What would you choose: solidifying your customer base or driving more sales? Tricky question, isn’t it?
Earlier in the world of B2B SaaS, building funnels was the only way you could acquire customers for your business.
But now, product-led growth flywheel has taken the front seat making it complicated for companies to decide on the right approach.
In this article, we’ll talk about everything you need to know about product-led growth flywheels and funnels.
Let's dive in.
What is Product-Led Growth?
Product-led growth is a go-to-market strategy in which the product's features and value are the chief growth drivers. This means the product itself drives growth.
Simply put, product-led growth strategies rely on traditional approaches like the one D2C businesses use—'try it before you buy it.’
Remember the good old days when you would go to your favorite local clothing store to buy clothes? The shopkeeper would show you a different range of clothes to pick from.
You picked the ones you liked and went to the trial room to try them out. You wanted to see whether the particular dress looked good on you or not.
If it looked good, and you liked it, you’d buy the dress.
That’s exactly what happens in product-led growth too.
You can test the product for yourself.
And the only difference between local stores and product-led growth?
Product-led growth works on a self-serve model where prospects find the product (through certain marketing activities) and test it for themselves.
However, it can also work well for transactional products with premium pricing but a simple onboarding process.
Here’s a simple cycle the prospect goes through:
Find out about the product → Sign up for it → Test the product → Purchase it
To ensure potential customers go through a seamless process, you need to do two things:
- Let prospects sign up without paying
- Offer them a free trial or freemium version of your product
What is a Product-Led Growth Flywheel?
Product-led growth flywheel is a business framework built around product-led growth and amplifies customer advocacy. It focuses on user segments and their actions.
The user segments include:
The user actions include:
Let’s understand these user segments and their actions in detail.
When prospective users discover you, they are strangers to your product. They don’t know much about you—even though they have researched your product.
They’ll be strangers until they test your product. They are called evaluators because they are in the trial phase and opt for your free trial or freemium plan.
For example, a prospective user was introduced to Wordtune, a writing tool after reading social media posts by other users.
After reading the post, the prospective user lands on Wordtune’s website and takes a product tour. Mind you, they are still strangers to your product—hence the tour!
Once they navigate the website, they’ll either leave the website or if they’re curious, opt for the freemium version of the tool.
If they choose the latter, they’re at the evaluation stage.
Here’s when the evaluator uses Wordtune’s editor that offers the ‘Rewrite’ feature under their freemium plan.
Since the user has started playing around with the freemium features and using them for themselves, they’ve activated the product.
Beginners are those prospective users who have started using your free trial or freemium plan and understand your product. These folks are still figuring out how your product works and want to make the best out of it.
They like your product and are interested in learning more about how it streamlines their workflow.
For example, the user has started using Wordtune’s freemium version but is only using the ‘Rewrite’ functionality to rephrase sentences. This means they are yet to explore other features the product offers. For this, they need to understand more about how the product works and how other features can maximize their writing productivity.
Here, the goal is to drive beginners to adoption i.e., get full buy-in from the users. How?
- By teaching users how to utilize product features (product education)
- By answering product-related questions
Like, a beginner user may know the basic feature Wordtune is known for—rephrasing sentences. However, they may not know about the new feature ‘Spices’ that Wordtune launched a few months back.
They may not know how to use this feature but want to know how it works. So it’s likely they’ll look for resources to educate about the feature.
During this search, they come across Wordtune’s introductory Youtube video and start learning more.
Once the beginner understands different problems the product can solve for them, they’ll include it in their workflow—resulting in product adoption.
Regular is the category of active users who regularly use your products. By now, they have integrated your product into their workflow. They log in and use your product regularly, use it for their core activities daily, and find creative ways to leverage your product.
All in all, these users are the bread and butter for your business. They adore your product and have accepted it as the friendly neighbor they’ll reach out to.
Once a user becomes a regular, it’s an opportunity for you to gather customer feedback from them to bring in new features, integrations, and use cases for your product.
For example, xTiles has a Slack community where regular users drop feedback on the product's features.
By implementing these suggestions from their users, xTiles has launched several features like colored texts, highlighters, and audio note-taking features.
Once these regulars fall in love with your product, they’ll push it to their friends and colleagues through word of mouth. They'll also share it on their social channels.
