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Unless you've been living under a rock for the last few years (or you don't work at a SaaS company), you've probably heard of product-led growth (PLG).
Insightful thought leaders like Kyle Poyar of OpenView Ventures and Wes Bush of productled.com have been talking about the value of PLG for years, and the market has begun to hear them.
Many companies have adopted a PLG go-to-market motion and have seen success. However, there are still some skeptics out there who aren't convinced that this is the right approach for them.
This blog post will dive into everything you need to know about PLG. We'll discuss what it is, how it works, and ways you can implement PLG.
By the end of this post, you should understand what product-led growth is, how you can leverage it for your company's growth, and some concrete steps you can take today to get started.
Let's start with the basics.
Product-led growth, also known as "PLG," is a business strategy in which the product itself is the driver of growth for the business.
A PLG go-to-market motion usually involves a free trial or freemium offering with low friction for users to sign up and get value as fast as possible. The goal is to have them adopt the product and bring in other people within their company to embrace it, thereby creating viral account growth.
With PLG, the goal is to grow your customer base organically by making the user experience so good that people can't help but bring their colleagues and co-workers in.
In other words, PLG is all about turning your product into your marketing engine and your users into your best salespeople.
The rationale behind PLG is that if you create an amazing product with a killer user experience, low friction, and tangible benefits, customers will not only flock to it, they will continuously use it.
PLG also enables more significant customer expansion, as accounts are more likely to grow with a product that is optimized for PLG.
While a product manager plays a crucial role in PLG, sales, marketing, and customer success are equally as critical.
The customer experience in a product-led strategy is related to how a user experiences the product and how that frictionless experience continues throughout all touchpoints in their customer journey.
A product-led company has several key advantages when leveraging this growth strategy.
First and foremost, PLG enables you to build a sustainable business by attracting loyal customers likelier to stick around for the long haul.
PLG allows you to sidestep many traditional challenges associated with acquiring new customers, such as high customer acquisition costs (CAC) and low conversion rates.
Most importantly, PLG helps you focus on creating a great user experience and product rather than chasing after vanity metrics like Marketing Qualified Leads (MQLs) or social media "likes."
Two "traditional" GTM models have historically been dominant:
PLG flips things on their head.
In a sales-led growth model, the primary focus is on growing the sales team and driving more customers through the door.
Sales-led growth is achieved through various initiatives, such as outbound emailing and cold calling.
While an exclusively sales-led growth strategy can be successful for some, it has yet to prove to be the most straightforward formula for companies looking for exponential growth.
When your primary focus is on acquiring new customers, you can quickly burn through cash while neglecting your existing customer base.
In a marketing-led model, your sales pipeline relies on a constant flow of new leads generated by various marketing programs. While the ideal is to have a continuous, organic funnel of new, relevant authorities, achieving it isn't easy. Often, costly campaigns are required, and there is no promise of a positive ROI.
Product-led growth, as opposed to sales-led or marketing-led growth, is a scalable way to create growth at a lower cost and with a more significant potential upside.
Of course, doing it well is easier said than done.
Now that we've covered the basics of PLG, let's look at how you can implement it in your business.
There are three pillars on which all great Product Led Growth companies are built:
According to OpenView partners, the most critical aspect of a PLG product is that it's built with the end user in mind.
It's table stakes for PLG.
For PLG to work, you need a fantastic product that solves a real problem for your users.
But building for the end user is a concept that is not exclusive to product teams.
The ethos of building for the end user permeates all GTM organizations in PLG companies, from marketing to CS to sales.
Any campaign, sales strategy, or customer communication must be looked at through the lens of how the end user will experience it.
Building for the end user is a mindset that can be applied to all areas of your company.
Focus on understanding your user's pain points, listen to their problems, and make constant improvements based on their feedback to solve their problems quicker.
To build a funnel of highly qualified self-serve users, you need to offer value upfront to entice them. SaaS companies, for example, usually provide a free trial or freemium tier showing to get people into the product.
But that's not enough.
