This article was originally published on ReinventGrowth.co
What is product-led growth? Product Led Growth (PLG) is a business development strategy that leverages product usage to drive customer acquisitions, conversions, and market expansion. It places product on the focus of businesses,… is thriving. If you don’t believe that, just notice how the way of people experiencing software keeps changing. It is not enough for customers, a product to just deliver its value proposition. It needs to meet their needs and seamlessly enabling them to grow.
IT consumerization, fierce competition, reduced switching costs and the rise of customers’ voice on social mediums are the main factors supporting that direction. They increase customer demands and favor seamless experiences who don’t add weight on end-users shoulders. Forcing in that way What is SaaS? SaaS is the abbreviation of Software as a Service, and refers to a software licensing model based on user subscription with monthly or annually payments. The model… organizations to keep optimizing product experience.
This guide is an attempt:
- To describe what Product-Led Growth is
- To present Product-Led Growth levers
- Describe factors making Product-Led Growth imperative to organizations’ growth
- Establish Product-Led Growth ownership
- Give constructive guidance on how organizations can become product-led
- Refer to all the Product-Led Growth metrics your organizations needs to be aware of
- Showcase the best frameworks adopted so far in the SaaS industry
- Showcase real Product-Led Growth examples
- Provide you with a list of tools that will help you promote Product-Led Growth internally.
The SaaS growth phenomenon
In the last 9 years, we have witnessed an explosion of new business models. All of them designed to keep customers engaged in the long-run —think Netflix, Amazon Prime, Salesforce, Box. The renounced subscription economy era as Zuora likes to call it is here to stay.
Customers prefer this model since it forces organizations to keep building services that meet their needs. SaaS organizations, on the other hand, try to optimize their go-to-market strategy on a consistent cadence. Usually by driving costs down and customer satisfaction up.
The SaaS model will soon prevail over the rest. Every day the market is becoming more crowded with products promising to meet every need customers have. SaaS growth remains consistent as more companies adopt solutions for a plethora of business functions. Solutions that are not limited to core engineering and sales applications as seen in the early years of Salesforce.
Gartner predicts that SaaS technologies growth will reach $85 billion in revenue figures by the end of 2019. This is almost 18% growth from previous years. It is also forecasted that the SaaS cloud application services market segment will reach $113.1 billion in 2021. This is almost twice from the 2017 revenues of $58.8 billion.
The industry has undergone many changes until Salesforce paved the way by proving its viability as a business model. As the SaaS model is rising though, so does competition and customer demands. There is so much noise out there. It is nearly impossible for a product offering to differentiate unless it invests in stellar product experiences. The kind that will keep customers coming back for more.
Product-Led Growth as a GTM Strategy
Product Led Growth (PLG) is achieved when organizations leverage product usage, to drive acquisition, conversions, What is retention? Retention refers to a customer continuing to use a business’ product or a service and to pay for the said product or service. It is a key…, and expansion. Product-Led organizations deliver products that consider and answer customers’ evolving needs. Always by delivering stellar, customer-centric product experiences.
When a Product-Led GTM strategy is at play, the product is not a part of the What is Customer Experience? Customer experience refers to the experience of customers with a business’s products and the overall brand. When offering products and services to a group of people,….
In a Product-Led GTM strategy, the product is the experience. An experience so strong and optimized that is driving conversions in a matter of minutes. While at the same time it is delivered on a frequent cadence to embrace retention and expansion levels. But this is only the tip of the iceberg. A PLG go-to-market strategy also aligns internal teams around product insights. In that way, internal silos are abandoned and an internal feedback loop across the organization is created.
Product-Led Growth Levers
- Abandoned Paywalls: In a Product-Led GTM model, paywalls follow, rather than lead, and pricing scales as usage levels increase. Product-led organizations adopt a freemium or free trial model. They abandon barriers to entry and allow users to access the product immediately. This fact alone liberates customers. They don’t have to rely on human-assisted activations and long-term sales cycles anymore to seal a deal.
