There is a lot of buzz around product-led growth. But what is it and more importantly, is it even worth it?
This article explores 12 different benefits that PLG can offer to SaaS companies. Dive in to find out!
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Summary of the benefits of product-led growth
- Product-led growth is a GTM strategy that prioritizes the product as the main driver of customer acquisition, activation, adoption, and account expansion. Such an approach has a number of advantages:
- A lower customer acquisition cost, which is possible thanks to low-touch onboarding and support, is one of the main benefits of PLG.
- PLG companies can spend less on customer acquisition also because of product virality inherent in some SaaS products.
- Product-led businesses manage to increase user activation and product adoption by removing friction from the user experience.
- Thanks to freemium or free trials, the top of the sales funnel is much wider and the self-serve onboarding and support enable users to progress down the funnel much faster, which shortens the sales cycle.
- The self-service model reduces customer dependence on your sales and customer success team, which reduces their workloads.
- The value-first approach, which characterizes PLG companies, translates into greater user engagement and satisfaction.
- The latter two are often linked with higher customer retention, which goes hand-in-hand with higher customer lifetime value (CLV).
- PLG businesses can scale up much faster because their ability to acquire and activate new customers doesn’t depend on their staff count.
- Digital products allow companies to easily collect customer feedback in-app. This helps them to better understand customer needs.
- As users engage with the product at multiple touchpoints inside, you also get access to lots of data to inform your product development decisions.
- Feedback and product usage data are easy to share which improves alignment between teams.
- PLG companies generate more revenue per employee because they need fewer people to achieve the same growth goals.
- If you want to see how Userpilot can help you implement your PLG strategy and realize some of the benefits, book the demo!
What is product-led growth?
Product-led growth is a go-to-market strategy that relies on the product itself to drive customer acquisition, adoption, and account growth.
To achieve this, PLG companies use a range of strategies and techniques, like free plans or free trials, personalized user onboarding and in-app guidance, and self-service support.
Thanks to them, customers discover the product value, convert to paying customers, and turn into product advocates. All this with minimal contact with sales and support teams.
What is the purpose of the product-led growth strategy?
Just like with other growth strategies, the main purpose of product-led growth is to grow a company’s customer base and revenue.
In PLG, this is possible thanks to a product or service that is so valuable, intuitive, and easy to use that it attracts and retains users on its own.
12 benefits of product-led growth for SaaS businesses
Here’s the breakdown of the key benefits of product-led growth that make it such an appealing growth strategy.
1. Lower customer acquisition costs
One of the main appeals of product-led growth is that it promises lower customer acquisition costs (CAC).
This is possible because the majority of users discover the product, learn how to use it, and make the purchase using self-service features.
Such product-led acquisition doesn’t take up the time of the sales or customer support team as much as in the sales-led or marketing-led growth models, and so it costs less.
Lowering the acquisition costs means you can reduce the prices to make your product more competitive and invest in its development to deliver a better product experience. Both will allow you to acquire even more customers.
2. Greater chances of benefitting from product virality and network effects
Another reason why PLG companies are able to reduce the CAC is through product virality.
Satisfied customers promote the product for you through word-of-mouth marketing (WOM) and are happy to take part in referral programs.
Both of these are more effective than other forms of marketing. After all, users wouldn’t vouch for the product if they had reservations about its quality.
Additionally, PLG strategies can also harness the power of network effects, where the value of the product increases as more users join. In practice, this means the number of satisfied customers increases exponentially.
3. Increased product activation and adoption
One of the main characteristics of PLG companies is that they prioritize delivering frictionless user experiences. The lack of friction leads to increased user activation and product adoption.
This is done by:
- Streamlining the sign-up process.
- Removing unnecessary questions from the welcome surveys.
- Creating personalized onboarding experiences to help users discover the most relevant features only.
- Optimizing the customer journey to help users complete their tasks quickly and efficiently.
- And refining the UI to make the product intuitive to navigate and aesthetically pleasing.
4. Shorter sales cycle leading to more paying customers
The product-led strategy allows organizations to speed up the lengthy sales process.
Firstly, it widens the top of the funnel. Through freemium or free trial, end users can experience product value firsthand. Traditionally, this would’ve been limited to key decision-makers – and by the capacity of sales reps to deliver sales presentations or demos.
Secondly, self-service onboarding and support allow them to experiment with the product at their own pace and in their own time. As a result, they move faster down the funnel towards adoption and conversion.
5. Lesser burden on the sales team and customer success teams
As mentioned, the self-serve model, which is a part of the product-led growth strategy, reduces user dependence on the customer success and sales teams.
Thanks to onboarding and in-app guidance via resource centers or AI-powered chatbots, users can learn how to use the product and overcome issues without having to talk to any agents.
This reduces the strain on the customer support and customer success department.
Similarly, they can now make the purchase themselves without any interaction with sales reps – and many users prefer to do just that even for single purchases over 500k.
This means your sales team can focus on nurturing high-value enterprise customers who may require a more personal touch.
6. Higher customer satisfaction and user engagement
Product-led growth is based on the value-first approach. In practice, this means creating products that solve genuine users’ problems – and they do it well.
