Product-Led Growth (PLG) and Why Is It Important for B2B SaaS Startups
September 2, 2022 Edwin Kooistra
The product-led growth (PLG) business model has gained tremendous popularity as digital services become a prominent occurrence in society. The PLG model is a framework that allows SaaS businesses to develop customizable products which offer features & solutions that on their own acquire, activate, convert and retain customers.
The core aim, Matilda Widlund, discusses in her research is to create viral products without extensive marketing budgets. A product-led strategy seeks to synchronize all stakeholders including developers, operations, project teams, marketing, sales, and even human resources to deliver personalized customer experiences with their products.
Professionals discuss that there are three essential pillars of a product-led growth strategy. These include designing for the end user, delivering value before demanding value, and investing in the product with go-to-market intent. Let’s take an in-depth look at what PLG actually is and if it does help SaaS startups grow.
What Is Product-Led Growth?
The product-led growth model is a methodology where the product drives customer acquisition, activation, conversion, and retention, primarily on its own. SaaS startups usually achieve this by aligning all teams around the product to optimize growth without considerable marketing experiments.
The PLG model usually involves a free version or a free trial of the product to allow customers to experience the value of the product even before they have purchased it. Developing cross-functional onboarding teams allows B2B startups to engage in a more personalized manner, at the same time delivering superior customer service experiences.
A Brief History Of PLG Business Model
The life of the product-led growth business model began as it happens, somewhere around 2016. Blake Bartlett, the man who coined the term, established that PLG-focused organizations tend to build active user pipelines that eventually convert through value generation.
In our modern times, the global infrastructure is migrating to cloud-based workflows, powered by significant automation. The reliance on value-driven SaaS solutions is growing radically to enhance productivity, minimize errors, and accumulate critical data.
Why Is Product-Led Growth An Effective Model?
Letting your product drive the growth and sustainability of your business is probably the best way to engage large audiences, attract them to products, and convert them into customers. There are several important aspects of the product-led model that makes it a worthwhile go-to-market strategy for startups.
- The product drives attraction, conversion, and retention, positioning the brand as being effective and value-driven instead of a marketing marvel.
- Product-led models drive innovation and product development, allowing customers to extract value even before subscribing.
- For startups, PLG is a highly cost-effective strategy that focuses on the product and its results to ensure sustainable business growth.
- PLG strategies significantly lower the customer acquisition cost
- Focused PLG strategies have shorter sales cycles, eliminating many top & middle funnel activities.
Three Main Pillars of Product-led Growth
As we discussed in our introduction, there are three crucial pillars on which the PLG foundation is laid. These include:
- designing for the end user
- delivering value before demanding value
- investing in the product with go-to-market intent
The first pillar establishes that product-led growth is achieved by empathizing with your customers, understanding their pain points, and providing them with a valuable solution. Identifying the ideal customer profiles and buyer personas is crucial for SaaS startups to engage the right audiences in their sales funnels.
The second pillar of PLG established that its essential to give value to your customers before asking them to pay for the product. When the time to value is shorter, i.e. when customers begin to experience the benefits of products faster they will be more inclined to pay for more features.
The third pillar establishes a critical element that should be complimentary to the product-led growth strategy. A go-to-market strategy must be formulated to ensure that customer behavior is being analyzed while monitoring growth consistently. Testing different marketing initiatives with the PLG model allows businesses to discover new audiences and use cases for their products.
3 Examples of Product-led Growth Companies
There are some great examples of product-led growth companies as it is becoming a leading way for startups to engage markets. Here are three examples that demonstrate the effectiveness of PLG marketing.
1 – MixPanel
MixPanel introduced a PLG strategy in 2021 which allowed them to considerably simplify their buyer journey, enhance content quality, and make conversions more consistent. The business analytics service provider allows leads to self-educate through detailed product content while going through the website.
Once audiences are engaged they can download a free version, or subscribe to a paid one. Leads can also fill out a form for a live demo or connect with a salesperson for purchase. MixPanel has based the entire buyer journey around their product which provides audiences the option to experience the product by themselves or through a live demo.