- Reduced Acquisition & Retention Costs: Products’ features are able to acquire, retain and expand accounts. At the same time, the sales cycle shortens and associated costs are being decreased.
- Sustainable Engagement Levels: The delivery of product-driven experiences powered by customer feedback sustains engagement levels.
- Data-Driven Onboarding Journeys: Onboarding is now evaluated throughout the What is a Customer Journey? The customer journey map is a customer experience term that is widely used in businesses from different industries to better understand potential customers. A customer…. Its ongoing assessment enables it to become a sustainable system following users’ notions.
- Organizational Cross Alignment: Internal organizations develop common product benchmarks & KPIs alongside business & marketing metrics.
- Increased Customer Satisfaction: The delivery of customer-centric products increases customer satisfaction & advocacy levels.
- Intuitive Product Features: Product management capitalizes on in-product behavior & delivers robust product features meeting customers’ needs.
Product-Led Organizations Yield Better Results
- Public PLG Companies: Post-IPO, PLG companies perform better than other companies. Including those organizations built for the Sales & Marketing-Led era.
- Today there are 21 large public companies with a PLG model including all of the top IPOs this year. These companies have a combined market capitalization of $208B and are performing better post-IPO, too. Some of those Product-Led organizations are Zoom, Datadog, Slack, Fastly, Pagerduty, Elastic, Surveymonkey, Pluralsight, Smartsheet, Docusign, Dropbox, Twilio, Atlassian, Shopify, New Relic, Hubspot, and others.
- Cumulative Market Cap for Public PLG Organizations: A Product-Led Growth approach, leads to better ROI for SaaS organizations. This is mostly achieved because it satisfies both buyers and end-users.
Which factors make imperative Product-Led Growth?
The frictionless, seamless experiences B2C solutions provide are now expected in B2B too. Organizations have to re‐examine how they drive revenue and use the product as the main growth lever.Product features, should onboard users seamlessly and sustain engagement levels. And they should do that quickly. Users now want immediate gratification. Time is the one element they don’t have. Even beyond that first experience though, Product-Led organizations retain and expand their clientele, based on products’ features and by keeping retention and support costs low.
The rise of the subscription era has liberated customers who can make up to twelve buying decisions within a year. If we add on that, the reduced switching costs, the surge of competition and the strength of customers’ voice on social mediums we have the rise of an era where a sole user can hold all the cards under his sleeve.
This shift has raised customer expectations from having a solution that can barely meet their needs to one that will allow them to grow while offering a stellar experience at the same time. An experience so strong and optimized that will make a prospect convert to paid in a matter of minutes and will be delivered on a consistent cadence to retain and expand him.
Self-Serve Customer-Centric Experiences
In case you missed the memo, it is a fact that now buyers want to self-educate. Studies have found that nearly 75% of B2B buyers would prefer to buy without talking to sales. At the same time studies support that personalization is considered a given. The SaaS industry though is still struggling to get there as the disposal of human resources, even on a self-serve approach is up to 63%
Who owns Product-Led Growth?
In one word, everyone. The representation below is a good example which internal organizations Product-Led growth concerns.
It puts the product in the center of attention and calls every internal organization to derive insights out of it. But this is just the tip of the iceberg. Product-Led organizations use the product also as a point of reference for pretty much everything. They invest in product-led growth metrics that complement the existing business and marketing KPIs. In that way silos are abandoned, an internal feedback look is developed and product insights act as growth’s panacea.
Think it that way. If the product team does not derive quantitative insights in regards to users path, What is Customer Success? Customer Success refers to the approach that has your company in a position where it ensures that each customer is successfully connected to their desired outcome…. will not be able to advise customers proactively. Following the same logic, sales might pursue the wrong personas. Harming that way organizations’ growth in the long run.
Marketing, on the other hand, may invest in false GTM strategy and positioning. Something that may lead to:
- Presenting at large the same messages to users in-app. Without considering their role and end goal.
