Product-led growth, or PLG, has become the answer for most SaaS companies over the last few years. Driven by product usage data, PLG puts the user experience at the heart of decision-making.
That being said, achieving product-led growth in a SaaS environment will help you create an excellent customer experience, drive retention, and grow your product faster. Not sure how to do it? Fear not, we’ve got you covered.
In this guide, we’ll cover the following:
- What is PLG?
- Why product-led growth is the answer for SaaS companies
- How PLG compares to other product growth strategies
- How to implement a product-led growth strategy in SaaS
- How to measure the effectiveness of your PLG strategy
What is product-led growth?
Product-led growth (PLG) is a business strategy where all strategic decisions are driven by product usage.
The PLG framework focuses on building a product that’s valuable and intuitive enough for customers to find, adopt, and use without extensive marketing or sales efforts. When following this strategy, product teams should prioritize the user experience to create products that customer love, filled with features and benefits that are easy to understand and use.
Why product-led growth is the answer for SaaS companies
PLG is particularly effective for SaaS companies for a range of reasons:
- PLG lowers the entry barrier. In the product-led growth framework, SaaS applications are usually self-serve, allowing users to navigate interfaces and workflows on their own
- PLG reduces acquisition costs. Product-led companies require fewer resources to market and sell their products
- PLG boosts CLV. Due to the high cost per acquisition, long-term retention is one of the primary objectives for software companies. PLG helps to build apps that provide real value to customers, thus driving retention and increasing CLV
- PLG drives virality. The strategy relies heavily on viral customer acquisition (aka word-of-mouth). For instance, loyal customers typically have access to a referral program and receive rewards for inviting others to join the app
- PLG supports cross-functional alignment. The strategy creates a shared sense of ownership around a product (which can’t be said about traditional sales-led or marketing-led growth strategies)
- PLG supports upselling and expansion. Users of intuitive products are more likely to adopt new features or upgrade to higher-priced plans
These were the benefits of product-led growth for SaaS — but is it really the only strategy that works for SaaS startups?
PLG and other product growth strategies
PLG isn’t the only growth strategy that proves effective. There are at least three more strategies that are popular among SaaS businesses:
- Sales-led growth
- Marketing-led growth
- Customer-led growth
Let’s discover what these are and how they compare to the product-led strategy.
Product-led vs sales-led
Sales-led growth (SLG) is a business strategy that emphasizes direct sales to drive revenue growth. This strategy requires building a strong sales team to successfully move prospects through the sales funnel.
Salesforce is an example of a successful sales-led organization. The company’s primary focus is enterprise-size organizations that require personal assistance throughout the buying journey.
While PLG strives to create self-service customer journeys, sales reps in sales-led companies assist their prospects throughout the buying journey.
Although sales-led growth isn’t as good at driving long-term retention as product-led growth is, there are quite a few reasons many SaaS companies prefer it to other growth strategies. Sales-led growth is perfect for:
- Selling expensive products
- High-touch sales where products require a lot of customization
- Companies with a one-time fee pricing model (e.g. for selling licenses)
Product-led vs marketing-led
Marketing-led growth (MLG) involves running extensive marketing initiatives to drive customer acquisition, retention, and expansion.
Companies like HubSpot and Ahrefs have achieved great success with a marketing-led growth strategy. Both companies have built large content libraries to generate interest in their products with top-funnel content.
Qwirl is an example of a successful marketing-led company:
“Qwilr has an inbound-driven motion, where prospects discover Qwilr’s proposal software through thought leadership content, proposal templates, performance marketing, and targeted webinars.”
In comparison to product-led growth, MLG is mainly focused on creating awareness around a product and generating short-term interest. The growth strategy aims at bringing the prospects into the sales funnel and turning them into qualified leads.
