with the signup?
  • If not, what prevented them from doing that?
  • If yes, what supported that?

The last thing you need to do is define user segments and their pain points. This is where you validate assumptions you may have of your key user base and define their pain points.

You do this by talking to new users, churned users, shoppers – users evaluating your product – active users, and inactive users.

We recommend starting with active users first. This is the first step to understanding your user’s frustrations, pain points, and key objectives. Perhaps they are delighted or frustrated? Maybe both at times?

Key interview questions that will bring home data for actionable change:

What is the struggle that makes them seek a solution?

What were the motivations?

What driving forces or emotions prompted them to find a solution?

What was the perceived value that made them upgrade?

Has the experienced value solved their problem? If so, how?

What solutions are available to consider?

Why are they using the product?

How are they benefiting from your product?

Why can’t they live without it?

Step 4: Build momentum with early wins

You broaden internal buy-in by applying marketing principles to get the rest of the team engaged.

There are two ways to garner quick wins.

  • Look at all the steps in the funnel from acquisition to activation and find what is most neglected or least effective today. For example, do you have a load of unnecessary fields in the signup? Then fix it.
  • Find the lowest effort, high potential areas. Trying brainstorming. For example, what sort of emails do your users get automatically? Do you send too much or not enough? Is the copy tailored for your user base?

These small wins help build excitement for the next step in the journey and reinforce the point that these wins are part of the strategy.

Step 5: Experiment, learn, repeat

In addition to giving businesses more insight into their user base, quick experiments can help you get wins and build buy-in from executives for the product-led strategy. This makes experimentation a vital piece of the product-led strategy.

In the beginning, knowing where to start can be tricky. Here is a good four-step guide to identifying where to start and how to gather meaningful data through experimentation.

Task 1: Look at end-user success

Task 2: Figure out what hypothesis you want to test

Task 3: Collect data

Task 4: Make sense of it all

Step 6: Scale up your operations

The biggest takeaway from experimentation is figuring out what works. Once you do that, you can start scaling out your operation.

Here are five ways to scale a product-led company:

1. Measure the right metrics

Set up analytics and metrics to help you understand which activities drive user engagement and retention. Product-led growth companies have a different set of metrics than traditional sales-led companies that focus on outcomes instead of outputs.

Earlier in this article we mentioned 5 PLG metrics.

2. Document the Process

As you shift to a more product-led strategy, identify movements that bring success and see how you can leverage them.

For example, when five or more users within the same organization become PQLs, a salesperson is automatically notified to offer onboarding support. By bringing in sales earlier in the process, they could help new users solve real-world circumstances and help them experience the value quicker. Once new users experienced the value, conversions increased.

3. Invest in the Right Tools

As you scale, you want tools that help you draw out the full potential of your product data to grow your business.

Here are a few of the tools you can look into to start building your tech stack:

  • Customer data platform. This is where you capture customer information through product signups and usage data and send the valuable information to your other tools to be analyzed and segmented.
  • Marketing automation platform. Your marketing automation platform is where your campaigns live. This is where you build your email drips, lead capture forms, webinars, and so much more.
  • CRM. The CRM is where your go-to-market team lives. It becomes the source of truth for your sales team.
  • Data enrichment tool. This tool helps you get to know your leads better by pulling from additional sources to give you a much fuller profile. Since you’ll be collecting a lot of emails, it will be helpful to dive deeper into your contacts to understand who is a high-value lead.
  • Data warehouse. The data warehouse should be the source of truth for your product data. It should have logs of each trial signup and customer, as well as the organizations they’re linked with, and rich product usage data at a minimum.
4. Diversify the leadership team

Beyond building a new generation of leaders with stronger ties to the product, look for leadership that will challenge the status quo and bring diverse perspectives to the application and execution of your overall strategy.

Ideally, your core PGL team will comprise the following roles:

  • Founder/ Initiator/ Driver/ Product Manager. This is someone who can organize, delegate, communicate, and keep the motion flowing.
  • Growth Marketer. Someone to test things out and change up the messaging.
  • Front-End Developer. Get someone scrappy that has done support before, can ship quickly, and isn’t a perfectionist.
  • Product Designer. Someone that understands how to design the new product experience and be the advocate of the user journey…which will be laid out in the cohort.

With proper leadership, you can lead quick experiments, monitor results, and get the team the resources they need to quickly and efficiently improve their process until you have your key user base dialed in.

Your core team should have enough of a diversified skill set to bring a clear understanding to the C-Suite and other departments of where the company is in the journey, what’s in the pipeline, and what you have achieved.

5. Make the PLG mindset a priority

You can follow most of these steps, but if a business doesn’t put the product-led culture first, it will be impossible to fully optimizable PLG success.

If you want to be product-led, you need to:

  • Obsess about user experience.
  • Truly understand your customers and the problem you are solving.
  • Refuse to change your product vision for a big customer.
  • Over-invest in product development.

Start your PLG initiative

Adapting to a product-led approach isn’t easy. It requires a mindset shift across an entire business which takes time and a willingness to change.

To be successful, a business needs to understand the value the product brings customers and have a transparent revenue and acquisition model that reflects it – with clear pricing plans for customers and a process that allows them to self-service. Most importantly, a business needs to be able to deliver on its promises and provide an outstanding customer experience.

To learn how we can support your vision for making product-led growth part of your business strategy, schedule a call with one of our specialists.

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