- Investing in the wrong personas and spending acquisition costs without any reason whatsoever.
The road to success is not an easy one. Realizing a shift towards Product-Led GTM practices, especially when you need to align multiple departments, takes its toll.
It requires intent, practice, and ongoing calibration. Organizations do not just try to improve their product’s value proposition. They adopt a series of practices, behaviors, KPIs, and solutions to ensure everyone is using the product as an engine of growth, retention, and expansion.
As with any other strategy, there is not a standard way to achieve Product-Led Growth. We believe though that the points below will help any organization on its journey to becoming Product-Led.
Step One: Capitalize on Customer Feedback
Delivering products customers love is a rather challenging task. Inside your organization, internal teams are competing over another, trying to prove which features are imperative to be delivered.
When delivering a customer-centric approach, capturing customer feedback is not optional. It is paramount for companies to achieve success and long term prosperity. Unlike traditional GTM strategies, in a Product-Led one customer feedback is derived both by customer-facing teams and the product itself.
Considering those estimations alongside business outcomes help organizations, come closer to customer needs and keep delivering their value proposition.
Step Two: Abandon Internal Silos
Getting rid of silos’ domination is the first step forward an organization should take when providing an exceptional customer experience. Customer-facing teams, the direct or indirect surrogates of customer experience so far, along with Product Management need to establish a standard set of metrics when adopting a Product-Led Growth strategy.
The employment of a unified agenda and alignment across and within departments brings clarity and optimize product delivery across the board.
Step Three: Adopt the right Product-Led Growth Metrics.
Data has always been the driving force behind SaaS growth. Organizations capitalize on various business metrics to derive the necessary insights. The importance to deliver stellar product experiences, however, make organizations reconsider their KPIs.
There is a need to follow user progression in-app and adoption levels on a consistent cadence to promote Product-Led Growth.
On a research study, conducted by ReinventGrowth on 40 SaaS organizations, it was found that Product-Led organizations use five key metrics to evaluate product experience. All those variables help to create consistency and a common language-internal teams can use.
Product-Led Growth Metric One: Product-Qualified Leads (PQLs)
Product Qualified lead is defined as a prospect that signed up and demonstrated buying intent based on product interest, usage, and behavioral data.
Why replace MQLs with PQLs? The MQL model identifies which prospect actions are considered indicative of buying intent. The model is highly subjective and based on marketing metrics. By relying on those KPIs, SaaS companies cannot gain greater visibility into buyer intent through product usage.
Product-Led Growth Metric Two: Breadth of Use
An alternate form of (team) activation, product breadth helps product managers realize the extent a product is being used on an account level. As a product metric, it monitors account health and helps product managers and data owners proactively manage What is churn? Churn refers to a customer cancelling their subscription to your products or services. It is a common metric among especially SaaS(service as a subscription) businesses. Churn exists….
Breadth of Use: Points to consider
- How many users log in during onboarding and how many later on?
- The number of users that activate upon a new feature release. (Assuming that the targeted user segments are those realizing value with this feature)?
Breadth of Use Calculation Formula
Product-Led Growth Metric Two: Depth of Use
How extensively product key features are utilized is something that constantly troubles product managers. Onboarding should enable users progressively exploit a product’s features to their maximum extent. Depth of use is about adoption, both on a user and account level.
Depth of Use- Points to Consider
- Which adoption levels (Depth of Use) correspond to which user role?
- Does adoption increase due time? (aka are users growing within the service?)
- Are internal teams able to reflect usage levels on Net Revenue and/or Net churn?
- How is depth defined during trial and how post-purchase? (Varying parameter per product/strategy/pricing plan)
- Which adoption levels show signs of accounts’ expansion?
- Which characteristics follow engaged users (retention) and which those abandoning the app?