Despite a lot of SaaS companies actively moving away from this strategy, MLG is still a go-to-market strategy for:
- Winning competitive markets
- Rapidly entering new markets
- Short-term customer acquisition
Product-led vs customer-led
Customer-led growth (CLG) is often confused with the product-led approach. Indeed, these two strategies have a lot in common, but, in essence, they’re different.
Due to the very fine line between them, it’s hard to tell a PLG-driven company from a CLG-driven company from a distance. But upon closer examination, we can trace the features of customer-led growth within brands like Slack and Airbnb. These companies put the customer at the center of their growth strategies.
CLG is a growth strategy built around serving customer needs. It heavily relies on customer data and feedback to drive product development. The goal of this strategy is to build strong customer relationships, deliver a great user experience, and boost retention.
Similar to CLG, product-led growth also prioritizes retention as a means to drive business growth. However, the two strategies use different mechanisms to reach their goals. While customer-led companies analyze the needs and preferences of their existing customers (through customer interviews, surveys, etc.) to guide product development, product-led companies rely on product experience data to make strategic decisions.
Choosing between CLG and PLG isn’t easy. Customer-led growth is great for companies that have the resources to maintain direct communication with users, collect customer insights, and deliver personalized experiences throughout the entire customer journey.
At the end of the day, none of these strategies are mutually exclusive. If you choose to pursue product-led growth, it doesn’t mean you don’t need to run advertising campaigns or invest in your sales team anymore. It only means that from now on, all your teams should be focusing on highlighting your product value and helping your audience to realize it.
For instance, Serpstat is a PLG-driven company with CLG features. The company uses both product data and customer feedback to drive continuous product improvement:
8 Steps to implement a product-led growth strategy in SaaS
If you’ve chosen PLG as your main business growth strategy, you’ll need to implement it. Luckily, the process is quite straightforward:
1. Create a self-serve buying experience
As has been said, PLG is perfect for products that are intuitive enough for users to navigate without much help from your end. And it all starts with a self-serve buying experience.
Customers should be able to discover your product and sign up for it on their own, without the need for sales or support assistance. This means you need to create an intuitive website that clearly communicates your product’s value proposition and pricing plans. You should also create a simple and short registration process and provide clear instructions for getting started with your product.
Here’s how the EmbedSocial team has created a self-serve onboarding experience for their customers:
For instance, if someone is searching for a way to embed multiple TikTok videos on their website, they’ll land on a page that offers them the relevant widget and a free trial. It’s worth noting that our onboarding flow is complemented by a live chat feature where our customer success team is readily available to help users who may encounter difficulties with self-onboarding.”
Simple sign-up process in Embed Social
2. Offer a full-featured free trial or freemium
Letting potential customers explore your app is the easiest way to communicate the value of your product. It’s also one of the pillars of PLG.
A full-featured trial should include all product features without limitations or restrictions. If you go for a freemium model, make sure to include the core functionality of your product in the package. Users should be able to fully experience your product’s capabilities to realize its value. This is how you drive product-qualified leads (PQLs) and boost conversion rates.
Wait, who exactly are PQLs?
PQLs, or product-qualified leads, are free trial and freemium users who have experienced the benefits of your product first-hand, realized its value, and are ready to become paying users. You can identify PQLs by looking into your product analytics.
For example, if you notice a particular user has been logging in frequently and spending a lot of time on a specific feature or page, that could be a strong indicator of interest and potential qualification as a PQL.
You can track user activity in Smartlook. Define actions that you want to track as events and see how often users complete these events in your app.
In PLG, free trials have a bigger purpose than simply converting new users into paying customers. When watching new users experience your product for the first time, you can collect a wealth of useful data. By tracking user behavior during the trial period, you’ll identify friction in the product experience and find a way to eliminate it.
3. Reshape your product onboarding experience
The first experience with your product creates a lasting impression on your customers. A smooth and intuitive onboarding experience will help you make a great first impression and drive product-led growth.