Reducing friction in user onboarding and optimizing for Time-to-Value (TTV) is critical to ensuring new users experience value and don't just log off and never return.
Again, this concept is for more than just product or growth teams.
As a marketer, have you ever considered that putting a form as a gate before someone can consume your content is inhibiting growth rather than benefiting it?
As a salesperson, do you start with an ask before giving value up front? What about focusing your first-touch outreach on providing valuable data or insights before asking to get on a call?
The experimental mindset is one of the foundations of a PLG motion. Too often, strategy has been set based on "gut feelings" or experiences at previous companies. Yet, no two companies are the same, and your "gut" is not a scientific measure.
Invest early and often in data and experimentation on acquisition, product, and growth.
However, having data for the sake of having data is counterproductive. You could have the most complex dashboard in the world, but if no one can understand what it shows, does it have any value?
Being data-driven, in part, means having the ability to make raw data actionable.
This is a challenge for non-technical teams because they often require developer resources to access this data, and getting those resources is a friction-filled process.
The PLG funnel differs considerably from that of other GTM motions.
A product-led growth funnel is all about getting users to try your product and then showing them its value. You must ensure that your product is easy to use and provides real value to users.
In a PLG model, the "traditional" funnel stages mainly happen within the product itself. The goal is to get the newly acquired user to find value - sometimes referred to as the "aha moment" - as quickly as possible.
One of the most popular ways to structure a PLG funnel is the AAARRR model, also sometimes referred to as the Pirate Funnel, for obvious reasons.
Similar to a standard inbound funnel, the first stage of a PLG funnel is making someone aware of your product.
Generating awareness in a PLG motion is done through various marketing strategies such as content marketing, SEO, social media, paid acquisition, etc.
However, PLG companies have the extra benefit of leveraging their product as a tool for awareness. This can be done by Viral Growth Loops, such as including the company logo and a link to sign up when a user shares something using your product.
This is one of the most critical parts of the PLG funnel. The process of acquisition of users in PLG is almost always self-service - signing up for a free trial or free tier of a product.
This process has to be frictionless and lead to the user discovering value as quickly as possible.
Experimentation on acquisition conversion is a critical part of PLG growth.
A PLG user is considered "activated" when they've completed a pre-determined set of steps in your product. Ideally, these steps result in the user's "aha" moment.
Activation as a metric can be tricky and is measured differently by different organizations. For some, activation is a score in which the user receives points for taking specific actions. When the threshold is reached, they are considered "activated."
For other companies, activation is a particular journey a user must go through.
Growth can only occur if you can retain the users and customers you acquire. If your retention is lower than your expansion revenue, you will see negative growth, which is not sustainable.
Retention strategies in PLG include growth loops and experimentation within the product, going above and beyond with customer success and support, and constantly optimizing the customer experience.
Referral in the PLG funnel can mean multiple things.
The optimal strategy for increasing Net Revenue Retention is to grow the usage of your customers' accounts. Part of that is a "land and expand" model in which you start with one organization within the company and grow to service additional use cases. That happens in a PLG strategy by creating an internal champion who then refers the product to other teams.
Viral growth is built into the DNA of a PLG product. Part of that includes opportunities for acquiring new users through an existing customer sharing something from your product.
For example, a SaaS tool that generates sales agreements could have a CTA on it that will say, "this agreement was generated using x," with a link to sign up.
In a PLG motion, everything comes down to revenue - maximizing overall revenue and Average Revenue Per Customer.
One of the most significant benefits for PLG companies is an increased Net Revenue Retention.
OpenView's 2022 SaaS benchmark report showed that PLG companies had the best Net Retention rates, averaging around 130%!
Overall, PLG companies grew 50% YoY on average, compared with 21% for other SaaS companies.
To scale a product-led growth strategy, you need to create a solid framework to work within.
There are several frameworks out there to choose from, each of which has its own unique take on PLG, but all of them put great emphasis on how quickly you can get a newly acquired user to see the value of your product.
This is often referred to as the "Aha" moment.
