Marketing

The Ultimate Guide to Product-Led Growth: A Framework for Growth that Sticks

Spandan Pal
July 25, 2022

What is a product-led growth strategy?

Product-led growth (PLG) is a business strategy and technique that sets the product as the major engine of customer acquisition, activation, satisfaction, retention, and scalable expansion. Customers remain loyal to a brand that offers an innovative and personalized product experience. It most likely happens when all of a company's digital-facing teams—marketing, product, customer success, and more—unite around product-led growth.

Due to Product Led Growth’s pivotal position in some of the most successful SaaS start-ups in recent times (Notion, Dropbox, Canva, Figma, Slack and Dropbox), PLG is being increasingly considered by high-growth teams as a winning growth strategy.

A closer examination of PLG, reveals a fundamentally new approach to product development. One that makes the product the star of the show throughout the whole user experience. Salespeople, marketers, and engineers all play supporting roles in a successful assisted sale, but the product is the star of the show. User-driven virality, activation and engagement journeys, and the first steps toward an assisted sale are all examples of this.

 

Why is product-led growth the future of SaaS?

In contrast to sales-led organizations whose sole objective is to move a buyer from A to B in a sales cycle, product-led companies invert the typical sales paradigm. Product-driven businesses make this possible by providing the consumer with the "keys" to the product and assisting them in experiencing a meaningful consequence while using the product. At this point, upgrading to a premium subscription is an obvious choice.

On the surface, product-led development may appear to be a straightforward model for your buyer to test before purchasing. However, upon closer inspection, product-led growth is an entirely novel strategy for expanding a SaaS business.

Product-led growth entails that every team in your organization influences the product. Your marketing team will inquire, "How can we develop a demand flywheel for our product?" Your sales staff will inquire, "How can we use this product to qualify leads?" Your customer success team asks, "How can we design a product that facilitates customer success beyond our wildest dreams?" By focusing every team on the product, you establish a culture based on enduring customer value."

 

By focusing on the product throughout the organization, product-led businesses frequently gain:

  • By letting your prospects onboard themselves, you can drastically minimize the time-to-value and sales cycle of your prospects.
  • Reduce Customer Acquisition Costs (CAC) by allowing users to upgrade independently.
  • Higher Revenue Per Employee (RPE): Less hand-holding results in increased profit margins per customer.

Product-led growth isn't just about disrupting "how" SaaS businesses sell; it's your only means of survival.

 

Key product-led growth metrics

It's critical that everyone in your team understands and adheres to the same set of performance goals. While there are new measures to rally behind in a product-led growth model, many on this list may sound familiar — many SaaS organizations already do prefer to track product-led growth metrics.

 

1. Activation Rate: The percentage of users that have found meaningful value in a product.

2. Customer Lifetime Value (CLV): An estimate of how much income a single customer will bring in for your company over the course of your engagement.

3. Acquisition: The number of users who have signed up for your free trial/tier.

4. Product Qualified Lead (PQL): A product qualified lead (PQL) is a lead who has derived significant value from your product via a free trial or freemium model. These customers are primed for an upsell.

5. Net Revenue Churn: This metric, which is commonly represented as a percentage, reflects the amount of money lost after accounting for new and expansion revenue.

6. Average Revenue Per User (ARPU): This metric is excellent for gauging the general health of your company. To determine this, divide the monthly recurring revenue by the total number of clients.

7. TTV: The amount of time it takes new users to reach their Activation moment is known as the Time-to-Value (TTV). The more quickly you can activate users, the more likely it is that they will remain active. The key objective of a successful onboarding process is to minimize TTV.

8. Expansion Revenue: One of the most crucial levers for SaaS growth, expansion revenue serves as an anti-churn strategy. Revenue from existing customers that is created through upsells, add-ons, cross-sells, and other strategies is measured by expansion revenue.

9. Free-to-Paid Conversion Rate: The percentage of trial users that have upgraded to a paid membership.

Is your product fit for product led growth?

If your organization possesses the following traits, you might want to employ a product-led growth approach to increase product adoption: In fact, a PLG approach can influence your marketing, product optimization, pricing, and sales strategies.

  • The product market conditions are favorable for the proposed strategy to be implemented successfully.
  • The user views the product as a "highest-value-product" that they wish to use on a frequent basis, which increases its perceived value.
  • The user is able to quickly and easily achieve large ongoing benefit with little to no assistance from corporate staff.
  • Rather than setting the price, "paywalls" in a product, track how much value the user is receiving and adjust their pricing accordingly.
  • Market, sell, and onboard new consumers are all made possible by the product.
  • The goal of marketing is to get people to interact with the product rather than the sales team.
  • A network effect is already incorporated into the product.
  • Companies that use the product have a vocal proponent who works tirelessly to spread the word about how fantastic it is.

 

 

Modelling growth around a product-driven approach

You can escape the onslaught of increasing client acquisition expenses and declining customer willingness to pay for your product by focusing on product-led growth. You must do the following actions in order to create a successful product-led business:

  • Learn to articulate the benefits that working with you can offer to your clients.
  • Make sure you express this value to your customer in a way that is pertinent to them and the situation they are in.
  • Ensure that you deliver on that value.

