What is Product-Led Growth? And Why Does It Matter?

In This Article

    In an age of self-service, users don’t choose software the same way they did 20, 10 or even five years ago. This is the age of the end-user, rather than the buyer. They don’t want to buy products based on a sales pitch or from a salesperson breathing down their necks anymore. Users want to self-educate and learn the value of the software product by trying it first.

    This is what product-led growth (PLG) is all about: putting the product front and centre, and rather than forcing prospects through calls with sales, users can immediately start using the product.

    Research shows that three out of four B2B buyers prefer to self-educate and buy through an app rather than from a sales rep.1 This means that today’s consumers want to experience and understand the product first, to see whether it’s the right fit, before putting money down. This shift affects few industries more than the software-as-a-service (SaaS) industry, where the product is intangible and users want to start using it — right now.

    In this article, we take a deep dive into product-led growth, what it is, how it helps companies (particularly SaaS), and how to create a product-led growth strategy.

    New call-to-action

    What is product-led growth?

    Product-led growth is a business methodology where a company’s growth is driven by the product itself. It’s a go-to-market strategy where the product is the primary means of acquiring, converting and retaining customers.

    What do Slack, Expensify, Zoom and Dropbox have in common? They’re all PLG companies. Chances are you’ve used these applications in your daily life. Do you remember going through landing pages, reading white papers, or contacting salespeople for a demo of any of these products? No. You probably signed up for a trial version or freemium plan of the product and started using it right away. 

    In other words, it provides everything the consumer needs to know from pricing to features to FAQs through the product itself. When done right, product-led growth can be incredibly powerful. Not only can it attract and retain new, long-term paying customers but it can also improve your bottom line. 

    This try-before-you-buy self-service approach is effective, particularly in the research and evaluation phases of the customer journey. Free trials or freemium options are therefore often at the heart of a product-led growth strategy. This is why 75% of companies choosing a product-led growth model choose to offer a freemium model or free trial as the first step.2 It gives potential customers the “keys” to test drive the product, removing:

    • tedious sign-up processes
    • the need for demos 
    • time-consuming onboarding 
    • hidden fees.

    Instead, it doubles down on what users love — an easy-to-use, well-designed product that enhances productivity. It’s about selling a good user experience, rather than a product. And it’s about showing the customer your product rather than telling them. And once you’ve shown what it can do, upgrading to a paid plan or buying the product becomes a no-brainer.

    What are the advantages?

    Implementing a product-led growth strategy flips the traditional sales model on its head. Customers begin using the product first and get in touch if they get stuck — for example, if they’re unsure how to integrate the product with an app, are struggling to use a certain function or upgrading isn’t made easy within the product. 

    A sales-led strategy, however, holds the customer by the hand, taking them from point A to point B in a sales cycle, often using a demo or a free trial. Though this can be viewed as proactive, it can actually slow things down for both the business and the buyer.

    A product-led growth strategy can sustain and grow your business as it can offer:

    • A shorter sales cycle: By getting your prospective customers onboard themselves, you can significantly reduce the burden on sales teams, your time-to-value (TTV metric), and the overall sales cycle.
    • Lower customer acquisition costs (CAC): Because the ‘show don’t tell’ approach means the product includes sales, marketing and customer service functions, this creates downward pressure on sales and marketing expenses, reducing CAC costs.
    • Higher revenue per employee: Less handholding reduces your need for salespeople and results in higher profit margins per customer. 
    • Scalability: Product-led growth marketing can be scaled up easily by offering free trials and freemium plans that don’t rely on the time and availability of your customer success team. Instead, you can build an ideal customer profile and create an effective strategy to attract them. So while your competitors are building their sales teams, you can use your resources to expand.
    • Increased word-of-mouth marketing: If it’s easy to use and does what it’s meant to do, users will talk about it. A happy user means enhanced word-of-mouth promotion. And 88% of consumers place their highest level of trust in word-of-mouth endorsements from people they know.3
    • Upselling within the product is possible: Since the product itself acts as a customer acquisition tool, you can embed sales, customer service and marketing functions into it. When you think of, for example, Shopify it’s easier and more convenient to contact support online or go to the FAQs than to hold on for customer service.

    Due to the online nature of software, product-led growth is often associated with technology or SaaS companies. But product-led growth principles can help most businesses, including B2C. For example, a product-led B2B software company might offer a free trial of its product, while a product-led B2C eCommerce company might offer free shipping on orders over a certain amount.

    Product-led businesses are on the rise, with their market capitalisation growing from $21 billion in 2016 to $687 billion in 2020.4 And many B2B SaaS companies have already deployed a product-led growth strategy, with 91% of these companies planning to invest more this year.5

    What are the disadvantages?

    • Converting freemium users to premium. Some freemium models can be too generous. If they are, by giving away too much, many users will still to the freemium model, with few converting to premium. Businesses can end up spending much of their cash supporting these freemium customers. To create healthy profits, PLG businesses need a critical mass of users to move to the premium model.
    • Monetisation. One solution is to monetise freemium. By including adverts, this can boost your revenue, while providing a perk of an ad-free premium version. Businesses can also use the customer information they acquire with sign-ups and behaviour to sell to vendors.
    • Customer acquisition. Freemium plans need to improve customer acquisition. And once they’re acquired, you want them to be active users. This means installing as much self-service as possible into the product, so users don’t get frustrated or don’t see the value, and abandon the product — while remaining signed up.

    Want to successfully attract customers, drive leads and grow your business?

    Create a Product-led growth strategy tailored to your business today. 

    Product-led growth vs Sales-led growth

    Sales-led growth (SLG) companies’ marketing strategies typically include creating content, service pages and calls to action to capture leads. Leads generated via marketing are then carefully nurtured using automated and personalised emails and follow-ups.