Here are three of the most popular PLG Frameworks used today:
This framework prioritizes where to apply your focus in the PLG customer journey.
This model breaks down the PLG journey into four stages (in sequential order):
This framework aims to help you identify how much of your effort and focus should be applied toward each stage.
In a PLG motion, Activation is where the rubber meets the road and should be your #1 priority.
Next comes Start, Convert, Discover, and Scale.
This framework is based on the idea that the fastest-growing PLG companies scale through virality; their growth is not 1:1 (x amount of input will have y amount of output) but is exponential - a single input can have an infinite output.
In PLG, this is done using a series of Growth Loops.
A Growth Loop consists of three parts:
Let's take an example of a hypothetical SaaS company.
The company leverages a robust paid acquisition strategy to get new users into its product. In this case, paid acquisition is their input.
These paid ads aim to get someone to sign up for a free trial account - this is the action.
The company's 30-day trial goal is to turn trial users into paid users - this is their output.
OpenView ventures first coined the term "Product led growth," so it's no surprise they also developed a PLG framework.
The Single Point of Truth framework is a way to bring PLG companies together to focus on a singular area, knowing that all value flows from there.
This framework's "point of truth" is the cross-section between the customer and the product - how they interact with it, the value it provides to them, how it can solve their problems, etc.
By narrowly focusing the entire company on this point, PLG companies will help optimize for the entirety of the funnel.
Datadog is a perfect example of a company that has successfully implemented PLG. They've built a fantastic product that meets the needs of their target market, and they've put a strong focus on customer acquisition and innovation.
They took a relatively complex solution - cloud monitoring - and created a low-friction acquisition funnel that generated a vast pipeline of potential revenue.
Nearly all developers felt the pain they were solving, and they found a nice niche between other, more expensive solutions in the market.
Datadog focused on the "land and expand" model - that is, bringing in an individual contributor to try the product and get immediate value. That particular user then invites more and more company users to join, creating internal viral growth.
Together, these strategies were the recipe for radical PLG success, catapulting them from an early-stage startup to a unicorn in a very short period.
One of the most iconic PLG strategies was executed by Calendly.
Calendly had the benefit of a product with a value proposition that was insanely simple to articulate, provided immediate value to the user, and had a built-in viral growth loop.
While the company offered a generous free tier, each calendar-invite that a free user sent out had a CTA embedded in it. The more free users that sent out calendar invites with Calendly; the more new users would be acquired.
It's the quintessential viral loop!
Airtable's cloud-based database solution essentially fueled the "no code" movement. While nearly everyone can access "basic" spreadsheet tools like Excel or Google Docs, Airtable went deeper by offering an incredibly flexible solution that could act as a database for non-developers and a whole host of other use cases.
Airtable offers a generous free tier and has developed a massive community that further benefits its low-touch acquisition funnel.
But the growth strategy employed by Airtable was perfectly planned out to optimize for self-serve and viral growth.
According to the VP of Marketing at Airtable, Nima Asra Haghighi, Airtable focused on four strategies early on, which helped it grow as quickly as it did:
You could argue that Slack was perhaps the first big PLG success story when it was founded as an internal messaging tool back in 2009.
Slack's greatest strength is knowing the value they bring to its customers and how to show that value as quickly as possible to its self-serve users. In addition, Slack deeply understands the signals a good fit customer sends in how they use the self-serve product. Early on, Slack was hyper-focused on activation as a metric - which, for them, was an account with more than three users and one that has sent more than 50 messages.
When new accounts crossed the "activation" threshold, they were significantly more likely to buy.
Building their GTM motion around this knowledge was critical to their success.
Notion went from a little-known note-taking tool to a SaaS unicorn (10 times over) in only two years. They did this by employing a mix of product-led growth, while also investing heavily in community, which added another channel for viral growth to their mix.
Notion's keys to success were:
One visit to Typeform's homepage tells you all you need to know about its strategy.
They want users to touch and feel their product without hestiancy, see value quickly, and then learn about all the additional benefits they can get from a higher-tier offering.
