SaaS

The Rise of Product-Led Growth for SaaS Businesses

Serge Frigon

Have you ever been truly disappointed by a product after its bright and shiny marketing campaign over-delivered on what the product actually offered?

A great way to avoid this is just to start using the product before you ever commit to a contract or even pay a cent. If you’re the customer in this scenario, you get to realize the benefits (or deficiencies) of the product and make sure it satisfies your needs. And if you’re the business, you’re basically giving your customers the opportunity to convince themselves to make the purchase all on their own—no sales pitch needed.

Even better is when your product has its marketing and onboarding built right in! Does successfully using your product involve having your users invite others to join or collaborate? This kind of functionality ensures your users are actively involved in broadening your user base. Growth becomes inevitable—maybe even viral.

More software as a service (SaaS) businesses are jumping on-board with this concept that turns the traditional sales method inside out. It’s all about letting the product speak for itself, as well as taking that product to the next level based on authentic user feedback and behavior.

It’s called product-led growth.

What is product-led growth?

The term product-led growth was coined by Openview Partners.

They define PLG as “an end-user-focused growth model that relies on the product itself as the primary driver of customer acquisition, conversion and expansion.”

Though Openview Partners created the term, the core tenets of the strategy have existed for almost as long as SaaS. A free trial or freemium pricing option allows end users to test a SaaS product before paying, and this raises perceived value. Usage data then improves the SaaS business’s ability to deliver on experienced value.

Recently, a new phenomenon has emerged which many are calling the “End User Era.” In a nutshell, a business’s team members—or end users—use a free version of software to solve a problem. Then, either because they outgrow free features or because they see value in paid versions of the software, they recommend broader adoption to their managers or executives who then create paid business accounts.

If you use Slack, Zoom, Wix, Zendesk, Trello, HubSpot, Dropbox, Calendly, or one of the many other popular SaaS companies available today, you’ve likely been part of the End User Era and have seen PLG at work.

What makes product-led growth unique?

Several key elements make PLG unique and effective in the modern business landscape.

1. User-centric experience

PLG focuses on delivering an exceptional user experience right from the start. Products are designed to be intuitive and valuable without requiring extensive onboarding or training. The emphasis is on creating a seamless, enjoyable product experience and customer journey that naturally encourages users to continue using the product (ultimately resulting in great customer lifetime value).

2. Self-service onboarding

A hallmark of PLG is its emphasis on self-serve. Users can start using the product with minimal friction, often through free trials, freemium models, or easy setup processes. This self-service onboarding experience is crucial because it allows users to experience the product’s value independently, reducing the need for sales interventions during the user journey. By lowering barriers to entry, PLG enables a larger number of users to engage with the product, leading to higher conversion rates and activation rates.

3. Virality and network effects

PLG products are often designed to facilitate sharing and collaboration, which drives virality and leverages network effects. As new customers adopt and use the product, its value increases, attracting even more users. Features that encourage users to invite others or collaborate within the product ecosystem can significantly amplify growth. This organic growth mechanism is a powerful driver of PLG, as it can rapidly expand the user base without significant marketing spend.

4. Data-driven iteration

Continuous improvement based on user feedback and behavior is central. By analyzing how users interact with the product, companies can make data-driven decisions to enhance features, fix issues, and better meet customer needs. This iterative process ensures that the product continually evolves to provide more value, keeping users engaged and satisfied.

5. Expansion via product usage

In a PLG model, growth occurs naturally as users expand their usage of the product. This can happen through upselling additional features, increasing usage limits, or encouraging users to invite others. The product itself becomes the primary mechanism for expansion, driving organic growth within the user base. This approach contrasts with traditional models that rely heavily on sales teams to drive upsells and expansions.

6. Cost efficiency

By reducing dependency on traditional sales and marketing efforts (and even perhaps the customer success team), PLG can be more cost-effective. The focus on the product itself as the growth engine can lower customer acquisition costs and improve overall profitability. This cost efficiency is particularly advantageous for startups and smaller companies with limited resources.

What is a Product-Led Growth Strategy?

A product-led growth model or strategy centers around the product itself as the main vehicle for driving business growth. This strategy encompasses several key elements and practices that differentiate it from traditional growth approaches.

1. Freemium and free trials

Offering a freemium model or free trials is a common tactic in PLG strategies. These approaches allow users to experience the product’s value without any financial commitment. The goal is to demonstrate the product’s benefits, encouraging users to upgrade to paid plans or premium features once they recognize the value.

2. User onboarding

Effective user onboarding is crucial in a PLG strategy. The onboarding process should be intuitive and straightforward, enabling users to quickly understand how to use the product and realize its benefits. Tutorials, guides, and in-app assistance can help streamline this process, reducing friction and improving user retention.

