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Product-Led Growth Explored: Definition, Benefits, and Getting Started

Toni Koraza
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September 14, 2023
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Product-Led Growth Explored: Definition, Benefits, and Getting Started

Whether it’s Slack, Calendly, or Dropbox, many SaaS companies have grown multifold thanks to powerful product-led strategies. 

As the technology landscape keeps changing, buyers increasingly prefer having hands-on experience with SaaS tools rather than going through rounds of demos with a sales team. 

That’s why product-led growth has become the talk of the town. Not only does it provide buyers with a frictionless experience, but it also provides a less costly option for SaaS companies to grow their business. 

At MADX, we work closely with product-led growth strategies and content marketing. In this article, we’ll share our insight and reveal how you can adopt the same strategies to move your business to the next level. 

What We'll Cover:

Exploring Product-Led-Growth (PLG) 

Product-led growth is a business strategy in which the product drives customer acquisition, activation, satisfaction, and expansion. 

Think about how you tried Slack without reading a lengthy manual or having a sales rep teach you how to work the software. That’s PLG in action. 

Having a product-led business means there is company-wide alignment across teams. Every team puts the product at the forefront of everything they do, from product design to marketing.  

Let’s understand what this means in detail. 

Fundamentals of PLG 

PLG focuses on three main factors: 

Provide Value First, Sales Comes Second 

Customers no longer want to pay for a tool they aren’t sure about. The PLG model understands this and aims to provide value first. 

Typically, a SaaS business provides insightful content and free trials/freemiums so the audience can try the tool and realize its value before opting for a paid plan. This strategy is a great way to remove friction from the sales process and help buyers easily evaluate tools independently. 

Cut Down Time-to-Value 

Time-to-value denotes how long it takes customers to realize the product’s value. The more time it takes to receive value, the higher the chances of users leaving, never to return. 

When it comes to B2B SaaS businesses, this often takes considerable time as the sales cycles are longer. That’s where adopting a PLG approach can help cut down time-to-value. The product experience, not a salesperson, helps users realize the value quickly and encourages them to buy. 

Learn More About Your Users 

How are your users utilizing the tool? Do they gravitate towards certain features or use cases more than the rest? Do they need help at any stage? 

These are some insights you can gather when your users start using your product after reading a blog post or going through a landing page. Because of this PLG approach, you can understand your users at a deeper level and find targeted strategies that can help convert those who aren’t subscribing to your tool. 

Debunking Common Misconceptions 

With PLG becoming more popular, there are a few misconceptions about the strategy. Let’s shatter them one by one. 

Freemium is the Same as PLG 

While many SaaS companies include freemium work on a PLG model, equating them is not a general rule of thumb. For example, you could offer some features or parts of your tool for free but still rely heavily on advertising or marketing to drive sales. 

Fire Your Sales and Advertising Teams 

Just because you rely on your product to drive sales doesn’t mean you can eliminate your sales and advertising teams. These departments are still fundamental, but now, their work has a clear focus – to put products at the forefront while devising campaigns and strategies. For example, while creating a PPC campaign, the advertising team could discover ways to bring more leads to sign up for the free trial. 

PLG is for Startups Only 

Even if you’re at the growth/maturity stage, it doesn’t mean you no longer have to rely on your product to drive sales. Companies like Ahrefs and HubSpot – more than well-established – still rely on their product to drive people to sign up and become paying customers. After all, why overspend on hiring extensive sales and advertising teams when you can let your product do some of the talking and save your business money?

Why is PLG Becoming Increasingly Popular Among Businesses? 

Product-led companies are known to create stellar product experiences and understand users well. Apart from the advantages that follow because of this, here are four key reasons why businesses are gravitating towards PLG. 

  • Lower Customer Acquisition Cost (CAC): Instead of spending your budget on hiring a large sales team to give demos or creating hundreds of ads, PLG offers a cost-effective yet fruitful approach to getting more leads and conversions.
  • Accelerated growth: It takes considerable time to give demos to thousands of people. By offering a simple tool that users can try and get value for themselves, you can reach many people and grow your business multifold.
  • Shorter sales cycles: A salesperson may need to prompt the users many times to get them to try/buy your product. On the other hand, when users feel ownership over their buying experience, they tend to make a decision faster.
  • Less reliance on paid channels: A good PLG strategy can make your product go viral. Instead of spending loads of money on paid channels, you can rely on word-of-mouth marketing to sell your tool.

Getting Started with Product-Led Growth Model 

Here’s a step-by-step process to help your SaaS business adopt a PLG model. 

