Product Led Growth Strategy 101: Comprehensive Guide to PLG [Examples Included]
If you’ve been in the product and SaaS space for a bit, there’s no way you haven’t heard the term product-led growth strategy.
In our comprehensive guide, we discuss what PLG is and how it’s different from other models. We also explore its benefits and different ways product managers can approach it. Finally, we look at some excellent examples of its implementation for SaaS onboarding and relevant metrics.
There’s quite a bit of it, so we’d better dive straight in.
- Product-led growth is a business strategy that relies on the product as the main driver of growth. If the product is good enough and drives value for customers, they are happy to pay.
- Both sales-led and marketing-led growth models focus on customer acquisition, but less so on their retention. This is how they’re different from PLG which focuses on ensuring constant customer satisfaction to maximize their lifetime value.
- PLG strategies allow companies to scale faster and with smaller resources thanks to self-service.
- PLG businesses also achieve lower customer acquisition costs by leveraging organic acquisition channels like WOM marketing while sales teams can focus on high-value deals.
- The product-led growth model is suitable for products that satisfy unmet needs and have a big enough market.
- For PLG to happen, customers need to be able to experience the product value through the freemium and trial models.
- Freemium models work best for simple products and companies that need large numbers of sign-ups to grow and meet user needs, like social networks.
- Free trials are more suitable for products with a steeper learning curve and are recommended when you have limited financial and technological resources.
- You can also use a combination of the models, like reverse free trials or free premium trials within freemium.
- To boost conversions to paid plans, SaaS companies need to help their users experience their product value in as little time as possible.
- Miro uses single sign-on (SSO) to remove friction from the sign-up process.
- Slack uses empty states to prompt user engagement, while Notion uses them for onboarding checklists and video tutorials.
- ConvertKit uses branched flows to make sure the onboarding experience is relevant.
- Airtable harnesses the power of in-app messages, like tooltips, to drive engagement.
- Kommunicate has managed to increase its conversions with onboarding checklists.
- Loom triggers contextual in-app prompts to drive upsells.
- Product-qualified leads (PQLs) are users who have experienced value and are more likely to convert.
- Likewise, activated users tend to convert more often, so tracking the activation rate can help you predict your growth.
- Tracking customer lifetime value (CLV) helps you determine if the PLG model is suitable for your organization.
- The retention rate is an indication of how well the product satisfies user needs and its potential to drive growth.
- Expansion revenue is the recurring income that comes from upgrades and add-ons.
- Want to see how Userpilot can help you become product-led? Book the demo!
What is a product-led growth model (PLG)?
Product-led growth is a go-to-market strategy of choice for many SaaS businesses.
It minimizes the role of sales and marketing and relies on the product to drive acquisitions and adoption.
How does it work?
In a nutshell, you give your users a chance to experience the value of the product for free. If the product is good enough and satisfies their needs, they’ll convert to paying customers without pushy sales tactics or expensive marketing campaigns.
Sales-led growth vs marketing-led growth vs product-led strategy: How do they differ?
Each company needs a mix of product, sales, and marketing to drive growth. However, the role of each of them varies.
Sales-led growth companies depend on big sales teams. Their job is to nurture the leads in the funnel and eventually close deals and make sales. The model is very popular for enterprise-level, highly customized, and complex products.
In the marketing-led growth model, companies try to captivate and engage users and build a community around the product to drive acquisitions. This can be done through content marketing, webinars, tutorials, or courses.
Both sales-led and marketing-led growth focus on customer acquisition and all of it happens outside the product.
Naturally, product-led companies need to acquire customers. This, however, happens inside the product. Once new users start using the product, they see how valuable it is and they convert.
What’s more, product-led growth is also about maximizing customer loyalty and retention through constant innovation and product improvements so that customers have no reason to leave.
It doesn’t stop there. If the product really meets user needs, solves their problems, and satisfies their desires, they not only become more loyal but also turn into your advocates.
What are the benefits of going product-led?
In general, the product-led growth model is cheaper and enables faster organic growth.
Scale faster with fewer resources on customer support and customer success teams
Product-led companies are able to grow faster with a lower initial investment which is vital for bootstrapped start-ups.
How is this possible?