3. In-product marketing

In-product marketing involves using the product itself to promote additional features, upgrades, or other products. This can include in-app messages that highlight new features or encourage users to upgrade.

4. Product analytics

Product analytics play a vital role in a PLG strategy. By tracking user behavior and interactions within the product, companies can gain valuable insights into how users engage with different features and where they encounter challenges. This data informs product improvements and helps identify opportunities for upselling or cross-selling.

5. Customer feedback loops

Implementing customer feedback loops ensures that user insights and suggestions are continuously fed back into the product development process. This approach helps prioritize feature enhancements and bug fixes based on actual user needs and experiences.

6. Community building

Building a community around the product can enhance user engagement and loyalty. This can involve creating forums, social media groups, or user events where customers can share experiences, provide feedback, and support each other. A strong community can also drive word-of-mouth referrals and organic growth.

7. Customer success initiatives

While PLG reduces the need for extensive sales efforts, customer success remains critical. Providing proactive support and resources to help users achieve their goals with the product can improve retention and satisfaction. This might include webinars, tutorials, or dedicated customer success managers for larger accounts.

Sales-Led vs. Product-Led Growth

As Matt Allen, a product manager for an EdTech company, says, “Ultimately, sales-led growth is about finding the customers you want and trying to fit your product to them. Often on the backend, it involves agreeing to build out custom features just for that customer. Product-led is about using the data you have on customers you already have, and learning how to make the product work for all of their needs and pain points as a whole.”

Sales-led growth

Sales-led companies rely heavily on sales reps to drive customer acquisition and retention. This approach often involves personalized sales interactions, tailored demonstrations of value propositions, and negotiations to close deals. Key characteristics include:

  • High-touch engagement: Sales reps build relationships, understand customer needs, and tailor their pitches accordingly.
  • Longer sales cycle: The sales process can involve meetings and negotiations between the salesperson and a variety of team members from the customer.
  • Customer segmentation: Sales efforts are typically focused on specific customer segments, often targeting larger enterprises or high-value accounts.

Product-led growth

Product-led growth, in contrast, relies on the product itself to drive acquisition and retention. This approach emphasizes a self-service model where users can try and adopt the product independently. Key characteristics include:

  • Low-touch engagement: Product-led businesses focus on creating a self-service, low-touch user experience. The product is designed to be intuitive and valuable without requiring extensive sales interactions.
  • Shorter sales cycles: The self-service nature of PLG generally results in shorter sales cycles. Users can quickly try the product and decide whether it meets their needs, reducing the time required to convert leads into customers.
  • Broad market reach: PLG companies often target a broader audience, including individuals, small businesses, and enterprises. The freemium model and free trials make the product accessible to a wide range of potential users.

The choice between sales-led and product-led growth depends on various factors, including the nature of the product, target market, and business strategy. Some companies may benefit from a hybrid approach. Allen’s company, for instance, uses a sales-led approach for enterprise level customers and a product-led approach for other accounts. This means that for his company, the product team is the one leading much of the conversations around growth for non-enterprise accounts.

When it comes to choosing an approach consider:

  • How complex are your products? For complex products that require detailed explanations and custom solutions, a sales-led business model may be more effective. Personalized sales interactions can help address specific customer needs.
  • How scalable are your products? For products designed to be intuitive and scalable, a PLG approach can drive rapid growth and reduce CAC. This strategy is particularly effective for software companies that can be easily tried and adopted by users.
  • What market dynamics currently exist? Companies in highly competitive markets may need personalized sales efforts to differentiate themselves, while those in emerging markets can benefit from the cost efficiency of PLG.

The benefits of Product-Led Growth For SaaS Businesses

Before we delve into how to adapt a PLG strategy for your SaaS business, let’s discuss a few of the reasons why it’s so popular.

1. It reduces customer acquisition cost (CAC).

Product-led growth leans heavily on the product for customer acquisition. Product development teams then focus on leveraging customer usage data to shape their products with built-in onboarding and customer support, leaving marketing and sales with less traditional roles.

With PLG, marketing and sales focus less on selling and more on providing multiple pathways for customer self-education. This is much more cost-effective, even with free trials. As customers onboard themselves and find the product easy to adopt, CAC goes down while the odds of broader adoption across a business go up.

2. It puts onboarding in customers’ hands.

Once customers sign up, PLG leverages built-in product onboarding. No more interdepartmental software training: think more along the lines of individual team members who start using the free version of Zoom for meetings, then eventually ask their department heads to pay for Zoom for more features and functionality. 