2 – Slack
Slack remains possibly one of the most popular examples of a PLG-focused service. Since the application was user-focused and had a very short time to value, it grew by 10% per week securing unicorn startup status in 2015.
Slack was identified to reduce business emails by 32 percent and meetings by 27 percent, allowing even larger organizations to integrate this cost-effective solution. One of Slack’s most effective PLG strategies was to use the app user experience to lead their product innovation, business growth, and customer experience.
3 – Dropbox
Google’s Dropbox is a leading example of a PLG model for SaaS. Fairly ahead of its time, Dropbox became a simple solution to store personal documents, photos, and other files on the cloud. Its value grew with the evolution of the smartphone and portable computers & tablets.
Dropbox users could share the service with their friends and colleagues directly, without even having to create an account. A larger network grew with users engaging on both handheld and desktop devices. Using their product-led growth strategy, Dropbox offered free storage while offering paid storage plans too. In 10 years, it is estimated to have made $1 billion through an aggressive product-led model.
5 Key Product-Led Growth Metrics
The product-led growth business model is so versatile it can probably include all marketing, sales, and business performance metrics. Depending on what the aim of the startup is, metrics can be added to provide more insights over time.
Let’s quickly discuss five important metrics to analyze when using PLG.
1 – Customer Acquisition Cost
The customer acquisition cost is an essential metric that determines how much it costs to secure a new account. The aim of any product-led growth strategy is to acquire as many leads into the sales funnel as possible for zero cost.
Startups can analyze CAC for different buyer personas across varying markets to determine their most profitable segments and those that need improvement.
2 – Free Trial
The free trial helps to establish how many free users converted over a week, month, or year. Improving and monitoring this metric allows startups to develop a sustainable conversion pipeline that enhances business continuity.
3 – Time to Value
This critical metric establishes the time taken for users to begin experiencing the value of a SaaS product. Usually, a PLG framework works to minimize this time frame, allowing users to extract value immediately, and encouraging them to subscribe to paid plans.
4 – Churn Rate
The churn rate expresses the percentage of users who deactivated their free accounts or even paid ones. Keeping an eye on the churn rate metric is very important to understand the various issues within the buyer journey.
Elements and stages that create doubt within customers should be eliminated to make the customer experiences sleeker and more consistent. Startups can discover flaws within their product and work to reduce churn rate through remarketing later.
5 – Customer Lifetime Value
The customer lifetime value is the sum of all purchases that a customer will make over their duration using your services. Establishing this value and extending it through unique features and a superior customer experience is essential for sustainable growth through PLG.
5 Characteristics of Successful Product-led Growth Companies
When employing the PLG framework businesses have been observed to develop certain traits or characteristics. In a 2017 interview, Blake Bartlett, the person who initially coined the term identified five essential traits of a successful B2B using PLG.
- Virality – PLG businesses invest in buyer persona research which allows them to create value-driven and appealing products that become inherently viral.
- Easy Signup – Product-Led growth model businesses offer the simplest signup processes for quick onboarding, may it be free or paid.
- Deliver Value Quickly – In addition to quick signup, PLG businesses deliver value as quickly as they onboard customers. The Time to Value metric, Blake recommends, is a crucial measure to monitor for delivering instant value to your target audiences.
- Value First, Money Later – PLG businesses focus on delivering true value instead of capturing payment data from customers. The transaction should come after, not before the product experience.
- Sales are Cool – Blake established that PLG businesses think of all of their prospects as customers. This he explains includes leads in the funnel, prospects, free accounts, and trial accounts.
Product-led growth frameworks are a growing trend among B2B SaaS businesses especially due to their cost-efficient nature. PLG focuses on developing value-driven products that are guided by buyer persona research, UX & UI optimization, and customer feedback.
Are you a struggling tech startup with an invaluable product looking to break through the ranks?
At Chasm, we assist B2B tech startups in optimizing their product-led growth strategy with a clear goal to increase customer acquisition and customer retention by using real-time marketing insights to boosts sales.