    Product-led growth says this is the old, time-consuming way. There are service pages (though often only one or two), and content. But PLG companies let the product do the legwork by putting the product front and centre to drive business and revenue growth. The product:

    • encourages the user to try the product through a free trial or limited freemium plan 
    • allows self-onboarding when customers either subscribe or upgrade their current plan
              Product-led growthSales-led growth
    Self-service LG companies often use self-service models.

    But self-service can be tricky for more complex software.
    SLG businesses typically interact with prospects first.

    Self-service is possible for complex software or businesses targeting enterprise organisations.
    Business model  Free trial or freemium plan to get users in.

    Expanding the top of the sales funnel, making it easy for customers to use the product.
    A conversation between sales and the prospect takes place.

    Narrower top-of-funnel, with a sales team moving customers down the funnel.>

    Examples of product-led growth companies

    B2B and B2C companies have adopted a product-led approach. Some have used elements of a PLG strategy, while others have adopted it wholesale. Some of the most successful SaaS companies in the world have been using it for years — with the results to show for it.

    • Dropbox: Dropbox offers potential customers a freemium plan that gives them access to 2GB of storage space to use across three devices. It attracts new customers by boosting existing users’ product experience. How? To receive more storage, existing customers simply have to refer Dropbox to a friend (who has to sign up) — easy as that. With this approach, the file hosting service has crossed $1 billion in sales in less than 10 years.6
    • Slack: Slack PLG approach helped it transform to being valued at $7 billion in only five years from its creation.7 The messaging app offers a freemium plan that allows customers to test the platform before upgrading to a paid plan.
    • SurveyMonkey: When SurveyMonkey’s customers administer surveys, the recipients of the survey (or their companies) also learn about SurveyMonkey. This increases SurveyMonkey’s virality. And it’s why, 20 years after its founding, SurveyMonkey boasts 20% year-on-year growth.8

    Creating a product-led growth strategy

    Creating a product-led growth strategy can seem complicated, but it doesn’t have to be. The goal of a product-led growth strategy is to change how you look at the product and its relationship with the users. And then focus all your energy on strengthening that relationship. Let’s look at the key drivers of a strong product-led growth strategy.

    Internal alignment

    Every team needs to be working towards the same goal  — delivering the best product experience. To do this, you can’t have a ‘product’ team; every department needs to be focused on your product, with a common language and reporting system across the company. 

    This doesn’t mean getting rid of sales, customer services and support — it means getting them to work for and within the product. This makes breaking down siloes crucial. By bringing everyone together, teams can communicate and coordinate more effectively, which improves overall decision-making. 

    Understand the customer journey and pain points 

    Before you can create a compelling and worthwhile product experience, you need to truly understand your customers’ journey and pain points. Your entire product should be built around your user’s journey, making it as easy as possible for them to solve their problems and resolve their pain points.

    Rather than focusing on product features, for example, service and onboarding pages should focus on users’ goals and pain points — and let them get to work straight away. Rather than telling users about features, let them use the product so they can solve problems themselves. 

    Make data-driven decisions 

    Data can be used to track interactions between your product and its users. For example, what users found valuable or not can be measured by looking at digital actions such as abandoned shopping carts or skipped songs in a playlist.

    You should also use specific B2B benchmarks and metrics to understand your: 

    • Time-to-value: This refers to the time it takes a user to go from acquisition to activation. Put simply, it’s the time it takes for a user to realise your product’s value. By getting the user into the product immediately, your time-to-value should improve.
    • Acquisition rate: Measure how many new customers you’re getting compared to your total number of customers. The shorter your time to value, the better your user acquisition rate will be. 
    • Customer acquisition costs: This is a good indicator of whether your product-led growth strategy is working. If your customer acquisition costs are getting lower, your product-led strategy is working. 
    • Retention rates: Sales-led strategies often prioritise new leads and neglect current users; product-led strategies attract new users by delighting current ones. Track this metric to see how you’re retaining users.
    New call-to-action

    Product-led growth for SaaS companies

    Product-led businesses ripped up the rulebook for successful growth strategies. However, not all companies need to — or should — go for a 100% product-led approach. But many businesses, particularly SaaS businesses, can use PLG principles to acquire leads, and users, and grow their business. PLG elements businesses can use include:

    • Freemium models: But you need a strategy to monetise this user base to ensure you don’t just end up with a large user base but little to no revenue.
    • A product and customer experience-first approach: The core of any successful product-led growth strategy starts with an exceptional customer experience. 
    • Web-to-product adoption: Enable users to use the software immediately, web-to-product, optimising conversion and tracking user behaviour across the lifecycle.
    • Upselling with the product: By understanding customer journeys, you can upsell at the point where users need it, for example with a data storage upgrade.

    At Gripped, we use a range of strategies, from product-led growth elements to deep dives into data, to help your business grow. Focused on growing B2B, SaaS and tech businesses, we’re passionate about growth and equipped to tackle the digital growth problems businesses face. 

    B2B buyers want to self-educate and make decisions their own way. Our approach is deeply rooted in this philosophy. We use digital channels to test, learn and continually evolve our approach.

    Sign up for a free growth audit today to see how Gripped can help you.

    1  How Self-Service Research Will Change B2B Marketing.

    2  Product-Led Growth Benchmarks 2022.

    3  The Importance of Word Of Mouth Marketing – Statistics and Trends 

    4  The Ultimate SaaS Guide to Product-Led Growth.

    5  Product-Led Growth Benchmarks 2022.

    6  A Brief History of Dropbox

    7  How Slack’s Commitment to Customer Experience Drives.

    8  What is Product-Led Growth? How It Works and 5 Companies That Are Doing It Right.