All You Need to Know About Product-Led Growth

21 Mins Read
Kavyapriya Sethu
Published On : 19/12/2023

TL;DR

  • You're witnessing a paradigm shift where product-led growth is becoming the cornerstone of SaaS and subscription businesses.
  • What is product-led growth? It's when the product's inherent value propels all aspects of a company's growth, from customer acquisition to market expansion.
  • Product-led growth examples like Slack and Dropbox illustrate the power of letting the product speak for itself, bypassing traditional sales methods.
  • The strategy's importance is underscored by its cost-effectiveness, alignment with modern customer preferences, and seamless user experiences.
  • Embracing product-led growth principles involves enhancing user and product experience, capitalizing on product needs for expansion, and driving retention through satisfaction.
  • Freemium offers and free trials are pivotal, enabling customers to assess the product's value autonomously, as seen in Citrix's case.
  • Analytics play a crucial role in tracking product-led growth, focusing on metrics like revenue, churn rate, referral rates, and usage rates.
  • Product-led growth examples from Dropbox, Slack, and Atlassian demonstrate the diverse applications and success of this strategy.
  • Investing in platforms like Togai can accelerate the implementation of pricing strategies, which is essential for product-led growth.

Nowadays, the way people buy and use software is undergoing significant changes. Consumers are increasingly inclined to try out a product rather than engage with a salesperson, leading to the emergence of a product-led growth approach. In such cases, the product is the hero, the main center of focus. When your product leads the sales and eventually your growth, you have a lot of work to do. You need to reconfigure how to market, sell, and service it to align with customer demands.

What Is Product-Led Growth?

The term “product-led” is when companies enable users to sign up for their products, start using them immediately, and get value from them. Thus, the end user owns the buying power of the product.

Product-led growth is a strategy where the product’s value drives every aspect, such as:

  • Customer acquisition
  • Company Expansion
  • Customer conversion
  • Customer retention
  • Company growth in the market

Product-led growth has two core requirements:

  • The product should be user-friendly.
  • It should be indispensable to the user.

Simply put, a product-led growth strategy relies heavily on the product’s features, functionality, and virality to sell itself.

Product -led growth in SaaS

Product-led growth is now a critical factor. The looming global recession has made it even more complex to get approval for software. As the economy continues to deteriorate, products that generate a lot of value for their users are more likely to be retained.

For SaaS companies, the traditional approach is creating a product and hiring a sales team to sell it. Product-led growth, however, changes this scenario. It is a bottoms-up approach where you allow your end users to discover your product and its value. Instead of customers buying it and then trying the product, the product-led approach will enable them to try it before buying it.

Slack and Dropbox have perfectly executed the product-led strategy. Customers need not request a demonstration of the cloud-based file-sharing and instant messaging software. They can try the product for free and buy it if they like it. So here, the product sells itself without needing the effort or expenses of ad campaigns or sales teams.

Why Product-Led Growth is Gaining Importance

One of the biggest challenges of running a SaaS company is making it profitable. However, a product-led strategy can help sustain and grow your business in three ways.

1. It is cheaper to build a SaaS company.

Hackernoon, an online community of writers, even claims that it costs $0 to build a SaaS product. However, the stiff competition also makes this low-barrier entry challenging. Hence, what’s expensive is customer acquisition.

The proof lies in the Cost per Thousand Impressions (CPM) of these big industry names in the year 2021:

  • Google- 108%
  • Facebook- 89%
  • YouTube- 108%
  • LinkedIn- 30%

These numbers indicate the rising customer acquisition costs and the lower willingness to pay, which may eventually lead to high churn rates and less profitability.

2. Customers prefer self-education.

Gone are the days when salespersons went from company to company explaining their offerings to B2B customers. Today, B2B businesses prefer learning and buying through an app instead of having a salesperson explain the product.

This approach is standard regardless of the business size. In such scenarios, the freemium model is helpful because it helps users make quick decisions based on their first-hand experience of using the product.

3. Your customers have a frictionless product experience.

Product experience encompasses the customer’s overall experience with your product, from the freemium trial to a paid subscription to the renewal of usage. Today’s customers do not have the time to engage with a salesperson to go through this process. All they want is this experience to be as hassle-free as possible.

