There are many ways to go about acquiring customers and growing a business. But putting your product at the center of your growth strategy is something that will almost always prove beneficial. Especially popular among SaaS companies, product-led growth (PLG) puts the company’s product at the center of customer acquisition, expansion, conversion, and retention.

Product-led growth is a strategy that is here to stay, as evidenced by a 2022 survey that finds that 47% of companies plan to double the investment in their PLG strategy. Whether you make PLG the cornerstone of your business model or simply instruct your sales team to adopt elements of a PLG strategy, PLG can offer a lot of value when it comes to boosting sales and improving the customer experience.

What is Product-Led Growth?

The product-led growth model enables customers to try out a product for themselves before they decide to purchase it. Most commonly employed by software companies selling a SaaS product, PLG is designed to kickstart the sales cycle by letting customers experience the product or service without any commitment. As we will explore later, PLG companies that utilize this business model can enjoy several substantial benefits, including a more efficient sales process and a more data-driven approach to both sales and product development.

How Product-Led Growth Works

If you’ve ever downloaded a free app or software solution that offered add-ons at an additional price or signed up for a free trial of a product then you’ve already seen product-led growth in action.

One common example of product-led growth is the freemium business model — and in 2019, 54% of app developers were using this model. The freemium business model entails offering a basic version of your company’s product completely free of charge. Customers who download and enjoy the free version of the software can then purchase add-ons or upgrade to the complete, paid version of the software. 

Grammarly is one well-known company that utilizes the freemium model. They offer a free version of their product that can detect common spelling and grammar errors, and a paid version that provides much more comprehensive writing advice.

Another commonly utilized type of product-led growth is using free trials to generate qualified leads and attract new customers. In this model, businesses provide customers with the complete, full-featured version of their product or service free of charge — but only allow them access to it for a limited time. Platforms like LinkedIn Sales Navigator are great examples of this business model in action, enabling customers to access the platform’s full library of content for free for a limited period of time.

Key Benefits of Product-Led Growth

Product-led growth is much more than just a go-to-market strategy and is something that offers plenty of powerful benefits to the right company. If your company offers a product or service that makes it possible for the end user to experience your product or service before they buy it, leveraging the PLG model can offer the following advantages.

Creates a More Efficient Sales Process

Compared to the traditional sales process, PLG is much more automated and efficient. When a customer can experience a product’s benefits and features for themselves, they don’t need a salesperson to explain those benefits and features to them. 

Instead of requiring startups to hire large teams of sales reps and execute a labor-intensive sales strategy, PLG empowers a sales process that is largely automated. With the PLG model, all you have to do is market the free trial (or free version) of your product to as many customers as possible. If you’ve got a great product, the rest will take care of itself, allowing you to upsell customers upgraded versions and add-ons with minimal effort.

Gets Brands to Value Faster

Time to value (TTV) is a metric that signifies how long it takes before new users can enjoy value from your product — and it’s an important metric for software companies to pay attention to. If your time to value is too long, customers may grow frustrated and abandon your product before they have the chance to realize how it can resolve their pain points. Likewise, having a long time to value often requires companies to offer a more in-depth onboarding process, which can drive up customer acquisition costs

PLG can reduce time to value in several ways. In the freemium model, customers familiarize themselves with the base version of a product before upgrading to the full version. This allows for an automated onboarding experience where customers figure out the product’s core offerings for themselves before getting bogged down with all the bells and whistles of the paid version. 

Rather than requiring customers to spend their time learning about a product via demo videos, word-of-mouth referrals, blog posts, or other resources, free trials and freemium products let users skip straight to trying the product hands on.

By utilizing PLG to help customers get to value faster, companies selling software that requires a steep learning curve can both improve customer retention and reduce the expenses created by their onboarding process.

Provides Greater Customer Data

PLG provides companies with a wealth of data that can be leveraged by your company’s marketing team and product team. Employing a PLG model means that you will have exponentially more users downloading your software than you would acquire by offering only a paid version. Of course, only a small percentage of these users will actually convert into paying customers. But that doesn’t make the data that they provide any less valuable.

Data gathered from users who download a free trial or freemium version of your product can be used to better understand the needs and behavior of your target audience. This helps your marketing and sales teams improve their approach, and helps your product development team fine-tune the product to better meet users’ needs.