The company goes out of its way to not only say you can get started quickly but that it's free forever without any limits on time, and they won't require a credit card to get started.
They've overcome the most significant barrier to getting someone to sign up for their product in two simple bullet points.
Typeform also took a relatively simple and commoditized solution - software to build forms - and turned it into its own category. They differentiate themselves from "boring forms" by letting you create immersive experiences for your audience.
Wave gained market share over other money management software in that it promised business owners that they'll get paid faster. They offered this solution for free. They bet that if they could deliver on their core promise, free users would trust them to deliver on the promises of their higher-tier offering.
They created a frictionless signup process and a user-friendly experience, whereas other providers in this space were not nearly as innovative or focused on the market segment they were.
Probably no company benefitted from the abrupt shift to remote life during the COVID pandemic than Shopify. While they were founded in 2006 and were already a publicly traded company by 2019, its DNA as a PLG company focused on a bottoms-up strategy paid massive dividends.
Shopify mastered the art of storytelling and conveying its brand identity to build brand loyalty.
The company positioned itself to support independent sellers who wanted to make their dream a reality but had difficulty building online stores on their own or were sick of the limitations of the Amazon ecosystem.
Difficulty building the higher end of the market, Shopify made an enterprise product offering a true paradigm shift for companies who had to quickly shift their entire sales strategy to online.
They offered an extremely low friction option to quickly build a high-quality online store and offered all the needed add-ons to scale a store soon.
has helped create tons of unicorns in the last decade.
But when someone asks, "why should I introduce PLG into my go-to-market?" what should you tell them?
The four critical benefits of a PLG model make it a highly desirable strategy for many (though not all) SaaS companies.
Product-led companies can attract many new customers quickly due to the focus on frictionless sign-up and the benefit of having a free trial or freemium model in place.
The challenge for PLG is turning these acquired users into paying customers and building virality in the customer experience. To truly get the benefits of high-volume PLG customer acquisition, frictionless sign-up has to be coupled with a first-time user experience that optimizes for Time to Value; you have to know what the user's "aha" moment and get them to it as quickly as possible.
The Customer Acquisition Cost (CAC) - the cost to acquire a customer - is considerably lower in a PLG model, partly due to lower costs paid for sales and marketing.
In addition, the viral nature of PLG products creates a growth loop in which some new customers are acquired at zero cost, bringing down the average CAC even further.
Net Revenue Retention represents the level of revenue per customer that was retained over a period of time. An NRR above 100% indicates that a company has generated more expansion revenue from existing customers, while an NRR below 100% means there has been more churned revenue than expansion revenue.
Due to the focus on growth built into a PLG strategy, PLG companies tend to have far greater NRR than other SaaS businesses.
In fact, according to a recent benchmark report by OpenView, PLG companies had NRRs that was around 20% higher on average.
Because a PLG model's revenue growth comes from expanding existing accounts, the payback period for that revenue is considerably shorter.
A net new customer has a CAC payback period of around 18 months, whereas the same revenue from an existing customer has a payback period of just three months.
The roadmap to becoming a PLG company is the same for every company. Each industry, niche, market, and company culture is different and requires a different strategy. However, there are five steps you can take to help guide you in your journey.
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Before you move on to the following steps, you should first ask yourself a simple question - is PLG the right strategy?
Not every company is an ideal fit for a PLG strategy; in fact, dropping a GTM motion altogether and pivoting to a purely PLG strategy might even prove disastrous
But that doesn't mean you should throw the baby out with the bath water.
Product-led growth has many flavors. From a purely PLG motion ha sprung several hybrid models that take the best aspects of a sales-led motion and couples them with all the benefits of a PLG motion.
In modern parlance, this is referred to as product-led sales. In this model, sales steps in t assist acquired users from activation to becoming paying customers. It's a more hands-on approach but differentiates from a purely sales-led motion insofar as the product still acts as the main driver of growth. Sales are there to help close the deal.
Or, perhaps a product-led approach is just a bad fit altogether. If you have a SaaS product that is complex, enterprise-focused, and requires multiple levels of sign-off before a customer will convert, product-led might not be a good strategy.
