A few years ago, there was a dramatic shift in the tech world.
Many companies like Atlassian and Dropbox were going to market as products-first and were establishing themselves as customer-experienced focused brands.
As part of their market strategy, these companies also outperformed other software brands that had high touch sales models. Observing this shift, HubSpot’s global director of Sales, David Barron, worked to convert HubSpot from a sales-led model to a product-led growth model.
Higher conversions for HubSpot!
So, what did HubSpot do differently?
They adopted a new business strategy! Instead of relying completely on salespeople to convince leads to sign up, HubSpot made it easier for its prospects to try its freemium products. The brand also made it simple for customers who wanted to upgrade to more premium features. The sales and customer success teams complemented by collaborating with high-end clients who wanted more advanced features and hence more evaluation and understanding.
Like HubSpot, if you are planning to adopt a product-led growth model or contemplating transitioning from sales-led or marketing-led to product-led, this post is for you. We have covered everything you need to know, plus an actionable product-led growth strategy formula from product-led growth experts!
What is Product-Led Growth?
Product-led growth is a growth model where the product is at the center of the growth wheel that drives customer acquisition, retention, and expansion during a user journey.
Product-led growth teams let data on product usage guide who to sell to. Instead of calling prospects cold, the product team uses in-product nudges and emails to convert free or trial users into paid customers. If the customer is an individual who is part of a large organization like a Fortune 500 company, your sales team can identify them from their email address and reach out to talk to them about a team or enterprise plan.
As a team, you improve different parts of this funnel to improve your overall revenue. While traditional sales and marketing involve lots of talking to people and handholding, a product-led growth model is more self-serve and can scale better to serve millions of customers.
Here are some examples of product-led organizations in SaaS that know their game. Take a look for some inspiration.
The Need to Switch to a Product-Led Growth Approach
If you’re relying on a traditional sales-led growth strategy, it comes with its own set of challenges such as:
High customer acquisition cost with a long sales cycle: This means you’re selling your product for a higher cost and to reach your desired customer lifetime value (CLV), you might be charging a premium fee to your customers even if your product is not of high value.
A leaky funnel: One of the biggest problems in a sales-led model is often that the customer acquisition model is leaky. This means even if you have a a huge volume marketing-qualified lead, you can never close business. This can happen when marketing teams rely on tactics such as accounting for visitors and readers as leads, while the sales team might have a painful discovery process, make it difficult for the prospective customer to see the product beforehand etc.
Reduced reliability on traditional channels: As a Gartner Research mentions, B2B buyers rely more on digital channels, social networks, and virtual experiences throughout their buying journey. Customers’ preferences have now shifted from in-person sales interactions to virtual interactions with the actual product. They now spend no more than 17% of their buying time in direct interactions with sales staff.
Additionally, over the years, there has been a generational shift in skepticism of sales reps. The research by Gartner found that millennial business customers are twice as skeptical as baby boomers with 44% millennials preferring no sales rep interaction in a B2B buying scenario of a digital product.
Increased preference towards self-serve: Finally, customers today prefer a frictionless trial experience right from a free trial to purchasing a subscription. Customers don't want to speak to a salesperson because it adds friction to their buying journey.
Becoming a product-led growth organization helps overcome these challenges and puts the control in your prospect’s hands so they can buy better and faster.
Benefits of Product-Led Growth
Low Customer Acquisition Cost
The sales team gets involved only if there is a higher-value sales deal or when the customer is likely to upgrade to a higher subscription package. If you have a truly amazing product, virality and word of mouth will do the job for you!
Product-led businesses grow faster than competitors who are not product-led. You build a wider top of the marketing funnel with a freemium experience that captures the attention of the prospect long before they make a purchasing decision. The freemium model is an excellent customer acquisition tool that replaces or supplements your paid acquisition efforts.
Quicker Time to Value
Product-led growth companies provide immediate value to users. They can access features and use your software within a few minutes of discovering your solution. This short time to value is better suited to the fast-paced world of modern software sales.
Prospects don't have patience for multiple sales calls and onboardings waiting to see value. By showing them the benefit sooner, people can appreciate your offering and are willing to spend on it.
Other benefits of product-led growth include:
- Shorter sales cycle
- Improved user engagements
How Product-Led Growth is Different from Other Growth Models
The SaaS spectrum is large and companies exist at different points in the spectrum. While some brands like Slack, Storylane, Databox, etc., have adopted a product-led growth strategy, some brands like SAP, have a complex buying process and continue to use sales-led growth tactics. And yet, some brands like Drift and Ahrefs continue to use a marketing-led growth model.
While there’s nothing wrong with each of these approaches, which one you would want to adopt for your business will depend largely upon the nature of the business, your offering, and the target audience. Here’s a comparison of each of these growth models that will give you an idea of each of the growth models and how they differ from one another:
Product-Led Growth Vs. Sales-Led Growth
- Product-led companies are self-served, and the user can have their desired outcome without the intervention of a salesperson. For example, you can create your first user base channel and start communicating with your colleagues (Slack) or sign up and create your first interactive demo (Storylane). Product-led growth companies make it super easy to reach from point A to point B with zero to minimal human intervention.
