What is product-led growth? Definition & methodology

Dan Stillgoe avatar
Dan Stillgoe

Nov 17, 2022

co-workers discussing product-led growth methodology

The B2B buyer journey as we know it is changing. Traditionally, your sales team played a significant role in the buyer journey.

In today’s world, buyers want to complete most of their journey independently, which as a result, has increased popularity in product-led growth. In the highly saturated market of software, marketing and sales alone aren’t enough to drive your product’s growth.

That's where product-led growth comes in.

What is product-led growth?

Product-led growth (PLG) is a popular business methodology in the Software-as-a-Service (SaaS) space. It's a methodology that uses the product to drive acquisition, conversion, and retention.

The approach focuses on creating company-wide alignment around the product as the source of business growth. A step aside from a traditional sales-led growth approach, it’s the product experience that expands your customer base and becomes the driver behind your SaaS product.

Product-led growth works in one of two ways:

  1. The end-user gets a free trial of the product for a set period of time before needing to pay for continued access.
  2. A freemium model that allows the end-users to use it for free indefinitely, with the option to upgrade to paid plans to access additional features.

Freemium is a combination of free and premium. It’s a business model that’s being adopted by SaaS companies to offer a free version of their product that has stripped-back functionality. This gives users a chance to try out the basic features of your product before deciding if they want to upgrade to a paid subscription for additional functionality.

You’ve more than likely come across product-led growth methodology in your own buying experience. Take Spotify, Vidyard, Trello and HubSpot for example - they all offer free trials or freemium versions of their software.

What’s the key difference between sales-led growth and product-led growth?

Sales-led growth methodology

In the early days of software adoption, sales owned the customer experience. A prospect would request a demo and become a marketing-qualified lead (MQL). The prospect would then speak to the sales team who would focus on selling the product based on its features and benefits.

One of the challenges to this approach in today's market is that it’s lengthy for the prospect, time-consuming for your team and misaligned with the way that B2B buyers want to buy.

A typical sales-led buyer journey looks like this:

  1. Visit the website
  2. Analyse the feature breakdown
  3. Request a demo
  4. Have an initial qualifying meeting with sales
  5. Have a product demo with an account executive
  6. Receive a cost and pricing breakdown
  7. Conduct software onboarding with customer success rep
  8. Start using the product

Product-led growth methodology

Product-led growth leans into the way B2B buyers want to buy, through self-discovery, self-education, and self-service.

A Trust Radius report shows a notable shift from 2021 to 2022 in the evaluation process. Buyers are becoming less reliant on vendor-provided resources to learn about products, they much prefer independent sources, including review sites, communities and forums, and analyst rankings.

Nowadays, B2B buyers don’t want to speak to a salesperson - they want to self-serve. Gartner's report on the B2B buying process show's how only 17% of a buying group's time is spent meeting with potential suppliers. The other 83% is spent researching independently and talking to the buying group.

A typical product-led buyer journey would look like this:

  1. Visit the website
  2. Sign up for a freemium product or free trial
  3. Start using the product
  4. Upgrade to a paid subscription through the software itself

Important metrics in a product-led growth strategy

In a typical sales-led motion, you would track metrics like leads, MQLs, SQLs, opportunities, annual contract value (ACV), win rate... the list goes on.

However, to successfully measure a PLG strategy it's important to look at the metrics that align with the strategy.

The Product-Led Growth Collective has written a comprehensive guide, covering PLG metrics in detail, but here's an overview of the framework.

Product-led growth is often measured using the AARRR pirate framework, originally developed by Dave McClure.

It includes:

  • Acquisition
  • Activation 
  • Retention
  • Referral
  • Revenue

Each of these stages would then have its own set of metrics to measure success.

Here are 5 PLG-specific metrics to pay attention to:

  • Product qualified lead (PQL) - users that have registered for a freemium product or free trial and are likely to convert to paying customers in the future.
  • Time to value (TTV) - the amount of time it takes a freemium/free-trial user to reach the first moment when your product starts delivering value. This is usually tied to the moment that a specific feature is used.
  • Retention rate - the percentage of paying customers you've retained over a specific period of time.
  • Customer lifetime value (CLV) - the revenue you're going to generate from each user over the duration of time that they're a customer.
  • Customer acquisition cost (CAC) - the approximation of the total cost of acquiring a new customer.

Benefits of a product-led growth strategy

1. Enables rapid growth

Product-led companies don’t need to invest in a large international sales team to grow on a global scale. The freemium model captures customers early in the buyers’ journey and allows them to self serve.

2. Marketing can refocus on creating demand

Having a scaled-back sales team means there is less demand for ‘leads’ that sales can pitch to. This means your marketing team can focus on the things that matter – creating valuable content for your persona, building brand affinity, and ultimately, creating demand for your product.

3. Buyers self-qualify

Self-qualifying speeds up the buyer’s journey to purchase, lowers customer acquisition costs (CAC), and removes lengthy sales processes. It also leads to a shorter time to value (TTV) - customers onboard themselves and experience the product's value faster, without the need for product comparisons, demos, and slide decks.

4. Product grows on its own merit

The product generates demand for itself and creates an acquisition loop that increases your customer base – built off word-of-mouth recommendations. If one person has a great experience, they recommend your product to a colleague or friend, who also signs up, and so on.

5. Improves end-user experience

Embracing a product-led approach means businesses must continuously invest in the development of their product and keep improving the experience for the end-user. Not only does this create happier customers, greater satisfaction, and higher customer lifetime value (CLV), but it keeps a business competitive in a fast-evolving marketplace.

When to avoid a product-led growth strategy

Whilst the adoption of product-led growth continues to grow, it’s essential to understand that not all businesses should adopt this strategy.

1. Your product can't be activated to self-serve.

If your product cannot be easily set up on a self-serve basis or it requires intervention to activate specific features, then you’re not ready for a product-led growth strategy. Users want to be able to try and set up software without talking to anybody. In this case, work on simplifying and automating the onboarding experience within your current motion.

2. You have to communicate product value with sales/success.

For product-led growth loops to work, users/buyers need to experience and understand the product's value in a self-serve way. For more complex products or those with a more passive usage or impact, it can be easier to showcase the value of your product through marketing/sales than through actually using it.

3. You operate in an industry that's still very used to sales-led motions.

SaaS companies that serve financial institutions, healthcare, energy etc. often find that buyers and the buying process still expect a sales-led process. For example, some large companies only buy through Request For Proposals. Even in sales-led motions, customers expect a fast, smooth journey. So in this case, be sure that you are quick to respond to enquiries and that your internal teams are aligned.

How to become product-led

The 'try before you buy' model aligns well with the modern B2B buyer's journey, allowing prospects to self-educate and self-serve, before committing to a product. Focusing on the product experience helps businesses stay competitive in saturated markets, where user experience has become an essential part of the buying process and customer satisfaction.

But, adapting to a product-led approach isn’t easy. It requires a mindset shift across an entire business which takes time and a willingness to change.

To be successful, a business needs to understand the value the product brings customers and have a transparent revenue and acquisition model that reflects it – with clear pricing plans for customers and a process that allows them to self-service. Most importantly, a business needs to be able to deliver on its promises and provide an outstanding customer experience.

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