Depth of Use Calculation Formula
Product-Led Growth Metric Three: Efficiency of Use
The difficulty level to complete common tasks is a critical evaluation of the onboarding flow. For efficiency to be measured accurately, product teams need to be aware of the total number of users per account who begin a task, versus those who complete it.
Efficiency of Use- Points to Consider
- In this instance onboarding flows should focus on historic usage per user role and account level by taking a concerted focus when adoption levels increase.
- First-Time Activation:
- a) For solutions offering many products first time activation, should break down the onboarding flows in many parts. This is how users will realize ongoing value and increase their skills and investment.
- b) Simpler solutions should experiment with shortening trial length by focusing on users’ actions in-app.
- Internal teams should track if product onboarding activations decrease customer-facing teams involvement.
- Ownership of product data should be dispersed across teams. This is how a feedback loop will be embraced and enable them to foresee any anomalies occurred throughout the customer journey.
Efficiency of use calculations formula
Product-Led Growth Metric Four: Frequency of Use
Frequency of use is concerned with how frequently and for how long users engage with a product’s features. Reminding users why a specific feature is there in the first place and how it may further optimize their workflow is also something reliant to onboarding activations.
Frequency of Use- Points to Consider
- Which features are used more frequently?
- Which features correspond to each team’s use case?
- How can teams be triggered in-app to increase usage in secondary features?
- When and why each feature should be used? ( to better estimate the revenues and losses following them)5. What made users return to the product or abandon it?
Frequency of use calculations formula
Additional Product-Led KPIs
What is NPS? NPS is the abbreviation of Net Promoter Score, which is a measurement of your customers’ satisfaction with your product on a scale of -100 to 100. It…
Net Promoter Score (NPS) is one of the most popular ways companies evaluate customer loyalty. In a recent survey, Pendo conducted it was found that 57% of product managers use NPS to understand if customers are inclined to become advocates. This is an almost equal percentage (50%) of adoption, our research proved, that CSMs have.
An additional metric complementing depth of use (retention) is product stickiness. Product stickiness can be easily characterized as the infinite loop of user value since it indicates that users essentially live inside your product.
To measure stickiness take the ratio of your daily active users (DAU) to monthly active users (MAU). The result is a score, showcasing the percentage of monthly users engaging with the product daily. The higher the percentage, the stickier the product. Depth complements this score by allowing product leaders to segment exactly which users stick or not.
Products that see exponential value from PLG are those requiring sharing for users to get the full value. When this occurs adoption increases with each additional user. To measure viral growth, as Appcues rightly point out, you should use viral coefficient—or the k factor. Its precise formula is:
k = the number of invitations sent by each customer * the % What is the conversion rate? Conversion rate is the percentage of visitors that visit your website or landing page and convert. Converting in this context means that the visitor does… of each invite
In order for virality to exist, k must be greater than 1.
Additional metrics per department
As mentioned above, for PLG to be successful cross-functional alignment is imperative. The best way to achieve this is by introducing complementary team goals and incorporating each one of them into the product journey.
Indicative measurements to consider:
- Number of tickets
- Ticket response time
- Single interaction resolutions
- Free to paid conversions
- In which instances in app (product) marketing messages embrace activation and adoption
- Which features show better signs of adoption
- Which features need to be expanded or retired?
- No of users per account showing signs of adoption, per role and proficiency levels.
- Which features should the onboarding emphasize upon to accelerate the sales cycle
- Where the onboarding process should emphasize to accelerate each stage of the sales cycle
- Time to value per feature
- Features complexity versus adoption levels
Step Four: Adopt the Required Technology Stack
Unlike the toolsets emphasizing on account/user-level measurements, those capitalizing on Product-Led Growth also assess usage levels alongside customer feedback analysis. Those calculations help internal teams realize where upsell or cross-sell opportunities lie.
These data constitute the foundation, towards new growth and advocacy and help internal teams achieve alignment and deliver stellar product experiences.