- On the other hand, for companies relying on sales-led growth, you need to interact with a salesperson to achieve your desired outcome. That’s mostly because the software products are complex to use, the user is not experienced enough to use the product, or the market is not yet ready to use the product. In all such scenarios, human assistance is needed.
Customer Acquisition Cost
- Product-led growth is more cost-efficient because you reduce your CAC significantly by removing headcounts and shortening the sales cycle. You have higher revenue per employee and lower cost to serve, and you offer a better user experience with minimal human assistance.
- However, you can achieve a similar outcome, even if you’re sales-led. That’s possible when you combine sales-led and product-led approaches. For example, you can offer interactive demos for some of your plans. That way, you can still minimize your CAC significantly.
- Product-led companies focus more on PQLs rather than SQLs, and rightly so. Measuring PQL in a product-led company is important to measure growth.
- A sales-led approach measures SQL that is not dependent on the user experience of the product, but rather, the qualification of the prospect through factors like budget, authority, time, and need. The biggest disadvantage of this method is you get to know only the half truth. So, even if you identify a user who needs a solution, you couldn’t be sure if your product can solve their problem. As a result, it creates a misalignment with the product managers as SQL can’t measure the product growth.
Product-Led Growth Vs. Marketing-Led Growth
- A marketing-led company focuses more on acquisition rather than activation and retention. This can lead to a big problem —- churn, especially in an early-stage company. A product-led growth approach helps overcome this as it gives equal importance to activation, retention, and acquisition.
- Product-led growth is more cost-efficient than marketing-led growth because marketing-led companies like Oracle and Salesforce spend as high as 20-40% of their revenue on marketing efforts. While these expenses might not be high for large enterprises like Oracle and Salesforce, when you’re a SaaS startup that needs to grow, you can't afford to spend so much on your marketing.
Perceived Value Vs Experienced Value
- A marketing-led company focuses more on the perceived value of a product to grow, whereas a product-led company focuses more on experienced value to grow. The difference between the two values is called the value gap. To minimize this value gap, you need to use perceived value to communicate without creating high expectations and use experienced value to delight your customers.
While each growth model has its pros and cons, they don't have to be isolated. All these models can co-exist and drive value for your brand and product.
Formulating a Product-Led Growth Strategy in 2023
To find how product-led SaaS experts are looking at formulating a product-led growth strategy, we reached out to Luka Kankaras from Usersnap, and here’s how he is looking at it:
“Formulating a successful Product-Led Growth (PLG) strategy in 2023 will still require a deep understanding of the target audience (No1), experimentation with various product-led growth models, and an obsession with user experience and personalization to drive user behavior”.
Understanding your customers remains a prerequisite for product-led growth success. To gain a 360 understanding of the target audience, companies will focus on customer feedback, data analytics, and user behavior insights to identify the ideal customer and their needs, pain points, and usage patterns.
Experimentation with Different Product-Led Growth Models
While a self-service model is a norm, companies must master this step to stay ahead of the competition. 'Reverse trials' and other innovative models will be explored to improve user onboarding, activation, conversion, and retention.
Hyper-Personalization and User Experience
Companies will leverage AI and machine learning to offer more personalized product experiences that incentivize user behavior. To engage users better, companies will educate themselves more on behavioral economics, gamification, priming, and other strategies.
Product-led growth is data-led growth, and more companies will invest in data analytics platforms to gain insights into user behavior and usage patterns. This will enable data-led growth and help companies track product-led metrics, including TTV, ARPU, CLV, PQL(PQA), NRR, etc.
Product virality will be a popular area, with more companies investing in influencers to drive B2B product adoption. LinkedIn influencers will become crucial in driving B2B product adoption, similar to how Instagram influencers have done for B2C products.”
Here are some more thoughts on a product-led growth strategy as shared by Abhishek Shah, Founder, Testilify.
“Develop a deep understanding of your target audience and their needs. Conduct extensive market research and user testing to gain insights into your target customers' well-known pain points, preferences, and behaviors.
Build a product that solves your customers' problems and delivers significant value. Ensure that your product is intuitive, user-friendly, and provides a seamless experience.
Implement a data-driven approach to measure user engagement and gather feedback. Use analytics tools to track user behavior and optimize the product based on user feedback.
Leverage product-led tactics such as in-app messaging, product tours, and free trials to drive adoption and retention.
💡 Also Read: How Toplyne Increased Their Conversions by 2X Using Interactive Product Demos
Continuously iterate and improve the product based on user feedback and market trends.
By adopting a product-led approach, B2B companies can create a sustainable and scalable growth engine that puts the user first.
Two key aspects we have focused on are:
- Optimizing our signup flow: We had four steps in our signup process that included registration, verification, workspace creation, and invitation to team members who had a lower conversion rate. We reduced it to 2 steps by eliminating the 3rd and 4th steps. We automatically created a workspace using an email domain and asked the user to invite the team member only once they had their aha moment to experience the product.