When customers get inside the product, you can engage them with self-serve automated product onboarding to help them experience product value as quickly as possible.
This means you don’t need big sales, customer support, or customer success teams.
The added benefit is that users know exactly what they pay for. This helps you avoid any value gaps leading to customer disappointment and churn.
Lower customer acquisition costs
Product-led strategies allow you to dramatically reduce customer acquisition cost (CAC).
Firstly, product-led companies find it easier to leverage organic acquisition channels like product virality and WOM marketing. If your product captivates your users, they’ll promote it for you.
Secondly, self-service and onboarding automation means that most users won’t need any direct contact with the sales team to convert. As a result, they can prioritize high-value deals or those pre-qualified leads who are most likely to convert.
Is the product-led growth strategy right for you?
Whether PLG is suitable for your business depends on the market conditions and the product itself. It works best if:
- your product satisfies unmet market needs
- the market is big enough
- customers don’t need a lot of time to experience the Aha moment
- it fits the freemium or free trial model
Which product-led model is right for you?
When it comes to the actual PLG models, we have two main choices available: freemium or free trial. However, it’s not an ‘either/or’ situation as you can mix and match different solutions to suit your company.
The freemium model gives users access to the product for free. However, they get access only to limited functionality.
The trick here is to give them enough features and usage so that they can play around, but not enough to satisfy all their needs. The other challenge is showcasing the paid features to motivate them to upgrade.
How can you do it?
Reverse trials are a popular technique. When users sign up for the free plan, they get automatic access to the premium functionality but for a limited time only. Once it expires, they go back to the basic features, unless they upgrade.
The model is great if you’re still building the product and need customer data, or your product success depends on the network effect. However, lots of users mean also high support and infrastructure maintenance costs.
Free trial model
Free trials offer users access to full product functionality but for a limited time only.
The trial period needs to be long enough for users to experience the value, but not excessively long so that they upgrade sooner than later.
Free trials have lower sign-up rates than freemium models, so they put less stress on your resources.
At the same time, they have higher conversion rates. To boost them further, you can ask your new users for their credit card details at sign-up (opt-out trial).
The free trial model is most suitable if your product has a steeper learning curve and is designed for users with specialist needs.
Apart from the reverse trial, there are a couple more combinations of various models that you can use to drive conversions.
Let’s start with free premium trials for freemium users. It’s like the reverse trial except that it’s not limited to the initial period. LinkedIn and Strava use this technique regularly to showcase their premium functionality.
While demos are normally associated with sales-led growth, you can still embed them in your PLG model. For example, if your product is complex to master, you can start user onboarding with the demo, which acts as a kind of manual.
Once users see how they can benefit from the product, they get access to a free trial so that they can play inside on their own.
PLG strategy examples from product-led companies
Even though the product is the driving force behind conversions in the PLG model, it would be naive to think that it’s enough to offer your users a free plan or free trial and they will convert. You need to help them discover the value ASAP.
Let’s see how some of the leading PLG companies do it.
Miro simplifies the sign-up process with SSO options
To simplify its sign-up process, Miro offers its new and existing customers the Single Sign-On (SSO) option. Instead of setting up a new account from scratch, users can log in with their Google, Slack, Office, Apple, and Facebook accounts.
It turns out that they’re not the only company that realizes the importance of frictionless sign-up. 66% of SaaS companies in the MarTech industry offer this functionality to get their users to start using the product as soon as possible.
Slack prompts action from the get-go
Slack realizes that no matter how intuitive and simple the product is, users still need a nudge to start using it once they sign up.
In recognition of that, Slack greets its users with a simple welcome screen that highlights its benefits and prompts users to get going.
ConvertKit shortens the time to value with branched onboarding
When it comes to onboarding, it needs to be relevant to your customers’ needs and JTBDs. There’s no point overwhelming them with information about features that they will never use.
Branched onboarding flows, like the one designed by ConvertKit, offer a customized experience to the users. Each stage depends on the answers and actions taken at the previous one.
This takes them down to the activation stage in the most direct way and reduces the time to value.
Airtable uses tooltips to guide users
To remove friction and help users master the product, Airtable uses tooltips to offer in-app guidance.