#1 Realign Your Organization and Adopt a PLG Mindset 

A product-led growth model doesn’t work if only the product team is aligned with the approach. You need every department in your organization to work towards the same objectives – to improve the product and attract leads by creating a great user experience. 

A singular focus helps concentrate resources and time on the right strategies and campaigns. For example, the content team doesn’t waste resources chasing only high search volume keywords. Instead, they also focus on keywords where you can naturally talk about the product and focus on conversion. 

Similarly, every team must be given an objective that aligns with the overall PLG goal. 

#2 Identify the Principal Goal of Your Product 

Offering multiple use cases and targeting different buyer personas is not wrong. But to clarify your positioning and approach, you must identify the one USP of your product that makes buyers want to subscribe to the tool. 

For example, look at the different use cases/solutions Slack offers. 

a list with 2 columns first column By department and second By Industry

Image source 

But at the forefront, what is the tool’s primary benefit? It’s written loud and clear on the homepage itself. 

a text field "made for people. built for productivity"

Whichever solution or use case a business uses the tool for, they will see increased productivity by automating processes and connecting with their teammates. 

Just as Slack does so well, you must demonstrate that USP for your SaaS tool to succeed in the SaaS game.  

#3 Engage Users With Value Demonstrations 

To deliver a high-quality user experience, you need to make data-driven decisions based on user behavior. For example, if many of your users skip the tooltip or are not engaging with the help animation at the bottom of the screen, it shows that you need to improve or remove it. 

These actions show what users find valuable and what they don’t. Your product team can iterate and improve the user experience based on these insights. It helps personalize the user experience, improve the overall journey, and introduce features and functions the audience wants.

As mentioned in point 1, to keep everyone aligned, pass these insights on to your marketing and content team so they can understand the users and create content and campaigns that hit the mark.

#4 Capitalize on Features to Drive Demand 

What are your product’s best features? Does your customer success team find your users excited over certain aspects? Does your product have features that are unique from your competitors? 

If yes, you can capitalize on these features to generate more leads and drive conversions. For example, you can create landing pages for these features or articles that target specific use cases.  

Here’s how ClickUp does that for its project time-tracking feature. 

Clickup website

Image source 

Notice how they also ask for their visitors’ email addresses so they can send them relevant emails to nudge them to try their feature and tool. 

#5 Expand Product Usage with Sales and Marketing Strategies 

We have already shattered the misconception that you don’t need a marketing and sales department when you adopt a PLG approach. 

By utilizing the correct strategies and aligning over a singular focus, you help achieve your growth goals. For example, even when you draw leads using your product’s free trial form, you need to send relevant marketing material to help users get value in less time. 

You could use various sales and marketing strategies: email marketing, paid acquisition channels, content marketing, video marketing, value-based selling and social media campaigns.  Ensure that the strategies you adopt align with the goals you set in the first step. 

#6 Track Behavioral Analytics and Metrics 

Selecting and tracking the right metrics can help your teams leverage data to make more informed decisions and relevant strategies. 

Here are some metrics you can include. 

Acquisition 

The acquisition metric shows the number of users who signed up for your freemium plan, free trial, or paid subscription. Monitoring this metric shows you how many people are finding your product and converting. It also helps you find issues with your lead generation model and how you can optimize it further. 

Many SaaS businesses focus on lowering their CAC (Customer Acquisition Cost) by adopting various PLG strategies.  

Activation Rate 

The activation rate is determined by dividing the percentage of users who achieve value from your product by the total number of acquired users. The higher the activation rate, the more chances of retaining your customers. 

activation rate math formula

This milestone of achieving value differs from company to company. For some, it may be creating 10 designs on the tool. For others, it may be using more than five features. 

Customer Lifetime Value (CLTV) 

The CLTV metric helps determine the revenue your business will get from a single customer over the duration of your relationship. The longer a customer is associated with your SaaS company, the greater their lifetime value becomes. 

customer lifetime value math formula

Based on the insights gathered by this metric, you can use it to reduce churn, increase customer loyalty, and make strategic business decisions. 

Time-To-Value (TTV) 

You might get thousands of free trial subscribers. But what if only a few convert into paid subscribers? PLG model focuses on creating an experience where a customer can get value from the product quickly and move on to the paid plans. 

Time-to-value denotes the time between signing up for a product and getting value from it. You need to use product data to calculate the average length of time it takes a user to reach a critical activation point. Your goal should be to get this rate as low as possible. 