Building products that address customer pain points and help them achieve their goals translates into greater user engagement and customer satisfaction. It literally makes their lives better.
7. Greater retention and customer lifetime value
Customer satisfaction often leads to improved retention.
Think of it this way:
If your product ticks all the boxes and is competitively priced, customers will have no reason to look for alternatives. In fact, many would want to avoid it because switching to a competing product requires considerable time and money investments.
Increased user retention normally increases customer lifetime value. The longer they remain paying customers, the more revenue they generate for you.
What is more, they’re more likely to respond positively to your account expansion efforts and upgrade to higher plans or buy additional products or services.
8. Scalable and faster growth
Slack had 8,000 subscribers on the day it launched in 2014. This number nearly doubled in 2 weeks, and it has about 20 million active users in 2023. Grammarly grew its customer base from 1 million active users in 2015 to 30 million users in 2020.
Such rapid success was possible thanks to the product-led growth model.
Once your product achieves good product-market fit and you develop self-service onboarding and support resources, you’re no longer restricted by the number of sales reps or support colleagues.
This is not limited to your original market either. Thanks to machine translation, natural language processing, and AI, the localization of your product has never been easier, so you can expand globally.
The sky’s the limit.
9. Better product development because of user feedback
Product-led companies benefit from the fact that collecting customer feedback on SaaS products at scale is straightforward.
A feedback tool or engagement tool like Userpilot allows you to easily create in-app surveys and trigger them for specific user segments.
Thanks to them, product-led businesses can better understand their pain points, needs, and preferences and use the insights to inform product development.
This leads not only to product improvement but also to stronger relationships with customers.
By listening to users, acting on their feedback, and closing the feedback loops, you repeatedly demonstrate that your customers matter. Customers appreciate this and pay back with loyalty.
10. Ability to make data-driven decisions
Product-led software companies are also known for leveraging product usage analytics to guide product decisions.
There’s no surprise here.
The self-serve model means that all the user onboarding and most user interactions happen inside the product. Modern analytics tools allow you to track every user login, click, hover, scroll, or text infill, so there’s plenty of data available.
Such insights allow you to optimize the user experience and prioritize the initiatives that deliver the most value.
11. Better alignment and collaboration between different departments
Digital data can also be shared more easily between different team members.
As a result, all teams involved in the product management process – the product team, marketers, designers, and customer success colleagues as well as senior leadership – can stay up to date with the most recent developments.
This allows them to better exploit opportunities that arise and coordinate their efforts effectively. It also reduces the risk of being blindsided by decisions made by colleagues from other teams.
12. Greater revenue per employee over time
Software products are generally easier to scale because they don’t need to employ that many employees to sell and distribute the product.
However, PLG, and the self-serve model, take it to another level. They can reduce the acquisition costs and drive account expansion without necessarily expanding their staff count.
This leads to increased revenue per staff member employed.
How does product-led growth compare to traditional growth models?
Before we wrap it up, let’s look at how PLG differs from traditional growth models like sales-led and marketing-led growth.
Product-led growth vs. sales-led growth
As we’ve said before, in the product-led growth model, the product does most of the legwork when it comes to driving customer acquisition, retention, and expansion.
While no companies can get away without marketing or sales teams, their roles are greatly reduced.
In a sales-led business, on the other hand, the sales team is the driving force behind customer acquisition.
They nurture marketing qualified leads through sales conversations, presentations, and demos. They also negotiate the deals, close them, and help with software implementation.
Product-led growth vs. marketing-led growth
How is PLG different from marketing-led growth (MLG)?
Basically, MLG is driven by a company’s marketing initiatives.
In contrast to PLG, it relies heavily on traditional marketing methods such as pay-per-click advertising, or SEO content marketing to attract and retain customers.
How does the product-led growth model work?
PLG is based on the assumption that if the product delivers value to existing customers, they not only remain loyal customers but also promote the product for you.
To become product advocates, new customers first need to experience the product value as soon as possible.
To enable this, PLG companies provide users access to the product for free, at least initially, for example, through a freemium or free trial. They also provide self-serve onboarding that allows users to discover the relevant features on their own.
Thanks to onboarding, users realize value and adopt the product. That’s how they become product-qualified leads (PQLs). They are ready to convert into paying customers.
Is the product-led growth strategy right for your SaaS business?
If the PLG model is suitable for your SaaS depends on 2 main factors: the product and the market.
PLG works well for simple products that users can explore themselves.
However, if the product is more complex, and requires customization and lengthy implementation, then a more traditional sales-driven approach will help you communicate the value of the product to potential customers more accurately.
Also, the market needs to be ready for your product. While more and more companies, including enterprise-level companies, are ready to make large purchase decisions online, some industries have strict procurement regulations that are incompatible with the PLG model.
Conclusion
The success stories of SaaS companies like Slack, Calendly, and Grammarly have demonstrated the numerous benefits of product-led growth, like lower acquisition and support costs or rapid growth thanks to product virality.
However, the PLG model may not be suitable for all software companies – those in highly regulated markets and with complex products.
If you want to see how Userpilot can help your company become more product-led and reap some of the benefits, book the demo!
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