It doesn’t just happen because regulars use your product consistently. It happens when you hit the right balance of the following:
- Positive product experience
- Interactive customer success support experience
Champions are your highly engaged users. They experiment with your product and bring in new use cases.
They come back to your customer success team often and are delighted by your customer experience. This is to the level that they are ready to endorse you and provide you with case studies.
They love your product so much that they want to partner with you in multiple ways. These users are always excited for you and the new features you plan to bring on. They’ll be the first to test out your beta features and provide you with feedback.
This group of users is invaluable for you because they are happy to:
- Become an affiliate for you
- Participate in case studies
- Leave incredible product reviews
- Be a reference for other prospective customers
You can turn these champions into product advocates who will guide you in enhancing your product better and contributing to your product’s success.
Here are some ways they can help:
- Offering 1:1 interactions with your product team
- Giving them exclusive product features no one else has access to
- Interviewing them for podcasts, case studies, and customer experience surveys
For example, when xTiles launched their product on Product Hunt after months of testing it with their beta users, they reached out to these champions who regularly used their product.
They asked these users for reviews on Product Hunt once the product was live.
And that’s how these champions contributed to the Product Hunt launch success.
It was because of these Champions’ support that xTiles won 3 badges on Product Hunt: 1st product of the day, 1st product of the week, and 2nd product of the month with 2,783 upvotes.
What is a Product-Led Growth Funnel?
A product-led growth funnel has one goal: turning users to paying customers using several sales strategies.
It has a 4-step cycle:
Sign up for the product → use the product → filter users → convert
To reach the conversion stage, product-led growth funnels use 4 types of funnels:
- Self-serve funnel: The user wants to buy the product without sales support. This works well if your product is simple and your onboarding process is seamless—without friction.
- Self-assisted funnel: The sales team helps the user move from the evaluation to the decision-making stage. The goal here is to generate a pipeline for the sales team to close more deals.
- Bottom-up funnel: The sales team works with end-users to get them to try the product, get value out of it, decide to pay, and bring in their friends. Sales reps can then approach decision-makers and pitch a bigger contract to them for the product their team has already adopted. The goal here is to generate expansion revenue by expanding into larger midmarket companies and enterprises.
- Top-down funnel: The sales team targets enterprises and uses outbound and ABM strategies. This funnel involves white-glove onboarding, multiple meetings and end-users can use the product only after the sale is made. The goal here is sales enablement.
Product-Led-Growth Flywheel vs Funnel: The Difference
Choosing the Right Product-Led Growth Approach for Your Business
To choose the right product-led growth strategies for your business, identify your company goals. To do so, you need to answer the following:
- Do you want your product to increase conversions or do you want your product to be the primary growth lever?
- What if you want to accomplish both?
With a product-led growth funnel, you can convert new customers for your business. And with a product-led growth flywheel, you can attract new customers and also improve customer satisfaction.
So, whether your goal is to just acquire new customers or acquire as well as retain those customers matters.
Approach 1: Product-Led Growth Flywheel
The product-led growth flywheel model is a right fit for product-led growth companies. It helps you improve the in-product experience so that your current customers can see how your product has been continuously improving and offering a better product experience. This helps in bringing in new customers.
For example, continuous improvements and new features xTiles added to their product delighted their existing customer base. Because these customers loved the product experience, they referred the product to more people.
Just like xTiles, many more companies are turning to the product-led growth flywheel model as investing in your product is a long-term investment. Why?
When people see value in your product and how your product solves their struggles, they’ll automatically want to use your product—which is an effective approach rather than building an average product and using tricky sales tactics to drive more customers.
Approach 2: Product-Led Growth Funnel
The product-led growth funnel is a right fit for marketing or sales-led B2B SaaS businesses that want to assign resources to user acquisition with different marketing campaigns and sales flows.
And this funnel can be AARRR or RARRA.
The AARRR framework, also called the Pirate framework, was designed by Dave McClure from 500 Startups in 2007. Here are the 5 stages this funnel has:
- Acquisition — User visits your website or app for the first time and chooses a trial
- Activation — User has a positive experience with your product and signs up
- Retention — User likes the product and keeps returning to use it
- Revenue — User is willing to pay for your product to gain more value
- Referral — User finds your product valuable enough to recommend it to others
For example, once the user signs up to Dropbox, they get 3 pricing plans to choose from.
For all these plans, the prospective user receives a 30-day free trial.
