Bay Area Inbound Marketing Blog

What is Product-Led Growth and How Do We Make it Work?

Posted by Laurie Monahan on Thu, Oct 13, 2022 @ 06:25 AM

APIs and modular tools have empowered end users to mold solutions and integrate products into ultra-customizable software stacks that improve their work. The way users experience and demo software products has changed, leading many software companies to change their entire business models to keep up with the industry-wide shift.
We’ve entered the era of end-user experience and a new and powerful growth model: product-led growth. In this blog post, we'll take a look at what product-led growth is and how you can use it to grow your revenue.

What is Product-Led Growth?

Product-Led Growth (PLG) is a go-to-market strategy where the product itself is the main driver of customer acquisition, activation, and retention. 
While traditional marketing-and sales-led methods push content downloads and calls with executive buyers, PLG attracts bottom-up virality through product adoption by end users. 
The goal of product-led growth is to: 1) get as many users on the product, and 2) keep them using the product through an excellent user experience. When people can see the value of the product for themselves, they're much more likely to become long-term customers and evangelists.
Obviously, software companies have to design a user-friendly product that allows trial users to quickly and easily discover it's value. This requires alignment across all teams involved with designing, engineering, selling, and marketing your product. 

Company-wide Support is Necessary to Execute PLG Sales  

Every product-led business strategy will be different, depending on the product and space you’re in, but there are principles of PLG that make this growth model effective. 
PLG relies on five key pillars: a free plan, low time-to-value, PQLs, community-growth, and a flywheel effect. Let's define each of these pillars.

Free Offer

For a product to become a lead generator, it must have a free offer that lets prospects try before they buy. 
The offer should be prominent on their home page and on their pricing page. It can be free forever or a thirty-day free trial.
Free trials do not always equate to PLG. Beyond a free signup, Product-led growth is  a culture, and a way of thinking about customers, products, and growth.

Fast Time-to-Value

After customer's sign up, you want them to get quickly to ‘aha’ moments that let them perceive the value your products bring to their work. 
A product becomes sticky only when prospects see value in it from the very beginning and when they quickly get to the Aha moment of the value your product brings to their lives.

Product Qualified Leads

In Product-Led Sales, the product is not only the primary driver of growth, but also as a lead qualifier. 
To sucessfully do Product-Led Sales you need to  find your product qualified leads. PQLs indicate what they are doing in your SaaS product and who your ideal customer profile is. Showing sales reps exactly what features users are interested in, allows them to demo that for other prospects.
Tracking prospects using your product gives you the ability to find those who are more willing to engage with a salesperson. PQLs convert 5X better than MQLs.
Different types of PQLs include:
  1. Free signups ready for upgrade
  2. Active trials that can be converted to paid plans
  3. Paid accounts who are expanding users or use, so may be ready to upgrade to an enterprise plan
With PQLs, the role of sales is to drive high-velocity deals from product-led lead volume. They increase revenue by offering additional features or upgrades that appeal to power users.

Growth Hacking to Drive Viral and Community Growth  

Growth-hacking, ie. designing a lever into the product that automatically drives growth, isn't new. What’s new is regarding growth-hacking as a product requirement. 
PLG companies build growth-hacking into the customer journey for their products to ensure their users become promoters. Delighted users drive endless revenue growth.
PLG companies amplify this growth-hacking effect by nurturing community growth. Investing in the practices and people that help users engage with each other creates a second layer of virality that fuels the original viral loop within the product. 
This results is the delighted customer or Flywheel effect, which is necessary for PLG.

The Flywheel Funnel

The flywheel effect: building a product experience that creates a cycle of trial, conversion, and retention. 
Traditional sales and marketing funnels are effective ways to generate leads and acquire customers, but often fall short in terms of customer acquisition. In those growth models, once customers are acquired, they become afterthoughts. There is customer success, and referral marketing, but these activities are not a core component of the growth machine.
In the flywheel model, companies give their customers resources to get more and continuous value out of their products so they are delighted. 

In PLG, Acquired Customers Drive Customer Acquisition, How?

Software companies with this growth model invest heavily on building a product that delivers a customer experience that’s so good people will talk about it. It’s also important to make it easy for users to share your product with their friends. This could include team price breaks, referral codes, or discounts that give users an incentive to spread the word, along with a mechanism to forward via email and other channels to a friend.
The result is an ever-expanding customer base. The more customers you acquire, the more your customer acquisition rates begin to accelerate. 
In this model, your customer acquisition cost (CAC) trends downward. 

How to Decide If PLG is Right for Your Business 

The first two questions to ask to understand if a product-led sales motion is right for your business are:
  1. Can our product be delivered as a self-serve free trial?
  2. Can we include a mechanism to drive adoption? 
For PLG to work, end users need to be able to easily access the products ‘aha’ moment by themselves. If users experience too many pain points in the first moments spent with the product, you won’t achieve the flywheel effect and you’d be better off with a marketing and sales-led motion. 
If your product is able to become self-serve, the next thing to ask is whether or not your end users are the personas driving adoption of the product. 
Typically, a product’s buyer persona is whoever makes the final decision to convert into a paying customer. In enterprise SaaS, this is often the leader of a department. However, Executive personas  aren’t always the power users of these products, but with PLG, the end user has the  purchasing influence. 
For example, with  Slack, end users discover these products, often through word of mouth, fall in love with the experience, via some form of a free trial, and then convince whoever has the company credit card to get it for the whole team, turning a 2-person account into a 500-person account. 
This is how end user-driven adoption works.

The Benefits of Product-led Growth

Implementing a product-led sales motion requires significant collaboration and support across all departments. These optimizations can cause a company to grow less rapidly in the beginning as problems with the ease-of-use and revenue conversions are optimized, however, once the product and conversion machine is in place, PLG companies are able to grow faster and more efficiently than Marketing-and Sales-led companies.
OpenView Partner's data report shows that PLG companies scale faster than their non-PLG peers once they hit a magic number of the $10M ARR mark. PLG accelerates growth by making lead generation, sales, and customer success processes more efficient and high intent. This allows companies to sustain hyper-growth at scale.

Topics: product-led growth, what is product-led growth?