Product-Led Acquisition: How PLG Companies Acquire New Customers at Scale
What’s product-led acquisition? How is it different from product-led growth? What are its benefits?
If you’re after answers to these questions, we’ve got you covered. We also look at different strategies that you can deploy to drive PLA and retain your users afterward. We also introduce key metrics product managers should follow if they’re serious about PLG.
Are you ready to dive in?
- Product-led acquisition (PLA) is an organic way of growing a customer base through recommendations from existing customers. It is often used by product-led businesses to drive scalable business growth.
- Product-Led Growth (PLG) is a business model in which the quality of the product drive growth, while product-led acquisition is a strategy that relies on product virality and network effects to expand market penetration.
- The benefits of PLA include considerably lower customer acquisition costs, exponential user base growth, and lower dependence on changes in paid advertising.
- For products that depend on the network effect, the sign-up flow is a good place to prompt users to send out invitations to their teammates.
- Single Sign-On reduces friction and enables users to start using the product more easily.
- Acquisition growth loops and embedded loop cycles propel product virality by allowing non-users to experience the product value for free and without signing up.
- Word-of-mouth (WOM) marketing is said to be the most cost-effective acquisition strategy. It costs nothing and people trust their mates more than marketers or salespeople.
- Referral programs provide users with an incentive to recommend the product to others.
- Adding watermarks encourages users to upgrade their plans and promotes the brand.
- Thanks to integrations, you can take advantage of the marketing potential of your partners.
- To retain your customers, create personalized onboarding experiences. These include checklists and in-app UX patterns that drive the adoption of functionality relevant to different use cases.
- Customer Acquisition Cost, Product Adoption Rate, and Customer Lifetime Value are some of the key metrics product managers can use to evaluate the effectiveness of their product-led strategy.
- If you want to see how to use Userpilot for product-led acquisition, book the demo!
What is product-led acquisition?
Product-led acquisition (PLA) is an organic way of growing your customer base that leverages user recommendations.
In simple terms, PLA depends on satisfied customers spreading the good word about your product and inviting their friends and colleagues to use it.
Product-led acquisition (PLA) vs Product-led growth (PLG)
While the two terms are closely related, there’s a difference between product-led acquisition and product-led growth.
Product-led growth is a business model in which the product is the main driver of acquisition. Instead of focusing excessively on marketing and sales, PLG companies drive growth by creating delightful products that satisfy user needs. Users choose to buy them because they see their value.
The product-led acquisition is a strategy that leverages network effects to acquire new customers and expand your product’s reach.
What are the benefits of product-led acquisition?
The key benefits of product-led acquisition include:
- Lower customer acquisition cost which allows companies to scale quickly
- Virality that drives exponential growth of the user base
- Independence from price and algorithm changes that could impact the ROI of paid advertising
Best examples of product-led acquisition strategies
So what levers can you pull to set the product-led acquisition wheel in motion? Let’s look at a few common strategies.
Encourage existing users to invite new ones during signup
For products that rely on the network effect, like social networks or communication tools, the sign-up stage is a good place to prompt users to invite their mates onboard.
It’s kind of logical. You found a new tool that you want to use but you need other people to play with it for it to work, so you send them an invite, and the job is done.
This is what Slack does during its sign-up flow. One of the steps involves inviting your teammates. Slack also shares its value proposition here as the image of the product validates the user’s expectations.
Simplify the sign-up process with SSO options
Single Sign-On (SSO) is a recognized way to remove friction from the sign-up process.
Instead of having to set up the account step by step manually, users can use their existing Facebook, Google, or Apple login to access the product.
Why does this matter?
SSO reduces the time and effort users need to get inside your product. And the sooner this happens, the quicker they will be able to experience its value.
Use acquisition growth loops
Growth loops are a growth strategy in which user actions in the product drive acquisition of new users.
What’s a good example of a growth loop?
Check out HelloSign (now Dropbox Sign), e-signature software.
Every time a user creates a document in the app and sends it to someone for their signature, they basically promote the product. And once that person signs, they receive an invitation to sign up for HelloSign as well.
Leverage exposure virality with free access without signup
Exposure virality relies on a similar mechanism as growth loops.
The key driver for growth is also user-generated content. This could be photos, graphics, or visuals. When users create content they’re particularly proud of, they want to share it with others. And when they share it, they increase the exposure for your product.
To leverage exposure virality, make it easy for users to share their work and for their audience to access it.
For example, Miro allows you to share your boards with users who don’t have accounts. However, this may not be for long because when experience the value of the tool, they may want to start using it themselves.
Use word-of-mouth to create virality around your brand
Word-of-mouth marketing is by far the most effective way for acquiring customers.
People trust their friends and colleagues more than marketers and so they’re more likely to follow their recommendations. And if they’re satisfied with the product, they’re going to recommend it to others.
That’s how you create viral products.
There are things you can do to fuel the process:
- Organize events and shareable experiences.
- Create social media content to engage new audiences.
- Encourage power users to leave reviews on public sites like G2 or Captera.