Free-to-Paid Conversion Rate 

Also known as the trial conversion rate, this metric measures the percentage of users who move on to your paid plans after subscribing to the free trial.  

trial conversion rate math formula

If this rate is low, you need to find its reasons. These reasons could be many, like a bug in your product, mismatched expectations, confusing tooltips, poor customer support, or missing features. You can contact your customers to find out the exact reasons and improve your product accordingly. 

Expansion Revenue 

expansion MRR percent math formula

Also referred to as upsell revenue or expansion MRR, this metric measures the revenue you generate from existing customers via upsell, cross-sell, add-ons, etc. Many SaaS companies often overlook this metric to focus more on acquisition. But moving your existing customers to your premium plans is far easier than hunting for new customers. So, it’s recommended to include this metric in your monitoring plan. 

Net Revenue Churn 

Revenue churn shows you how your SaaS business is growing. For example, you may be getting a lot of new free trial users, but what if your existing paid users are moving on to lower-tiered pricing plans? 

net revenue churn math formula

This shows that your premium plans aren’t that effective, and users can do without them. You can then try to move some features around or set limits for certain functionalities. 

Average Revenue Per User (ARPU) 

The ARPU metric shows you the overall health of your business and the number of users you need to onboard to reach your revenue goals. It’s calculated by dividing the total revenue by the number of customers. 

average revenue per user math formula

If you have many pricing plans, this metric doesn’t show you an exact picture, but you can still monitor it to ensure your business is growing. 

Learn From These 5 Success Stories 

Countless businesses have taken the leap from sales-led to product-led growth models. Let's look at five companies that have seen great results by adopting the new approach. 

#1 Calendly 

Calendly home page website

Calendly has become the go-to scheduling tool for companies around the world. Founded in 2013, Calendly is now used by 20 million users and more than 100,000 companies worldwide. While they started as a simple, time-saving scheduling link, they have now grown into an omnichannel scheduling platform.

They cleverly managed to reach more people when invitees who didn’t know about the tool got to try it for free. They have also created an easy-to-use tool so people can try the tool for themselves and discover its value. This approach has helped them grow multifolds in recent years. 

#2 Slack 

slack home page website

Slack is a Silicon Valley gem with a stellar growth trajectory. It is used by over 200,000 paid customers and 77 of the Fortune 100 companies, relied upon by great names like Airbnb, Uber, Expedia, and Intuit. Their freemium model came with a viral twist – it encouraged users to engage with the platform and advocate for its adoption across the organization and its partners. 

Their user onboarding and ecosystem of integrations are geared towards one objective – to help the user achieve productivity by making collaboration seamless. This helps users get value faster and stay with the brand for a long time. 

#3 Pinterest 

pinterest home page website

Pinterest has become a common name for businesses and individuals to find creative ideas and inspiration. Whether finding a theme for social media or designing a creative poster campaign, Pinterest helps with everything. Today, over 465 million people use the platform to find ideas or inspire their next purchase.

This product-led company’s growth lies on one major tenet – they made the platform so easy to use and intuitive that even if people didn’t know about it, they could still use and get value from it. This helped them reach a large number of people. 

#4 Typeform 

typeform home page website

Typeform is one SaaS company that has spent a lot of time perfecting its product and creating experiences that impact the users. Launched in 2012, Typeform drives more than 500 million digital interactions yearly. Like Calendly, Typeform reaches a wider audience when people share that form with their clients, colleagues, or users, encouraging more people to sign up and create their own forms.

Their PLG strategy focuses on optimizing the product and putting user experience at the forefront whenever they add a new feature or functionality to the tool. 

#5 Zoom 

zoom home page website

For the first two years of Zoom, they had no marketing team. They focused on presenting a powerful freemium product and word-of-mouth marketing. Today, the tool is used by thousands of businesses worldwide, including some great names like Nasdaq, DropBox, and Zendesk. 

They leveraged existing user data to achieve the biggest expansion potential over time. They also adopted many best practices of product-led growth to make their product go viral. 

Become a Product-Led SaaS Business Today

Product-led growth is the right approach to follow for many SaaS businesses. With customers increasingly preferring a self-serve experience and autonomy to realize the value of tools, this option is becoming increasingly popular. 

While moving from sales-led growth to a product-led growth strategy would take some time and experimentation, it’s a bet worth taking. 

As a SaaS SEO agency, we help clients position their products at the forefront while creating content strategies and PPC campaigns. If you’re still unsure about switching strategy, reach out to our experts at MADX, who will understand your business and guide you in the right direction. 

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