  

How does the Product-led growth model fare in comparison to other models?

Growth models commonly used by companies include one or a combination of the following:

  • Sales-led
  • Marketing-led
  • Product-led

Each of the three models has a different internal alignment. Companies that are mostly sales-driven are designed to help the sales team succeed as the company's principal revenue generator. We ask, "Will this help the sales team win more deals?" while making decisions about anything from employee training to software purchases to marketing strategies. 

The primary goal of marketing-driven businesses is to persuade customers of the worth of a product and to meet their demands. A marketing team is supported by the firm in its attempts to attract customers and generate leads. After conducting customer research and advertising campaigns, the marketing staff has a key role in bringing new customers into the fold. Marketing initiatives can make all the difference in pipeline and growth in a highly competitive market where items are tough to distinguish.

Prospects must be told the value of a product explicitly under each of these approaches. Product-led businesses, on the other hand, place an emphasis on showcasing the true worth of their offerings. For example, product-driven organizations may encourage prospects to engage with the product immediately—in the form of a free trial or "freemium" subscription—instead of investing extensively in outbound sales. Allowing potential customers to test out a high-quality product before they buy it enables them to experience its advantages first-hand. It is unnecessary to persuade a buyer about the genuine value of a product created with this mindset.

Product-led businesses prioritize minimizing customer acquisition costs (CAC) to the greatest extent possible. Recruiting and training a large sales force is costly. Both traditional and digital marketing tactics that are of high-quality demand substantial and consistent financial commitments. However, becoming product-driven does not entail abandoning all traditional sales and marketing tactics. It is more important to be strategic with your investments and vision.

You still require a sales team to assist with selling and a marketing team to generate demand. But product-driven expansion increases the effectiveness of both sales-driven and marketing-driven activities. Ultimately, it is much simpler to sell and promote a product that customers adore than to sell and market an average product.

 

 

How does your business benefit from a Product-led growth model?

Are you unsure if product-led growth is the right path for your company? There are some definite advantages to product-led growth, even if it isn't ideal in every situation.

 

Accelerated growth - Rapid acceptance and expansion are the primary motivations for using product-led growth in business. To put it another way, you're getting to the point and decreasing the barriers to entry by allowing users to access the product for no charge.

 

Scalability - Slack and Shopify are two of the most successful startups in the world, but scaling up may be a challenge. If you're looking for rapid expansion, product-driven growth is often the best option. This is because product-driven companies can focus their resources on onboarding and serving customers while their competitors are focusing on developing their sales organizations.

 

Reduced Cost of Acquisition - Using a product-led growth approach significantly decreases a company's marketing expense because customer acquisition channels are already embedded into the product. Overall acquisition expenses are reduced as a result.

 

Better Rates of Retention - Product-led growth ensures that user expectations are aligned with the capabilities of your product, ensuring that your product is a success. A better fit for the user is created, which leads to increased user retention over time.

 

Customer Satisfaction - Growing a business with a product is mostly dependent on word-of-mouth advertising. It's not your company's job to persuade customers to buy your goods. It's your customers, not you, who drive adoption.

 

Customers are likely to have great things to say about this product because of its emphasis on providing real value. Other customers read these ratings and thoughts, which starts a virtuous circle of purchases. Product-led growth enterprises benefit from the fact that many consumers prefer to investigate things they've heard about online rather than in person.

 

Transition to product-led: What does it mean to be product led

 

Not only is the price model changing, but so are many other aspects of the firm as a whole.

Customers can test a product before purchasing it thanks to free trials offered by many companies.

As a result, product onboarding experiences are being improved so that clients may begin experiencing the product's value much sooner.

Product firms devote a lot of time and attention to actually distinguishing themselves from their competitors by uncovering fresh client problems and value to offer.

To deliver even greater value to a more narrowly focused group of clients, businesses are increasingly focusing on a smaller set of distinct demographics and the difficulties they face.

The distinctive value proposition is the focus of the messaging developed by the marketing and sales teams.

Optimizing pricing models around customer experience and providing more options, such as subscription models, is becoming more commonplace.

The term "value" appears in all of them. Customers churn and move on to the next product if they don't feel their demands are addressed and the product doesn't deliver value.

In order to become product-led, the first step is to discover what customers value the most about their products. What are the most common issues customers have with the product? What features and functionalities are absolutely essential to your clients in order to keep them engaged over the long term?

Companies can use this information to improve their product offering, onboarding experience, marketing and sales message, pricing structures, and trial choices so that customers can experience the product's unique value proposition at every stage of their customer journey.

 

Looking forward…

When brands correctly use product-led growth frameworks, they acquire an unfair competitive edge and experience substantially lower Customer Acquisition Costs (CAC). A good framework will also help reduce friction in the user onboarding process, which might impede the growth of your product. 

But beyond the framework, product-led growth is really about knowing your customers' demands and identifying market gaps.

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