Step Five: Invest in Product Experience
What is Product Experience? Product experience (PX) is the part of the customer journey executed in-app. The point where users get onboarded, learn about new features, and realize value. Product managers should always strive to improve product experience to effectively cope with churn rates. As a matter of fact, studies have found that 52% of users experiencing a bad product experience will most likely not return to the solution.
Adopt a Product-Led Onboarding Onboarding™ Strategy
Product-Led GTM practices transform onboarding prevalence. As a process, it no longer includes invasive, out of context in-app interactions presented at large in front of users. Product data capitalization enables product engagements to supplement the systemic process humans deliver. Product Led onboarding (PLO), is a set of data-driven product engagement practices that consider behavioral notions and users’ proficiency. Strategically, it avoids random feature introduction. Instead, it exploits historic data and considers prospects’ proficiency level when exploring a product for the first time. Contextual guidance constitutes its main pillar and enables product experience to double down on users’ workflow early on by following their progressive route to excellence.
Product Led Onboarding exploits Product-Led Growth metrics to be assessed. This fact alone, transforms onboarding into a single source of truth when referring to products’ capabilities and product experiences’ assessment. Product Onboarding Efficiency (POE) is a solid framework going forward to calculate its activations’ effectiveness. Product-Led organizations already use POE, to yield better results and assess product features ROI.
ONBOARDING FUNNEL CURRENT CHALLENGES
The SaaS industry is still in the early days of smooth in-product onboarding. Most organizations believe that their products are not able to explain their capabilities to new users. Things are even worse for those companies without a free offering. Almost 80% of them admit that the product onboarding experience is a leaky bucket.
- Activation: Our Product-Led Growth research showed that sign-ups & free trial rates prevail as activation metrics with 66% preference. At the same time, What is Feature Adoption? Feature adoption in short refers to the usage and consumption of a designated feature by the users of an app, web product, or software. A product… and What is User Engagement? User engagement refers to the interaction of users with a business’ product or service. The term is usually used as, however, the users being active. Especially… is an activation criterion by a limited 13% from organizations delivering a high-touch onboarding strategy.
- Retention: Being subject to Customer Success activations on a high-touch onboarding strategy retention is a KPI for a limited 8%. At the same time on a self-serve one it is important for 33% of participants. Overall, retention is an important indicator for a limited 21% across both strategies.
- Expansion: While 30% of revenue growth should arise from expansion most SaaS are likely at 10%. Why does this happen? Emphasis on acquisition, low product stickiness and product developments that don’t meet customer needs.
THE ONBOARDING FUNNEL IS NOW PRODUCT-LED
Product-Led Activation: Setting the right What is User Segmentation User segmentation refers to the practice of dividing users based on common characteristics. This can help businesses in creating more optimized and personalized user experiences. To… criteria is only the beginning. Product-Led activation should rely on data-driven, contextual guidance to deliver initial value early on and emphasize on end-users goals. To achieve that, internal teams need to invest in behavioral aspects and usage levels when delivering the onboarding strategy.
Product-Led Retention: Product-Led retention is the ongoing value delivered to end-users, directly from the product itself. To achieve that and increase adoption levels internal teams need to capitalize on three main pillars. Product-led growth metrics, use case variables and customer feedback.
Product-Led Expansion: Product-Led expansion is laser-focused on three important variables. How to excel key features development by capitalizing on the results of product-led-growth metrics. The improvement of broken experiences to sustain engagement levels and boost upsells. The delivery of a usage-based pricing model that resonates with the products’ value proposition.
Established Product-Led Growth Models
This goes without saying since in this post we are analyzing Openview’s Product-Led Growth model a lot. But in case you did not come across this, Openview first coined the PLG term and promote the Product-Led growth model across the spectrum.
Useful resources to understand Openview’s Product-Led Growth model are:
- What is Product Led Growth? How to Build a Software Company in the End User Era
- The PLG Map
- The PLG Index
- The PLG Maturity Grader
This Product-Led Growth model drives growth at both ends of the funnel and invests on product experience solutions to help organizations sell more to existing customers, develop users into advocates, and drive new growth.