- Involve influencers and thought leaders.
- Give away some cool brand swag.
Use referral programs to acquire new users
Referral programs are a staple of product-led acquisition and many companies use them effectively to expand their customer base.
The principle is simple: you offer users a material incentive to invite their friends. Dropbox offers extra storage for free while Revolut pays customers for referrals.
Use an embedded loop cycle to boost viral growth
Embedded loop cycles are very similar in nature to acquisition growth loops. Both of them rely on existing users to use showcase the value of the product with their network.
However, embedded loop cycles take it one step further. They usually include an invitation to try out the product. For example, if you share your Loom video with a non-user, they will see a modal inviting them to try out the product whenever they pause or finish the video.
Add watermarks on freemium plans
Adding watermarks in free plans plays two roles.
First, it creates an incentive for users to upgrade to a paid plan.
Second, watermarks raise your brand awareness. If a user shares a photo or film with a watermark, they advertise your product. Canva and Filmora are two products that use this technique.
Use integrations to showcase value
Integrations drive your product growth in a number of ways.
First, they add value to the product and make it more attractive to users. They often reduce friction that allows users to achieve their objective more easily and that means they’re more likely to promote your product.
By developing partnerships with other products, you also use their marketing leverage to promote your product. For example, Jira allows users to record and attach Loom videos to their messages without leaving the app. In this way, it promotes Loom.
On top of that, there’s evidence that integrations increase user retention. According to ProfitWell, products with just one integration have 10-15% higher retention while 4+ integrations can give you a 3-7% boost in retention.
What next: How to retain customers with product-led growth strategies?
Acquiring customers is only a part of the job. Your business’s growth depends on your ability to retain them and convert them into paying customers. Let’s look at a few strategies that you can apply to drive activation and adoption.
Create a personalized onboarding flow
To activate your users, you need to show them product value as quickly as possible.
To achieve this, you need to personalize their onboarding flows to their use cases.
Collect the essential information about your users at the sign-up stage, segment them, and trigger flows that showcase only the relevant features.
Apart from reducing the time to value, you avoid overwhelming your users with unnecessary information that may make them wonder if they’ve chosen a suitable product.
Drive user activation with onboarding checklists
Checklists are some of the most effective onboarding tools.
Why? Because human beings are wired to love checklists. There’s nothing more satisfying than ticking off one item after another. And the more we do, the stronger the urge to carry on.
They also reduce the mental effort needed to complete a task and that’s what makes them so powerful for user onboarding. They just make it effortless.
To make the best use of onboarding checklists, customize them to the needs of specific user personas just like any other onboarding flow. Keep them short and focused only on key features.
To encourage users further, give them a head start by including a checklist item they’ve already completed and adding a progress bar.
Prompt contextual feature announcements to increase adoption
To serve their purpose and create a positive user experience, you should:
- Make the in-app messages relevant to your customers’ use cases.
- Trigger them contextually, that is at the moment when the user needs it.
- Make them unobtrusive and easy to dismiss so that they don’t interfere with the user experience.
- Use a combination of various UX patterns to announce one feature to guide users to their discovery and activation.
Product-led growth metrics PLG companies should track
How do you know that your product-led growth strategy works? Let’s look at a few key metrics that will allow you to evaluate.
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is a metric that tells you how expensive it is to attract new customers.
Naturally, you want this figure to be as low as possible. That’s the main reason we’re discussing product-led acquisition here in the first place.
To calculate CAC, you divide the total sales and marketing expenses by the number of new customers acquired.
Product Adoption Rate
Product adoption rate tells you how many of your customers start using your product regularly to achieve their objectives.
Adoption is essential for your product and business success. That’s because it’s adopted users that pay subscription fees and upgrade to higher plans. They are also the ones that will promote your product in their social and professional cycles.
To calculate the product adoption rate, divide new active users by the number of sign-ups and multiply the result by 100. So, if your total number of users is 600 and the number of new users in a month is 60, your product adoption rate is (60/600)*100 = 10%.
Apart from the product adoption rate, there are a few more adoption metrics that you may want to track:
- Feature adoption rate
- Time to Value
- Customer Engagement Score (CES)
- Activation rate
Customer Lifetime Value
Customer Lifetime Value (CLV or LTV) is a metric that tells you how much revenue each customer brings to your company over the duration of your business relationship on average.
Generally, the higher the LTV, the better for your business.
However, that’s only one part of the picture. To assess the financial viability of your business, you need to look at it in the context of CAC. The LTV:CAC ratio needs to be positive. Looking at the ratio, you can also identify the most profitable acquisition channels.
Apart from these, LTV is used for forecasting future revenue.
To calculate it, divide the Average Revenue Per Account (ARPA) by Customer Churn Rate.
Product-led acquisition is an appealing way of growing your user base, mostly because of the low acquisition costs.
PLA relies on network effects for its effectiveness and there are a few tricks product managers and marketers can use to drive them.
If you want to see how Userpilot can help you attract and retain customers, book the demo!