What is Product-Led Growth?

What is Product-Led Growth?

Akash
February 16, 2022
6
min read

Most of the fastest-growing companies in the past decade, like Slack, Dropbox, Notion, Stripe, and Retool, understood a fundamental shift in how businesses, or more importantly, individuals, buy software.

Individual employees at companies are increasingly adopting software themselves through freemium products, products with trials, and self-serve demos. They sign-up, use the product themselves, and upgrade to being paid customers on their own, often without talking to a salesperson.

In this article, we'll explain the principles behind product-led growth and how it's different from traditional sales and marketing.

What Is Product-Led Growth?

A product-led growth model is one in which customers discover, try out, and become paid customers of a product themselves without talking to a salesperson. The product sells itself, hence the name "product-led" growth. This is important as more than 80% of B2B buyers prefer to help themselves.

Selling in this manner cuts down on sales personnel. The product sells itself to incoming prospects without any interaction from an employee at the company. You can structure what the customer tries out for free in different ways:

  1. give them a "lite" lite version of your product for free, aka a freemium product
  2. create a 7, 14, or 30-day long free trial with full access to all features so they can understand the true power of your tool
  3. give them an interactive demo or playground with fake data that gives them an idea of what your product can do

You can get the customer's credit card information before or after depending on where you are ok with seeing a drop-off in your funnel.

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 push free or trial users to turn 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.

Why Is Product-Led Growth Important for SaaS Companies Today?

A product-led growth approach gives your SaaS company a distinct advantage. There's more competition than ever in SaaS. Here are some of the reasons your SaaS company should consider integrating product-led growth:

PLG Scales Faster

A single SDR  can only handle so many customers at a time. In order to scale revenue, you need to hire more salespeople. But good salespeople are hard to come by. PLG companies don’t require a large sales team to grow. These companies make it easy for customers to discover the product, try it and go paid themselves, so you can automate each step of the funnel to enable faster scaling.

While sales-led companies often can grow revenue initially faster and target bigger customers right off the bat, they don't scale as easily as PLG companies. Reports from OpenView confirm that after roughly $10M in ARR, PLG companies grow faster.

You can run ads and create organic content to increase your top-of-funnel. You can improve your onboarding and product to increase usage and the activation rate of users. Finally, you can gate different features or impose usage restrictions to force more customers to become paid. You can pump more users through the funnel and have them go through each of these steps in an automated manner. Build once; sell forever.


Lower CAC (Customer Acquisition Cost)

PLG companies need less labor to convert customers. You don’t need a salesperson to guide a prospect through a demo. The prospect can go through a free trial, use the freemium version, or play with an interactive demo to decide on their own.

Since customers are sold by the product and not a person, you can also sell globally. You don't need a field sales team in every location and time zone. You spend more upfront on product development and marketing and save your sales team for large customers. This leads to a lower overall customer acquisition cost.

Quicker Time to Value

PLG companies provide immediate value to users. They can access features and use your software within a few minutes of discovering your landing page. 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.

Salespeople can slow down the process by taking a long time to follow up. Some prospects will not see your product’s value if it takes weeks to get to the "aha" moment that drives them to buy.

Difference Between Product-Led Growth and Traditional Sales-Led Growth And When To Use Them

Product-Led Growth

PLG creates a consistent experience for each user. Each prospect receives the same welcome message and accesses the same features. Your in-app experience is consistent, and you can review data to make improvements. Businesses crave the consistency that a PLG approach provides.

Product-led growth doesn’t require a large sales team. It creates a consistent experience free from human error. Prospects can get a taste of your software without costing you anything or paying anything themselves. It's more efficient.

PLG works great for companies addressing a large base of potential customers who are tech-savvy and accustomed to trying things themselves. If you're selling to consumers, SMB, Seed to mid-stage startups, this is a great approach. If you can, you should see if any of the PLG principles can be applied to your company. There's little downside to making your product more self-serve, lowering your costs, and shortening time-to-value.

Sales-Led Growth

Sales-led growth is high-touch and more personalized, which is better for certain types of companies. PLG is less effective when selling to older industries where customers need help to get started, actively want to talk to a human, or large companies with integration requirements, or strict compliance rules. You need salespeople to build relationships, navigate complicated organizational charts, find the right decision-makers, and negotiate contracts. Customer Success needs to make sure the customer is onboarded and setup with the right integrations into their existing systems.

However, it has its downsides too. Sales-led growth costs more. Hiring Sales and Customer Success teams is not cheap. Moreover, salespeople often get a commission for each sale. Human error complicates the sales-led growth model. Salespeople can lose track of customers and fail to follow up on time. Communication delays can cost you sales as prospects search for different solutions. Salespeople can also mix up prospects between calls and a flurry of emails. It's not a great fit if you want to reach lots of customers and scale.

PLG Enablement for sales-led growth

Won't it be better to bring in PLG enablement tool in a sales-led approach as well? Now, with an interactive live demo you can show your product features and capabilities to your customers in a gated approach, thereby combining PLG and a sales-led approach.

Conclusion

PLG is best when selling to small to mid-sized companies initially and you want to scale. You can always layer on a strong sales team later. You can spend more on top of funnel marketing like SEO and ads as well as product development to improve onboarding and scale rapidly.

The PLG approach attracts prospects and puts them in control. Employees at businesses increasingly want to buy themselves without being sold to. Lean into this trend instead of fighting it. If you're looking to try some PLG principles, then check out Storylane to implement live interactive demos for your product.

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