Onboarding sets the tone for the entire product experience and determines whether your end users will fully adopt your product or not. While a sales-driven growth strategy involves high-touch, personalized onboarding by human agents, PLG involves creating a consistent self-serve onboarding process and continuously improving it.
As you collect data on the first-time user experience (see step 2), think about how you can act on it to create a better onboarding process. This may involve implementing in-app guidance, minimizing user interface (UI) complexity, or simplifying workflows. Use product analytics data to drive your decision-making.
You can use Smartlook’s product analytics to watch new users interact with your product for the first time and drive informed conclusions. Just connect the tool to your app and watch session recordings to see what users do, including why they don’t follow the paths you’ve built for them.
With Smartlook, Hookle, a social media engagement app, has been able to improve the user experience and optimize the onboarding process:
4. Revisit your pricing model
Pricing is becoming more of a focal point of the PLG flywheel. By establishing a clear pricing roadmap, you’ll align with your customer demand and effectively encourage product growth.
Here’s how you can create a consistent product-led SaaS packaging strategy:
- Choose one of the following pricing models: flat-fee, per-user, usage-based, or hybrid? The choice is yours
- Align pricing with value by understanding the features that are most important to users
- Offer tiered pricing plans so that customers can easily upgrade when needed
- Design a product package that serves the needs of each of your customer segments. Yes, you may end up with 10 packages, but that’s all right (look at Hubspot!)
- Use historical data to inform pricing decisions and determine the optimal pricing model for your product
5. Collect usage data with a product analytics tool
Product data is the main driver in PLG. You need to collect data on how customers are interacting with your product and use that data to inform your business decisions.
You should use a product analytics tool to track user behavior, identify patterns, and spot points of frustration. These insights will help you set the right direction for product development and create the smoothest user experience possible.
Smartlook will help you collect and analyze critical product usage data. Use it to:
- See how your customers are progressing through the system by analyzing user paths
- Watch session recordings and understand the reasons behind why users don’t take the actions you want them to
- Spot points of user frustration by tracking rage clicks
- Analyze heatmaps and see which areas of your screen generate the highest user engagement
Yet you shouldn’t rush to collect and analyze all the data your product analytics tool provides you with. First, define a problem you want to fix in your product and then dig into the analytics to find the reason behind it. For example, you may be checking user paths (aka funnels) and discover the vast majority of users don’t complete a specific workflow. From here, you’ll need to review session recordings to see what issue might have preceded drop-offs.
Analyzing session recordings in Smartlook
6. Gather user feedback
Similar to CLG, the voice of the customer (VoC) is important in PLG. Collect customer feedback to discover your users’ reactions to product features, UI, or updates.
By integrating Smartlook with Survicate, a survey platform, you can gather user feedback and send it directly to your Smartlook account to link the feedback to your product usage data. This way, you’ll have a 360-degree view of the product experience without leaving your product analytics tool.
Here are just a few of the ways to collect customer feedback with Survicate:
- Place an in-app survey to ask users what they think about a specific feature and whether it meets their needs
- Reach users that have shown early signs of customer churn with targeted in-app surveys
- Run an NPS survey to discover how your major product update has affected the product experience You’ll need to calculate NPS before you make changes and then measure it a month after the update
7. Build the data into your product roadmap
User research should set the direction for your product development process, ensuring that you stay aligned with your customer needs and preferences.
When you have the product usage data and customer feedback at your disposal, build it into your product roadmap. To do so, you’ll need to be consistent:
- Identify user needs and pain points. Analyze the usage data to identify the features that are most used and the ones that users struggle with. Based on this data, you can identify the changes required to address user pain and frustration
- Evaluate the potential impact. Consider the potential impact of each feature on user satisfaction, retention, and revenue. Prioritize the features that have the potential to make the most significant impact on the business
- Estimate the effort required. Evaluate the number of resources you’ll need to develop each feature throughout the design, development, testing, and release phases. Prioritize the features that require less effort and can be delivered quickly
- Align with the company’s goals. Ensure that the changes you’re about to make align with the company’s overall business goals and strategy. Prioritize the features that help the company achieve its strategic objectives
- Iterate based on feedback. After making changes, collect feedback from users to evaluate their effectiveness and make adjustments as needed. Iterate the roadmap using product feedback
8. Focus on continuous product adoption
Product-led growth is all about driving continuous product adoption and usage. To achieve this, you should never stop looking for ways to provide ongoing value to your customers. This means regularly monitoring product performance, releasing new features and updates, and incentivizing users to continue using your product.