Zoom, for example, offers a human-intervention-free onboarding and upgrading experience for customers. The trick here is not to completely let go of sales representatives. It is about letting your product talk for itself when onboarding new users.

Although these aspects seem challenging, it is how product-led strategy will power your growth for the foreseeable future.

Principles That Drive Product-Led Growth

If you are leaning towards product-led growth, there are some principles you need to consider while implementing it. You should leverage product requirements and drive that need to expand. Next, you should use your product to acquire and retain a good customer base.

Here are some of the prime principles that drive product-led growth:

User & Product experience

Retaining existing customers and acquiring new ones is paramount for a product-led organization. There is nothing more detrimental to such a company than losing potential customers. One of the critical factors in achieving success in a product-led approach is providing an exceptional user experience and a well-designed product. This combination ensures a seamless and intuitive customer journey, eliminating any friction that could hinder user adoption. When users have an outstanding design and product experience, they are more likely to develop behaviors and patterns that align with the product's intended use.

Utilize your product needs.

If your product is original and satisfies the market's specific needs, it means you are on the right track. For example, easy file sharing is a product developed based on people's requirements. The company that developed file sharing leveraged the need for its software to forge its growth journey.

Create an active growth team.

Every product-led organization requires an active growth team that handles the entire process, from product marketing to customer acquisition, conversion, and expansion. Your active team should be able to adapt quickly, even if they fail. To remain profitable, the growth team captures value by experimenting through trial and error and looking for diverse growth strategy solutions that create value for all customers.

Capitalize on your product for expansion.

You can upsell and cross-sell your product as much as you want if it has your customer’s attention. These are the fundamental drivers of expansion revenue. By upgrading customers to a larger plan, you can upsell and cross-sell additional features that complement what they already have. Additionally, you can utilize the value of your product to gain more revenue beyond what you make with your primary product.

Prioritizing shipping value over product features.

Since your product drives growth, your customers must understand how they benefit from it. The initial exploration phase provides a brief phase, allowing the user to recognize your product value. Once they successfully realize your product’s worth, it won’t take long for them to convert to an existing customer. You may not make a similar impact with eye-catching features because they do little to help customers understand the actual value of your product and do not contribute to product-led growth.

Drive retention through product satisfaction.

Keep retention as high as possible and churn as low as possible. These are two key factors to take care of. Also, there are two ways to ensure these factors are in place:

  1. By simplifying the onboarding process to ensure customer success.
  2. Making your product an indispensable part of their daily lives.
  3. Create a feedback loop.

To create a curated product experience for your customers, you need to understand their expectations by engaging with them regularly. The concept here is to scale your product based purely on customer feedback rather than assumptions. You can rely on experiments, surveys, and discovery sessions to analyze your customer journey through patterns and trends.
Many top names in the business world have successfully adopted product-led growth strategies. Both B2C and B2B have implemented the strategy in various ways, although similarly noticeable characteristics exist. Let’s unveil some use cases for you.

Also Read: Building Product-Led Growth (PLG) into Your Go-To-Market (GTM) Strategy

Benefits of Product-led Growth

1. Dominant Growth Engine

There are two product-led growth strategies for product-led businesses to overcome the competition:

  • Bigger top-of-the-funnel created by the freemium model exposes the product to a larger customer base and grabs customers' attention at the very outset. In such cases, people tend to choose the product they have already evaluated rather than one that requires a demo.
  • Instead of hiring salespeople for every region, you can improvise your onboarding process to serve customers around the world.

2. More affordable customer acquisition costs

Every time your product or service markets itself and your customer upgrades without any sales-person interaction, it directly results in lower customer acquisition costs.

Product-led growth also allows you to target Product Qualified Leads or PQLs- another term for prospective customers who have already experienced your product value through Freemium. This approach helps you avoid uninterested customers and focus only one promising ones.

3. Better customer retention

Product-led companies tend to focus solely on creating a product that drives growth, customer acquisition, and retention. Hence, there is a lesser chance of creating bad products that may lead to customer churn.