PLG is a bottoms-up strategy in which the product's end user is the first point of entry into an organization. They act as an internal champion to sell the rest of the organization on the product's value.
Your entire focus should be on this persona. Not the VP, C-suite, or chairperson - the end-user (whoever that is).
This focus does not only relate to product development; it's a mindset that should permeate throughout the company, from marketing strategy and messaging to how sales and successfully interact with users.
From an acquisition and product perspective, the focus has to be on a frictionless experience to get started and find value as quickly as possible. There has to be an obvious value to the user to invite others from their team into the product. And there has to be educational material easily accessible throughout their onboarding experience.
PLG companies focus heavily on customer acquisition. They implement a robust marketing and sales strategy that targets the right audience and generates quality leads.
The one-to-many aspect of growth in a PLG model is one of the most critical aspects of a successful transition to PLG. From the beginning, virality must be embedded into the user experience.
Viral growth loops and encouraging inviting team members are critical to building viral growth.
The first-time user experience in a PLG product must be optimized for a fast time-to-value - the time it takes from the first sign-up until the user has a background that proves the product will solve whatever challenge they are dealing with.
This experience is often referred to as the "aha moment," in which a user sees how the product will improve their life in some way, shape, or form.
You have to know what that moment, or set of moments, is to optimize their entire experience to reach it as quickly as possible. You then identify 3-5 essential actions you want the user to take to reach their aha moment and create guardrails in the onboarding experience to ensure they take them.
How a user, or a group of users, interacts with your product signals all sorts of intent. However, the challenge of sifting through all the noise to find the signal for that intent creates the biggest challenge.
There are some simple things to look for:
There is no one-size-fits-all solution to PLG, but if you nail these five steps, you will be well on your way.
The KPIs for a product-led strategy differ considerably from those in a traditional go-to-market motion. Measuring success or failure in PLG is always done with an eye toward creating a frictionless acquisition, adoption, referral, and revenue process.
There are 11 key metrics that PLG companies should focus on.
Measuring how much it costs to acquire a new customer will be one of the main bellwethers for whether or not PLG will be a successful strategy for your go-to-market.
In theory, the acquisition cost for a new customer should be lower in PLG because, among other things, fewer resources are spent on sales and marketing.
To calculate CAC, you add up the costs from sales and marketing and divide it by the number of customers.
Creating a frictionless signup process is one of the ways PLG companies can build a growing funnel of self-serve customers. Experimenting with things like the number and types of fields required or button colors are just some of the ways companies can optimize for higher conversion rates on their sign-up.
To calculate the sign-up conversion rate, you divide the total number of sign-ups by the number of visits to the sign-up page.
Time to Value calculates the average time it takes a new sign-up to reach the point of activation in your product.
While activation as a metric can be defined in many ways, one of the more popular ways is to define a set of actions that must be taken by a user - such as sending x amount of messages and inviting y users. The time from when a user first signs up until they reach this threshold are how Time to Value is measured.
Like TTV, activation rate looks at when a user initially finds value and measures the rate at which it happens across your entire pool of users. The activation rate is calculated by taking the number of activated users divided by the total number of users.
Customer Lifetime Value is measured as the average revenue generated per customer over the time they remain a customer. One way to calculate LTV is to divide your average ARR by the average time a customer is retained (their "lifetime).
The churn rate measures the percentage of users that don't renew or otherwise stop being paying customers over a period of time.
If you have a high churn rate, you need to dive deeply into the post-sign-up customer experience. Is your success team being proactive? Are there too many bugs in the product? Are you overpromising and underdelivering?
Net Revenue Retention, sometimes referred to as Net Dollar Retention, is quickly becoming the gold standard when measuring whether or not a company has sustainable growth. An NRR of over 100% means that you are expanding revenue from existing customers more than you are churning customers over a given period of time.
An NRR of over 100% has a compounding effect that can set a company on course for unicorn status.