- Assessment creation process: We had the process of creating an assessment where the HR manager had to make several informed decisions on what tests/questions to include. Now we implemented the assessment templates that create an assessment in one click.
It's easy now to sign up and get started with our product, which has helped us to attract and retain more customers.”
Metrics to Determine the Success of a Product-Led Growth Strategy
Some of the important metrics of a product-led growth strategy are:
Product Qualified Leads (PQL)
These are the leads who have derived value from your product. PQLs are usually generated from a freemium model or trial version. PQLs have a high possibility of becoming paid customers and hence, it’s an important metric in the product-led growth strategy.
Time to Value (TTV)
This is an important product-led SaaS growth metric that determines the time a customer takes to reach the AHA moment before starting to experience the product’s expected value.
Feature Adoption Rate
The time taken by the customer to experience a feature and adopt it once they find it valuable.
Feature Adoption Rate = (number of monthly new feature users /total number of users logging in a given period) X 100
Customer Lifetime Value (CLV)
The amount you expect to earn from a customer during their entire lifetime.
Customer Lifetime Value = Average Revenue Per Customer * Average Customer Lifetime
Average Revenue Per User
Average revenue per user is the average revenue you earn every month for each paying customer. Since revenue in SaaS business depends largely on subscriptions, APRU is a critical metric to measure.
Average Revenue Per User = Total monthly revenue / Total number of paying users
Other product-led growth metrics include:
- Natural rate of growth
- Burn multiple
- Product adoption rate
- Activation velocity
- Trial conversion rate
- Retention rate
- Product stickiness
💡 Dive deeper into all these metrics here
Product-Led Growth Benchmarks for 2023
Measuring product-led growth metrics is essential for every SaaS company to understand if it meets the organizational goal and is on track. But what’s even more critical is knowing where you stand against similar SaaS product-led growth companies in the industry. Here are some product-led growth benchmarks that you should be knowing:
Average Contract Value (ACV)
As Cometly mentions, the ACV will see a rise in 2023 that reflects the need for more integrated solutions. The median ACV is USD 25,000 so consider benchmarking your ACV to stay in a competitive pricing range.
Customer Acquisition Cost (CAC)
CAC has always been an important metric for SaaS companies. The average CAC in 2023 is USD 8,000. As we see steep competition, it’s important to keep your CAC as low as possible while focusing on increasing your CLTV. Some key actions that you can take to lower your CAC: Leverage data-driven sales techniques and nurture high-value leads to increase your CLTV and minimize your CAC.
Revenue Growth Rate
The average revenue growth rate for B2B SaaS companies in 2023 is 30%. Acquiring new customers, expanding your market presence, upselling are few ways that can help you reach a similar growth rate.
The average churn in 2023 is 12%. Churn rate is an important consideration in your planning process and you need to keep it low to stay profitable. Few factors that can keep your churn rate low are great customer support, a smooth onboarding process, a handy product playbook, strong customer engagement, improving the entire customer experience, and a great product that’s difficult to turn down.
Net Promoter Score (NPS)
Net Promoter Score is an indicator of customer satisfaction. A good net promoter score indicates your company is on the right growth trajectory. In 2023, the average net promoter score is 40. You can improve your net promoter score by a solid planning process like identifying customers' actual pain points and working on them, prioritizing customers, hassle-free onboarding process, delivering great service, schedule time to gather customer feedback, and incorporating them in improving your product.
“Benchmarking a product-led SaaS growth strategy in 2023 will require tracking the right metrics. Metrics that answer the question “If it were to increase today would most accelerate the business’ flywheel?” Since this heavily depends on the business model, product usage, and growth, no one-size-fits-all benchmarks exist.” — Luka Kankaras from Usersnap.
How Storylane Can Propel Your Product-Led Growth
If you intend to be product-first and adopt a product-led strategy, then Storylane can do the heavy lifting by showcasing your product in an engaging way. Storylane helps you build interactive product demos and product tours so that you can use your product as a self-service distribution channel.
With interactive demos, you can deliver the AHA moment quickly, which other marketing material may fail to do. Storylane lets you create multiple product tours in minutes to best-fit user persona so that the intended user gets first-hand learnings about product. Highlight the key actions you want to showcase that resonate with the prospect.
You also get analytics to help you understand what time a demo was viewed, who viewed it, and which screen most time was spent on so that your sales/product team can follow up accordingly.
Need some social proof to make well-informed decisions? Read this Customer Review:
"Our product has a number of discrete sections and functions, and we use Storylane to illustrate those succinctly to our users, both stand-alone and within our documentation.
In addition, the responsiveness of the Storylane crew to suggestions is very impressive. Pretty much everything I ask for shows up in the product in short order." ----- Shawn G, Small Business (Source: G2)
Sign up today to build your product tours and interactive demo videos!