4. More product-related feedback

When you create a product that is the centerpiece of your efforts, you will spend your time and resources perfecting it. Your product sales also generate valuable feedback that you can leverage to address pain points and make necessary improvements.

5. Potential to go viral

Companies that prioritize product development tend to create market-leading products. When users love their products, they tell their networks, making it more likely to go viral.

6. Higher user satisfaction.

A good product always leads to higher customer satisfaction, the ultimate goal for every product-led company.

How Do Free Trials & Freemium Lead to Product-Led Growth?

One of the main highlights of a product-led growth strategy is allowing customers to evaluate products on their own through a free trial or freemium offer. Not only is the trial free of cost, it is not bound by time or functionality limits or the need for a salesperson. The self-service approach allows users to try the product first hand and discover the features, the functionalities, and the value for money.

Another reason is that free trials and freemiums allow businesses to gauge product usage and engagement to score leads, target conversion offers, and sales outreach.

A classic example is Citrix, the SaaS and cloud technology provider that leveraged product analytics to identify customers’ trial usage patterns that drove higher conversion rates. The team designed an onboarding flow that directed trial users to particular features, resulting in a 28% increase in trial conversion rate.

At the end of the day, regardless of free trials or freemiums, it is vital to track growth to determine if your product is gaining traction. The following section discusses how to measure your growth and success.

Measuring Your Growth Through Analytics

Here are the four main parameters that tell you a lot about your product-led growth.

1. Your revenue

Measuring your growth against your monthly and annual revenue (MRR and ARR) is the easiest way to evaluate whether you have achieved your revenue goals.

2. Customer churn rate

Churn rate refers to the percentage of customers who leave your product or service within a specified time period. It is also a direct indicator of the value of your product and its features. This number is divided by the total number of remaining customers. Regarding churn rate, you want to see a declining percentage as your customer acquisition goes up.

3. Referral rates

Your referral rates indicate how much value you provide your customers through your products. Incentivizing customers to refer others can help acquire more users.

4. Usage rates

High usage rates are a direct induction of how much your product is a hit amongst your customers and the demand it has created in the market. In this scenario, using a value metric will help you maximize revenue by aligning your product price with the value your customer gains by using it.

3 Product-Led Growth Examples to Understand the Strategy

1. Dropbox

Dropbox nailed the product-led growth with the end-user mindset. Dropbox has successfully leveraged its products to enhance its virality by making file sharing easy and accessible for all users. When users want more credit for storage, they need to share Dropbox’s referral page with their peers. It's a great way to attract new users and engage existing ones.

2. Slack

This instant messaging app with millions of users was created as a user-friendly alternative to internal communication tools like emails. Slack has a casual and sometimes humorous interface and is creatively designed for all users -from big corporations to startups.

Essentially, Slack’s founders developed the tool based on volumes of user feedback. After a successful PR campaign, Slack received more than 8000 requests from users asking to use the software on the very first day. A couple of weeks later, the requests had crossed 15k. Even then, the founders collected all the feedback they needed to ascertain what varying-sized teams needed and modified their features accordingly.

3. Atlassian

Atlassian, the software development giant, invests only a fraction of its budget in traditional sales and marketing techniques. Their significant investments go towards product-led growth strategies for long-term success. A transparent pricing plan and helpful resources simplify the customer's buying journey. By removing barriers during this journey, customers can quickly see the value of continuing to use the product.

Product-Led Growth is the Way to Go!

Starting a subscription company and creating a product is the easy part. The real deal is handling the customer acquisition costs and the increasing number of customers. If you have a product that is a cut above the rest and does not require a sales rep’s efforts, you can think about pivoting to a product-led growth strategy.

You should implement a product-led growth strategy to grow your SaaS or subscription business. Investing in Togai, the pricing implementation platform will help you implement any pricing strategy ten times faster in less than a day. Schedule a free demo today to see it for yourself!

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WRITTEN BY
Kavyapriya Sethu
Spends most of her time reading books and making fictional characters her best friends. Likes trying new things: new cuisines, films, languages…you name it!
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