At this point, most of the team has already onboarded itself, and any new users will do the same. This lowers cost and strain on a SaaS business’s resources and time. It also opens the door to a product going viral.

3. It reduces churn by eliminating buyer’s remorse.

Because these SaaS users typically choose to become paying customers completely on their own, the chance for buyer’s remorse is extremely low.

When a free user becomes a paying customer, they’ve decided they need the product, rather than being convinced by sales. Often, an executive team or management sees that the tool already benefits their business, and is happy to expand usage.

For this reason, PLG is a prime strategy for harnessing expansion MRR through upsells and cross-sells.

4. It’s competitive.

Businesses using PLG scale faster than the competition. They experience less drain on resources, a lower churn rate, and more revenue.

PLG focuses on creating a product that enables customers to be highly self-sufficient. Self-sufficient customers become happy customers, who in turn become advocates encouraging others in their network to try the product.

Meanwhile, non-PLG businesses scramble to build bigger sales and marketing teams and expend more energy on onboarding and customer success. Competing with free trials and self-service is difficult.

In this way, digital transformation of a business is inherent in the PLG environment.

How to Make Product-Led Growth Work For Your Saas Business

Product-led growth positions the product as a marketing channel. This requires intimate understanding and communication of a product’s value to customers. It also requires flawless delivery of that value.

Customers today love to self-educate; researching products and—when possible—trying them out for free. Putting the power of knowledge acquisition in their hands is a branch of today’s customer-centricity, but building a product that enables that takes a unique approach. An approach that puts customer-focused digital transformation front and center.

If you’re considering using a PLG strategy, here’s what you’ll need to do.

1. Be transparent

Perceived value needs to match experienced value. Overselling a product eventually leads to burdening your resources with the need to create custom solutions to retain customers—which is the opposite of PLG.

Be realistic and clearly communicate what your product can and cannot do, as well as what it costs. Users will try free products that look promising and buy if they meet expectations. This process builds trust in both your product and brand, so deliver quality, and then just let it happen.

2. Don’t “sell”

No one wants to be sold to anymore. End users want to research, learn, and explore for themselves. As a result, your approach should be to empower self-learning and self-service. Set your sights on customer success and retention rather than sales. Your product should onboard new users without outside help, and have easily accessible resources for learning how to overcome hurdles along the way.

This doesn’t mean your sales team disappears, but rather these individuals become more like product experts available to recommend best usage and suggest helpful features as needed.

3. Reduce silos

In more traditional models, acquisition and retention are a series of hand-offs: marketing to sales, sales to customer success, etc., with each department washing their hands of the customer at each step.

Product-led growth doesn’t work that way. Instead, it depends on a shared, single customer view (SCV) to ensure the best possible customer experience.

Every department, from product development to support, needs to have access to the same data about each end user. This shared information is crucial as these departments collectively engage in the continual task of building and delivering a product that enables end users to be successfully self-sufficient.

4. Use data

Data is central to PLG. It informs product development and engineering about how end users are interacting with the product, and what changes would make it a better fit for their needs.

As Abhinav Asthana of Postman explains,

One of the other key opportunities for product-led companies is the ability to take advantage not only of real experimentation, but also truly data-driven decision making about product features and go-to-market strategies.”

Data identifies best-fit customers for marketing, informs business decision making, and can shape a product for better PLG.

Data plants the seeds for SaaS growth

Subscriber data benefits multiple departments while driving PLG. It can indicate account health, identifying customers who are likely to churn and could use extra attention from customer success. It can also identify those who’d benefit from an upsell or cross-sell from sales. This is all in addition to the perks for product development and marketing already discussed, forming an informed and united front across all departments.

In fact, a PLG strategy’s reliance on data and the SCV becomes an asset that fuels a SaaS business’s growth.

While reducing silos and gathering end-user data is necessary, it’s also crucial to have a single source of truth (SSOT) that every department turns to for this information. It is evident that meeting these criteria for a successful PLG execution goes hand in step with a digital transformation strategy.

In order to optimize your company’s revenue operations to support PLG—including transitioning users through the product discovery phase, managing their information in that SCV way, providing them with ongoing support, and billing them if and when the time comes—you may need to rethink your resources. 

Today, power is in customers’ hands. A product-led growth strategy with the right technology, processes, and people, acknowledges and leverages that reality while reducing the burden on a business’s resources.

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Written by:

Serge Frigon
Serge Frigon
Director of Product, Stax Bill

Serge Frigon is Stax Bill’s Director of Product. He is passionate about improving billing processes for SaaS companies. With 20+ years in SaaS and billing software systems, Serge has a first-hand view of how important financial insights can be to the health of a company.