A Guide to Product-Led Growth in SaaS

Every so often, a new paradigm develops and redefines the way the industry does business.

It challenges the status quo, introduces out-of-the-box ideas, and leads to a revolution in corporate thinking. Product-led growth is one such idea, but what exactly is it, and is it right for your SaaSWhat 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… company?

Read on to learn more.

What is Product-Led Growth (PLG)?

There are many ways to grow your business.

You can go the traditional route and build a sales funnel, automate your operations, use a customer management system (CMS), or look into what your competition is doing. You can also create a loyalty program, leverage email marketing, or form a partnership.

In a SaaS world characterized by a multitude of alternatives, a lack of differentiation between products, low market entry costs, and virtually zero switchover costs, it can be very difficult for companies that adopt any of the above approaches as their business strategy to make a meaningful dent in the market.

An alternative would be to get a little creative, identify gaps in the market, and come up with something new, or diversify your lineup and add to your product offerings.

This is where the concept of product-led growth comes from.

It involves redesigning your entire business strategy and focusing your customer acquisition, retention, and market expansion strategies around your product. This strategy hinges on the value or utility of your product to grow.

The idea is that as users gain some sort of benefit from using your product and as they experience the advantages of using it, they will eventually incorporate its use into their everyday lives.

To put it another way, a product-led growth strategy relies on exceptional user experience to acquire new users, retain existing ones, and grow your user base.

How is PLG Different from Sales-Led and/or Marketing-Led Growth?

The first thing to keep in mind here is that PLG is not meant to replace other forms of company growth.

Our discussion in this section is simply on the differences between PLG and other, perhaps better-understood approaches to growth.

1. Users enjoy a beneficial outcome themselves.

Users need to be able to learn about the product themselves, use it on their own, and sign up for or install it and then use it and see its benefits in as short a time frame as possible.

This can involve, for example, self-signups, or onboarding via an email campaign. However, if the market is not yet mature enough for users to use or understand your product, or if too much effort is needed in terms of education and learning, a PLG approach may not be ideal.

2. PLG is very cost-efficient.

Since users onboard themselves, the sales cycle is shortened.

You can reduce employee overheads as well, and your entire offering is designed to offer the user a better user experience with human assistance minimized as much as possible.

3. PLG is sometimes used with smaller businesses.

This is because PLG works best with transactional and/or self-served products, not the kind of thing that direct sales are optimized for.

Also, small businesses tend to be more open to trying new tools that might help them grow their business.

A related point here is that traditional marketing tends to focus on the buyer, not the end-user. This distinction is important and is another reason traditional marketing is favored by larger companies that use dedicated marketing personnel while smaller companies that are trying to make a name for themselves in the market will focus on the user, not necessarily the (oftentimes middleman) buyer.

4. PLG focuses on acquisition, activation, and retentionWhat 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….

Traditional marketing tends to focus on the acquisition of more than activation and retention.

Without including the concept of churnWhat 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… in the equation, marketing-led growth figures can be very deceiving.

5. PLG focuses on experienced value, not just perceived value.

The difference between the two is sometimes called the value gap.

You need to close the gap as best you can, which you can do by not setting unrealistically high expectations and not making promises your product cannot keep. Try to give the customer what they expect to get when they first learn or hear about your product.

Make sure they can see and experience the value-added you provide first-hand instead of trying to communicate that value some other way via marketing messaging.

6. PLG uses Product Qualified Leads (PQLs) instead of Marketing Qualified Leads (MQLs).

We talked above about how the concept of churn can make some marketing figures misleading.

The distinction between PQL and MQL is how accurately they measure a person’s intent to buy. The source of this issue is that MQL uses measures such as how many people filled out a form, signed up for a newsletter, or downloaded a free app to gauge user interest. PQL, on the other hand, measures the actual experienced value that users derived by interacting with or using your app.

How Can Companies Become Product-led?

The two things that need to change if you are to adopt a PLG are your product and your organization.

First of all, you need to have an amazing product that delivers the value it promises to deliver. Your product must be built around helping users solve their problems, all with quick and effective user onboarding, contextual in-app communications, and a great, seamless, intuitive UI.

Getting this right will involve user testing, user journey mapping, and intelligent data implementation to understand what users want to do with your product and then adapting your product to their desired experiences at an individual level.

Next, you need to gear your organization to relentlessly focus on user needs.

Your team needs to be able to collect and interpret contextual feedback and collaborate easily with other departments that are working on different but related aspects of the product that the user will eventually see or use at the same time. This may involve redesigning your org chart, leveraging different communication tools, or redesigning the product development workflow so that those who need the information of a certain type at a certain time have access to what they need and when.

Popular PLG Frameworks

There are many ways you can calculate and quantify the efficacy of your PLG strategy. Consider these options:

–Activation Rate: This is a measure of how far along a user is in his or her journey from when they first learn about your product to the time they use it.

–Churn Rate: This is the percentage of customers who cancel or do not renew a subscription in a given time frame.

–Engagement Score: This measures how much and how frequently a user uses your product.

Traditional measures of user growth and retention that can be used within a PLG framework include:

-Revenue: Based on the average contract value (ACV) of users, the monthly recurring revenue (MRR) of your users, customer lifetime value (CLV), or the average revenue per user (ARPU).

-Retention: Used alongside churn rate, this can help you measure how many people stick with you over time.

-Referrals: This ties in with the types of users you have. Are they merely users, or are they promoters as well? If you measure the percentage of users who recruit new users, you can get an idea of how great your product is.

A prediction of how much revenue your business will receive from a single customer throughout your relationship. CLV is used to identify highly valuable customer segments and gain a more thorough understanding of reasonable acquisition and retention costs.

The Bottom Line

How do you know whether or not you are ready for adopting PLG, or if PLG is right for you?

The unique position that your company is in, the lifecycle stage that your product is in, your available budget and your ability to onboard new talent will determine whether or not you can pivot to a product-first approach. Furthermore, whether or not you can redesign your current workflows, train your team, and refocus cross-departmental efforts toward a PLG approach will play a big part in the PLG decision.

Successful PLG companies are able to develop cross-functional teams, effectively share information within the company, gather the right metrics and establish the right KPIs toward understanding user needs and building a product that meets those needs.

Frequently Asked Questions

🚀 What is Product-led Growth?

Product-led Growth refers to designing your entire business strategy around your product.

❓Why is PLG important?

Compared to traditional growth strategies, PLG is a much more user-centered approach that is also cost-effective, making it a great alternative to traditional growth strategies.