The Definitive Guide to Product-Led Growth

This 'definitive' guide talks about product-led growth, the benefits it offers, some counter arguments, how to apply it for yourself and finally companies that are doing it right. Let’s get started!

What is Product-Led Growth?

The phrase and definition of product-let growth were first created by Openview Partners and described as "a growth strategy for end-users that depends on the product itself as the main engine of customer acquisition, conversion, and expansion."

In simple terms, PLG relies on a great product experience in order to grow a customer base. It aims at winning customers by helping them realize value first before nudging them to make a purchase. The concept of product-led growth (PLG) would probably seem familiar to you as ‘freemium,’ ‘try before you buy, ‘SaaS 2.0,’ and ‘free trial.’

Product- Led Growth as a Go-To-Market Strategy

PLG is an entire go-to-market strategy that impacts a company’s marketing, the direction of the conversation their salespeople have with prospects, and a choice in pricing strategy.

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Marketing

One of the critical parts to product-led growth is providing users with the ability to showcase whether the product answers their requirements. The user has complete control over the upgrades to be purchased and can do so whenever they want. PLG has the ability to boost conversion rates by informing the customer and giving them friction-less opportunities to purchase right there and then.

When humans love something (your product), they tend to share it, which leads to virality. Product-led growth increases the chances of word of mouth marketing by starting with a focus on delivering remarkable experiences.

Sales

A point to note is that PLG does not, per se, make salespeople a thing of the past. In fact, product-led growth accelerates sales. Though a customer can explore the product, a salesperson helps build the bridge between what the product does, how it is being used, and how it can immediately address their needs.

Salespeople in a PLG now have information about the customer. If the right processes are in place,  a salesperson can enhance customer success and fill in the gaps that a self-serving model might have missed.

Pricing

A product-led strategy assists you in determining how you can provide your customers with an experience that encourages them to engage and enables them to extract value, resulting in an eventual sale. Pricing is what we call “value based”. 

Tactically this is often the “freemium,” model. Which is a marketing word that means a customer may sample a product for free without having to buy it. After the product has been released, information about premium upgrades and features may be utilized.

Customers like this pricing model since they know precisely what they will get and that you can be relied on to deliver as promised.

Advantages of a Product-Led Growth Model

Faster Sales Cycle

Once customers are onboarded, the time it takes to discover the value of a product and the sales cycle is shortened. The more they learn about the value of your products, the greater the chances of them purchasing those products. Converting your free users into paying customers becomes simpler for you as well.

Better User Experience

Provide enough features in your product so that the user can do the majority of the tasks without the help of a customer representative. Consumers can get up and running quickly, implying that the product is straightforward and easy to use for all customers, allowing them to have a good experience.

Customer preferences

Customers would prefer not to talk with a salesperson, see a demo, or share information. However, customers want to get a feel for the product before making a decision. Unmet consumer expectations like these are why product-led growth has become a popular business strategy.

Increase retention rate

The PLG model is useful for salespeople since it allows them to determine which clients are really benefiting from their product and should be approached. To successfully expand your customer success efforts, you must first determine who does not find value in your product and what features they are missing. The primary focus in PLG model is to analyze how users interact with the product, which may then enable customer success teams to make better upsell suggestions to their customers.

Is the product-led growth model right for your business?

Examine the benefits and drawbacks of PLG before making a decision. The PLG strategy has decreased Cost per Acquisition (CAC) and increased client Life Time Value (LTV). While these are essential factors, you should also examine your company's financial situation, stage of growth, and the kind of product it offers.

Darius Contractor, a former growth engineer at Dropbox, discovered three indicators that show the company is a strong match for the PLG model during a discussion with the Openview partners.

Simplicity - could a child understand your product? It seems obvious but if your product isn't simple enough, people are not going to be able to self serve and learn by doing.

The Viral Factor - Is your product better if more people use it? Dropbox and slack are examples where PLG really comes into its own because every user is effectively a salesperson and advocates bringing in more and more users.

Self-serve - Can a user find, test, use and pay all on their own? It’s like self-checkout at the supermarket. It's all fun and games until you go to buy alcohol - human intervention needed.

If your product has these three pillars, PLG might be the growth strategy for you. If not, then you should still consider PLG, but add it to the mix to ensure growth.

But wait, there is another consideration.

In the beginning, your company growth will be sluggish. Why? Due to the lengthy time it takes for organic adoption to take effect, compared to intensive promotion and sales in the early stages, which might provide quick benefits. Organic adoption will not display immediate results.