Where a Marketing Qualified Lead was the metric that defined whether or not an inbound lead was ready to be looked at by sales in traditional GTM motion, a Product Qualified Lead is the early indicator for a PLG motion.
PQLs have various definitions and are calculated differently depending on the company. However, a PQL relies heavily on the activation metric, ICP, and persona fit. Product Qualification is often scored similarly to leads in marketing automation systems today. When a product lead reaches a certain score threshold, they are marked as Product Qualified.
CAC payback period is the amount of time, usually in months, before the customer acquisition cost is earned back through revenue that the customer generates.
Often left out of the conversation when it comes to PLG is focusing on upselling a paying self-serve customer to a higher tier package. While much of the focus gets put on the free-to-paid motion, revenue expansion is equally, if not more, important.
Contract utilization measures the amount of contracted volume a customer uses over a given period. Volume refers to any variable in a pricing package - seats, storage, API calls, etc.
This utilization rate is a proxy for whether or not a self-serve customer presents an expansion revenue opportunity.
Contract utilization can be a simple percentage if the contracted volume you are measuring is a single variable - seats, for example.
It can get more complex when multiple aspects are involved and are best measured as a score similar to Product Qualified Leads.
Product virality is the number of new users a product acquires directly from word-of-mouth. PLG companies track this metric to see how well the market receives their product. In addition, monitoring product virality can help PLG companies identify areas of improvement and make necessary course corrections. The best way to track product virality is to use a tool like Google Analytics or Mixpanel.
When it comes to driving growth for your software company, a product led growth (PLG) approach is often the way to go. This strategy focuses on creating a great product that customers want to use and then using that product to drive customer acquisition and retention.
One important aspect of a PLG strategy is creating sales service level agreements (SLAs) for product qualified leads (PQLs). PQLs are leads that have shown interest in your product and have been qualified by your product marketing manager or product owner as being a good fit for your company.
When it comes to creating SLAs for PQLs, there are a few key things to keep in mind. First, it's important to get feedback from your customer success and sales teams. These teams have direct interaction with your customers and can provide valuable insights into their needs and pain points.
Next, it's important to have a clear understanding of your product's adoption and usage. This information can be gathered through product analytics and customer data. By understanding how your customers are using your product, you can create SLAs that align with their needs and pain points.
Once you have this information, it's time to create your SLAs. Some key elements to include are:
It's also important to keep in mind that a PLG approach is not just about customer acquisition, but also about customer retention. Your SLAs should take into account the entire customer journey, from acquisition to retention and beyond. By focusing on the user experience and user behavior, you can create a product led growth collective that not only drives customer acquisition but also encourages customer retention.
In addition, a PLG approach should be focused on the product usage data and customer experience at every stage of the customer journey, as well as the customer acquisition cost. This way, you can make sure that your sales team is working with the right product qualified leads, and the product team is providing the best user experience and user analytics to the sales team, which can help in closing the sale.
In summary, creating SLAs for PQLs is an essential part of a PLG strategy. By getting feedback from your customer success and sales teams, understanding your product's adoption and usage, and creating clear expectations for both the product and sales teams, you can ensure that your PLG company is aligned and focused on driving growth. This approach can be also used by product led companies that are in B2B buyer, and it is important that the product analytics, customer data and user behavior are used to create a growth model that works for product led businesses.
Many tools today are positioned as the "PLG CRM" or a system to enable "product-led sales," but what about the pure self-serve model of PLG?
Most companies you speak to end up building many of these systems in-house, making them rigid and labor-intensive to manage.
Parative is not a Product Led Sales tool. Rather, Parative enables self-serve revenue expansion at scale.
The "free-to-paid" aspect of the PLG funnel has gotten a lot of attention, and many tools are built to optimize for it. Parative helps PLG teams discover untapped revenue opportunities in their self-serve funnel by combining software and data science to identify expansion opportunities.
With a human + software approach, Parative leverages the power of machine learning and data scientists to identify expansion signals, score customers for upsell or cross-sell opportunities, automate alerts and actions to capitalize on those opportunities and analyze and optimize continuously.
Learn more about Parative here.