That's how Dropbox acquires and activates its users with a free trial.
To get these users to upgrade to their paid plans and retain them, Dropbox reaches out to them through in-product prompts and notifications, time-limited trials, emails, and life cycle marketing.
Because the user's Dropbox account is connected to different devices—computers, phones, and tablets—which represent several touchpoints to communicate with the user.
Once the customer is retained, they leverage customer loyalty and referrals to grow their customer base.
Enter: Dropbox's 'Get More Space' referral program. With this strategy, the company grew by 3900% in 15 monthst🤯
The company offers its product as a reward and promotes the program at impactful touchpoints—improving customer retention.
They pick key moments based on user behaviour to identify when their current users would be happy to promote the program.
For this, they send out the first email after active customers sign up and ask them if they would refer Dropbox.
Let’s say you acquired 100 users via paid ads. In the next 3 days, 70% of them leave, and BOOM—you’ve lost the dollars your product made.
That’s why you need to flip the AARRR funnel and switch to the RARRA funnel. This is what the funnel looks like:
- Retention — Provide enormous value to users who use your product for the first time
- Activation — Make sure the users find repeated value in your product
- Referral — Motivate users to talk about your product
- Revenue — Retain current customers based on continuous product value
- Acquisition — Paying customers help you acquire new users
For example, when xTiles was in the initial stages, their team reached out to beta users and communicated their product value to these beta users. This makes it different from tools like Notion. Beta users retained.
The xTiles team encouraged users to use the product and share their experiences. The interested beta users started using the product consistently—product adoption done!
Once the beta users started using the product consistently, xTiles asked them to share their experience—a social media post or a blog post. The beta users also refered the product to more people.
This helped xTiles get more eyeballs and convert existing beta users into paying customers as well as attract new customers.
💡Pro tip: The best approach is to go hybrid—use a combination of product-led flywheel and funnel. This improves your product’s value first and retains + attracts new customers later.
What Most People Get Wrong While Choosing a Product-Led Growth Approach
While there’s always the right approach to choosing a product-led strategy, there are also certain things you may be getting wrong. Here are 3 mistakes you should know about:
Mistake 1: Keeping Entry-Level Pricing High
When a prospective customer wants to test out your product and the product’s basic subscription plan offers a higher price, you’ll likely lose the customer. And that’s the reason many B2B SaaS companies who offer a paid trial keep it to a minimal price.
How to avoid this mistake: Keep the entry-level pricing for your SaaS low. Offer your entry-level plan as freemium, a 7 or 14-day free trial, or a nominal price.
Ahrefs is an incredible example. Unlike most companies, they offer a free 7-day trial worth $7.
Even when Ahrefs is not offering a free plan to its prospective customers, it is offering them a minimal package to test out all its features and get into using the product quickly.
Trello is another great example and has priced its plans keeping a freemium plan as its entry-level plan.
Because of its free plan, anyone who wants to explore the product can use it and understand how powerful it is for their business.
Mistake 2: Falling into the Trap of Enterprise
When early-stage B2B SaaS companies get enterprise deals, they get excited. They prioritize these deals while sidelining smaller customers.
Here’s the thing: small and medium-sized customer base is the ticket to getting enterprise deals. And if you focus only on landing enterprise contracts, you’ll lose out on revenue growth.
How to avoid this mistake: Focus on hybrid deals—smaller and enterprise.
Imagine that one of your current customers upgraded their plan and have moved from a smaller deal value to an enterprise deal value. What happens now if you don’t provide a better product and customer experience for these customers?
Do you think you’ll retain them? Definitely not.
Mistake 3: Thinking Local
If you plan to expand your B2B SaaS product to a new geographical location and use your local tone and language, do you think the new market would welcome you with open arms?
No, for sure!
How to avoid this mistake: Localize your website and product so prospective customers can learn about your product in their native language.
Fuelling Your Product-Led Growth with Storylane
“I love how quickly and easily we can create product tours without any engineering requirements.”
—Arjun Rakesh, Growth Product Manager at Toplyne
Even the best B2B SaaS brands struggle with creating an interactive demo experience and showing product value to their customers. This is where Storylane comes in!
With our no-code editor and application capture, you can easily capture your product, whip up a product demo, edit and personalize it, and track the demo engagement—which further optimizes your sales and marketing funnel.
Sounds exciting? Schedule a free demo with us :)