At the outset, a PLG company will have to put in a lot of money in product development and engineering and intentionally ignore marketing and sales. 

You cannot measure ROI on product spend the same way you can measure sales and marketing.

It is critical to account for investors' and the founding team's appetites while considering this decision.

Product-led businesses may develop quickly as they scale, but early-stage growth is typically slower. This is because, after the product has been effectively created, they can begin with some marketing or even some excellent natural PR and word of mouth, and their sales force and customer service will not be a limiting factor to sales growth. As a result, businesses that scale up have a lower CAC.

How to Get Started with Product-Led growth.

Deliver immediate value

As soon as the customer is onboarded, you need to help them achieve that goal seamlessly without any friction. For example, your customer’s end goal of using your product could be to send email marketing campaigns to their audience.

Drive engagement

To ensure that a customer continues to use the product after signing up and achieving their goal, it is essential to ensure that they often utilize the product. Examining app use patterns may help you make better decisions about whether or not people utilize your app. You'll have a difficult time keeping customers if your product doesn't offer compelling reasons for them to return on a regular basis.

Empathize with customer needs

Only when you understand what your customers want will you be able to provide them with what they want. Using the information gathered, you will be able to gain insights into the use of freemium clients as well as evaluate the most popular features. When you understand what your customers need, you can help them get more value from your product by providing personalized solutions.

How to measure product-led growth

Natural Rate of Growth (NRG)

It helps PLG firms to identify and begin to figure out the portion of their recurring income that comes from organic channels.

This number may be seen as a gauge of how quickly a business is growing without even trying to increase sales and marketing expenses. The formula for this is simply; Natural Rate of Growth = 100 x Annual Growth Rate x Organic Signups (%) x ARR from Products (%)

Time to Value (TTV)

This metric represents the overall time it takes for new consumers to realize the value of your product. Your goal should be to minimize the time required to get the most benefit. One way to help your customers successfully utilize your product is to concentrate on improving your user onboarding experiences around certain user behaviors that correlate to successful activation. Inviting colleagues to your platform, importing customer data, or connecting with other tools may all be forms of helping your customer realise value quicker. 

Product-Qualified Leads (PLQs)

People who have activated their accounts are referred to as PLQs. This set of users has performed numerous product-related actions and has firsthand knowledge of the product's value. The final aim of this post is to offer you a sense of what PLQs for your product could look like. To do this, we must concentrate on what your product's activation event and other activities imply when they indicate that the user is ready to go to the next stage of their journey.

Feature Adoption Rate

Your target consumers' receptiveness to your product is shown in your feature adoption rate. It informs you of the reasons why your product continues to keep users engaged. It is ideally calculated as

#of new users of a specific featuretotal # of product usersX 100

Average Revenue per User (ARPU)

The average revenue per user (ARPU) is the amount of money that a user will produce for the business on average. It is a high-level indicator of a company's overall health and is often used by financial analysts to compare SaaS companies. It is calculated as total MRR divided by the total number of users.

Customer Lifetime Value (CLV)

CLV calculates the lifetime income generated by a single customer for your business. Segmentation is used to identify lucrative customer groupings and to learn more about the acquisition and overall pricing efficiency. CLV is one of the most often used SaaS metrics for estimating a customer's worth in both the short and long term.

Top 3 Companies that are doing it right.

Dropbox

Dropbox has a product-led approach that delivers on creating an intuitive product that meets consumer’s needs (makes file sharing easy and accessible to end-users) and has built features into the product that enhance virality among prospective users. Dropbox aims at attracting new customers while boosting current user’s customer experience.

DocuSign

DocuSign implemented a product-led approach in the legal software industry with smooth onboarding. A user can open an account free of charge and receive an e-signature from a user with no account. Even a free edition of DocuSign enables users to deliver a signed agreement and experience the product’s value.

Calendly

Calendly is another viral product that uses a product-led approach and is designed such that a user can send a meeting request to another person, allowing both the users to experience the product’s value. This collaborative nature is what generates a ‘viral circle of value’ and has enabled Calendly to attract new users.

The Bottom Line

PLG is both a growth and a go-to-market strategy. PLG allows a product to speak for itself and instills trust in consumers by showing the value they can get right away. PLG may result in reduced client acquisition costs, improved customer retention, and a higher lifetime value.

If you want to explore how a product-led strategy can help your business, book a call with me today!


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© 2020 Dharmin Polra