The tooltips appear when the user hovers over the dashboard elements and they provide information about what each feature in Airtable does.
Not only does it help users educate themselves and discover the product value in less time, but also reduces the burden on customer support.
Notion personalizes the empty state
Logging into a new product for the first time is sometimes like being dropped in the middle of a desert, with nothing around to help you find your way to your destination.
To save their users from the overwhelming experience, Notion populates their empty states with guidance on how to start using the product. The empty state consists of an onboarding checklist and a bunch of video tutorials.
Kommunicate drives users to activation with a checklist
Kommunicate, a chat-based customer support tool, drives feature activation with its onboarding checklists.
The checklist guides new users through a sequence of actions that they need to complete to set up and customize the tool.
Currently, about 48% of SaaS companies we’ve approached for our State of SaaS 2022 report use checklists to drive feature adoption and reduce churn.
Loom prompts contextual upgrades
To drive upgrades, Loom triggers contextual in-app prompts.
Like many product-led businesses, Loom allows users to experience its full functionality but limits usage. In their case, the videos users can make in the free plan are only 5 minutes long.
When users reach the limit, an upsell modal pops up. Want to record longer videos? No problem, upgrade to the Business plan!
Important product-led growth metrics to track
Let’s have a look at a few essential metrics that will help you track the effectiveness of your product-led growth strategies.
Product-qualified leads (PQLs)
Product-Qualified Leads are those users who have experienced your product value, for example during the free trial. What makes a PQL, depends on the product. For some companies, they’re synonymous with activated users, but it’s not essential.
For example, Slack views users who have used up the 2000 message allowance as qualified leads.
Generally, PQLs are more likely to convert to premium plans. That’s why their numbers can be an indication of whether the product can drive sales on its own.
The activation rate is the percentage of the sign-ups who have experienced the product value.
These are the ones that are most likely to convert to paid plans. What if they don’t? Well, that means your product may not offer enough value just yet and you must keep iterating.
Activation rate = (#number of users who reach the activation milestone / #number of users who signed up) x 100
Customer lifetime value (CLV)
Customer Lifetime Value (CLV) is the revenue that a customer generates over the duration of their relationship with your business.
Naturally, the higher the rate the better, so monitoring it allows you to assess if the PLG model works for you.
Customer Lifetime Value (CLV or LTV) = Average Revenue Per Account (ARPA) / Customer Churn Rate
Retention rate is the percentage of users that you’ve retained over a specific period of time.
The metric is closely related to CLV because the longer the users stay with you, the more revenue they generate. Low retention, on the other hand, means low customer satisfaction with the value your product delivers.
Hence, monitoring the retention rates gives you insights into how successful your product is.
Retention Rate = (# of paying users at the end of the time period / total # of paying users at the beginning of that period) x 100
Expansion revenue is the monthly recurring revenue (MRR) generated from existing customers, for example through upgrades and add-ons.
The higher the expansion revenue, the better your PLG model is working because you’re managing to drive revenue without all the sales shenanigans.
Expansion MRR rate = (Expansion MRR at the end of the month – Expansion MRR at the beginning of the month / expansion MRR at the beginning of the month) x 100
How Userpilot can help you become product-led
Userpilot is the best tool for product-led growth that can help your SaaS business become product-led.
For starters, Userpilot allows you to build personalized in-app onboarding experiences.
Thanks to its advanced segmentation functionality, you can target your customers with customized UI patterns. Tooltips, modals, checklists, you name it. All that to help your users experience value in less time, just like Slack, Loom, and Airtable do.
How do you know where your customers need extra guidance and help?
Thanks to its powerful analytics, Userpilot allows you to track how users progress toward activation and identify the touchpoints where they experience friction or they drop-off.
Apart from the in-app onboarding experiences, Userpilot supports resource center functionality. Thanks to that, you users don’t have to rely on customer support to get the information and help they need 24/7.
For you, this results in substantial customer support cost reductions, so it’s a win-win situation.
A robust product-led growth strategy enables organizations to reduce the expenses associated with running large marketing and sales teams.
More importantly, it motivates organizations to build products that truly satisfy user needs and delight them in the process.
If you’d like to see how Userpilot can help you become a product-led company, book the demo!