How to measure the effectiveness of your PLG strategy
There are two ways to track the performance of your growth strategy, and you need them both:
- Monitoring the key product-led growth metrics (aka quantitative data)
- Analyzing the user experience with qualitative data
Monitor the key product-led growth metrics
Start by collecting quantitative insights to measure the impact of your PLG strategy. These include:
Customer acquisition cost
Customer acquisition cost, or CAC, measures how much your company spends to acquire each new SaaS user. CAC includes all the marketing and sales expenses related to acquiring new customers, such as advertising, events, and sales team salaries.
Since the calculation doesn’t include the product team’s efforts and other expenses that affect customer acquisition directly or indirectly, CAC is usually very low in product-led companies.
Ideally, an effective PLG strategy should allow you to invest less in marketing and sales activities, resulting in even lower CAC.
User activation rate
This is the percentage of new users who become active product users. You should use this to determine how successful your in-app onboarding process is at converting new users into active customers.
User retention rate
The user retention rate is the percentage of customers who continue to use your product over a certain period of time. The higher the rate, the more users find your product valuable, which clearly indicates the success of your PLG strategy.
You can monitor user retention dynamics with Smartlook’s retention tables. The rates in the table represent the percentage of users that stick with your app, week over week:
This feature is particularly effective for spotting changes in activity for particular customer segments (e.g. small businesses vs enterprises).
Customer churn rate
The customer churn rate helps you measure how many users stop using your product over a certain period in comparison to the total size of your customer base. It’s another indicator of how well your company is retaining customers.
Customer lifetime value
Customer lifetime value (CLV) measures the total amount of revenue a customer is expected to generate for your company over their lifetime. You can calculate CLV by dividing the monthly average revenue per account (ARPA) by the user churn rate.
A product-led CLV should continuously grow as a result of increased retention and reduced churn. Its dynamics are perhaps the best monetary indicator of the success of your PLG strategy.
Monthly recurring revenue
Monthly recurring revenue, or MRR, is the amount of revenue a company generates from its subscription-based products every month. This metric helps PLG companies assess their strategy health and revenue stability.
Remember when we said PLG heavily relies on virality? Here’s the way to measure it.
Referrals are the number of new users or customers that are acquired through existing users or customers referring them to your product. It helps determine the level of satisfaction and loyalty of the user base.
Analyze the user experience with qualitative data
This was quantitative data — numbers that hardly mean anything without context. Now, you need to bring in qualitative data to understand what drives those metrics and what steps you can take to improve your strategy.
- Watch session recordings (remember, you can do this in Smartlook)
- Collect user feedback with in-app surveys
- Run 1-on-1 interviews with customers
You can also add some quantitative survey metrics to your data mix, like:
- Net Promoter Score (NPS)
- Customer Satisfaction Score (CSAT)
- Customer Effort Score (CES)
Share the insights with your company to support cross-functional collaboration and align your next steps to improve your product strategy.
Become product-led SaaS
Adopting a product-led growth model isn’t difficult, you just need a lot of data to rely on. You should use your product usage data and customer insights to guide product development and create an app that users are perfectly comfortable with. This is basically the essence of PLG.
Great news — Smartlook can provide you with quantitative and qualitative data to help you grasp the product experience and create a data-driven roadmap. Request a demo now or start your free, full-featured 30-day trial today to drive business growth.