Helix’s nine steps focus align all stages of the sales funnel and its growth pattern focuses on how companies can successfully achieve the desired levels of recurring revenue.
Hint: What you may not know is that Gainsight PX (ex Aptrinsic) was the first organization promoting Product-Led growth (both by nature and by culture)
Useful resources to understand Gainsight’s Product-Led Growth model are:
- The Chief Revenue Officer’s Guide to Customer Success: Revenue Growth in the Helix
- The Essential Guide to Product Experience
- Mastering Product Experience in SaaS
This Product-Led Growth model drives growth at both ends of the funnel and invests on product experience solutions to help organizations sell more to existing customers, develop users into advocates, and drive new growth.
The Flywheel as a name was coined by James Watt over 200 years ago in his steam engine, the invention that powered the Industrial Revolution. As a business model, it is highly efficient at capturing, storing, and releasing energy.
First used by Hubspot, Brian Haligan describes the flywheel as a model that focuses on how to capture, store and release its energy, as measured in traffic and leads, free sign-ups, new customers, and the enthusiasm of existing customers.
It also accounts for loss of energy, where churned customers work against Hubspot’s momentum and slow growth.
Hubspot’s Flywheel amount of energy, or momentum, depends on three things:
- How fast you spin it
- How much friction there is
- How big it is
Its speed increases when organizations force to high impact areas — eg. the customer service team. Similarly to the Flywheel model adopted by Appcues below, it focuses on how you can make your customers successful and turn them into advocates.
Useful resources to understand Hubspot’s Product-Led Growth model are:
- The Flywheel
- How the Flywheel Killed HubSpot’s Funnel
- Replacing the Sales Funnel with the Sales Flywheel
The Product-Led Growth Flywheel by Appcues, is a framework for growing your business by investing in a product-led user experience. The experience is designed to generate increased user satisfaction and advocacy, which in turn drives new user acquisition growth.
The Flywheel depicts 4 sequential user segments that correlate with stages in the user journey from awareness to evangelism—evaluator, beginner, regular, and champion—and the key actions that users need to take to graduate to the next stage—activate, adopt, adore, and advocate.
Useful resources to understand Appcues Product-Led Growth model are:
- The Product-Led Growth Flywheel
- What is Product-Led Growth
- The Product-Led Growth Flywheel (extended analysis)
Exemplary Product-Led Organizations (with real examples) :
- Dropbox: Has a very data-driven approach to distinguish what features can be monetized and drive upsells. This is achieved via in-depth user research, customer development, and by incorporating pricing into those conversations.
- Expensify also charges based on the number of active users, which gives them a great expansion opportunity as individuals share the solution with their teams, and create a viral effect.
- Typeform: The leading research software, opened its platform and prospects could build a form without signing up. Despite a 20% drop in registered accounts, users that eventually registered activated much better.
- Slack: Slack, the paragon for PLG, has developed a bottoms up approach by heavily investing in usage and user experience first, before Sales get involved.
Get more insights and examples by downloading our comprehensive research on 40+ Product-Led organizations.
Solutions promoting Product-Led Growth Model (per category):
What is user onboarding? User onboarding is the crucial process that starts from the first login of a new user and ends up in their aha moment, and usually beyond….
This article sums up the state of Product-Led Growth today. But, ultimately, what matters is to put your product in the middle of every decision. Process and digest the insights derived both per departments and overall. Any Product-Led Growth strategy is an action plan that helps to acquire,retain and eventually expand accounts.
Where should you start? Invest in Product experience (aka a Product-Led onboarding strategy), align internal teams under common metrics and capitalize on customer feedback.
Try to remember, while there is no one-size-fits-all growth strategy users always become addicted to customer-centric solutions. Solutions that enable them to succeed their goals daily. After all, in the end, it is all about the product.