Understanding Product-Led Growth Metrics

Given that product-led growth is a very data-driven approach, there are many important metrics for PLG companies to track. Understanding what these metrics are telling you can help you optimize your PLG strategy and take full advantage of the first-party data it provides. With that in mind, some of the most important product-led growth metrics to understand and track include:

Value Realization

Value realization is defined as the point in the user journey when a user realizes a product’s value. For a PLG strategy to work, it’s important that the value realization occurs relatively quickly in the user journey.

To determine the value realization of your own product, you first need to create a roadmap of the user journey that outlines the steps that the average user takes from first discovering your product to fully mastering its features. From there, pinpoint the stage(s) in the journey where customers first start realizing value and solving their pain points with your product.

Although value realization metric definitions can get quite complex (you may serve a variety of types of customers or people in various roles in an organization), getting specific is important. A handy model for this is the Jobs-To-Be-Done framework: It helps you pinpoint exactly what each type of customer “hired” your product or service to do. From there, you can build value realization models accordingly.

Acquisition

Customer acquisition cost (CAC) is an important metric for any company to track, but it’s especially important for a SaaS business utilizing a PLG model. In order to calculate the average cost of acquiring a new customer, PLG companies must consider all of the money that they invest into their freemium or free trial products — in addition to any other sales and marketing expenses.

For example, if you spend $500,000 developing, marketing, and maintaining a freemium version of your product that ends up converting 50,000 of its users into paying customers, your CAC is $10 per customer. Whether or not that is low enough to justify the freemium app’s expenses depends on the next metric in our list: customer lifetime value.

Customer Lifetime Value (CLV or LTV)

Customer lifetime value (CLV), which is also known as simply lifetime value (or LTV) is a measure of the average value that a single customer offers your company over the entire course of their relationship with your business. CLV, therefore, includes both the price that a new customer pays for an initial product as well as any upgrades, subscriptions, or additional products that they purchase from that point forward.

For PLG companies, CLV is an important metric to balance against customer acquisition cost. If the average cost of attracting a new customer is lower than that customer’s lifetime value, then the expense of your PLG strategy is justified.

Time to Value (TTV)

We’ve mentioned time to value already and the important role it plays in preventing churn and boosting customer retention. To reiterate, TTV is how long it takes a customer to realize and achieve value from your product. Having a low TTV leads to better customer retention and a more streamlined onboarding process.

To determine the TTV for your product, you first need to have an in-depth understanding of what your customers perceive as valuable. Once you have identified the value or benefit that customers want from your product, you then need to determine the point in the user journey where this valuation is realized.

Keep in mind that while PLG can help you lower your time to value, a PLG strategy only works well if your TTV is low to begin with. If it takes customers too long to realize value from your free trial or freemium product, you will have far fewer conversions.

Free-to-Paid Conversion Rate

Arguably the most important product-led growth metric of all, free-to-paid conversion rate tells you the rate at which freemium customers upgrade to paid versions and add-ons. The higher this conversion rate is, the more profits your company generates.

The free-to-paid conversion rate benchmarks that you should aim for depends on the specific PLG model that you employ. According to HubSpot, the average free-to-paid conversion rate for freemium products is between 2%-5%. The average conversion rate for free trials that require a credit card to sign up, meanwhile, is around 30%.

If you use these numbers to decide which model is best for your business, keep in mind that free trial signups that require a credit card tend to come at a much lower rate than freemium downloads. Frustrated by difficult cancellation processes, many customers are now wary about signing up for any free trial that automatically bills their card once the trial is over.

Product-Led Growth vs. Customer-Led Growth

Customer-led growth is a business model that uses customer feedback to qualify and define customer value. In other words, customer-led growth puts the customers and their feedback at the core of everything a company does.

With customer-led growth, the goal is to collect quality user feedback and use that feedback to guide product development, sales strategy, and the overall growth and direction of your company. Whereas product-led growth puts the product at center stage, it’s the end user that gets all the attention in a customer-led growth model.

Choosing between the two doesn’t have to be an either/or decision. In fact, product-led growth and customer-led growth can complement each other nicely in a variety of ways. For example, offering a freemium version of your product can help you collect the user feedback you need to drive a customer-led growth strategy. The insights collected from a customer-led growth strategy can help you develop freemium products and free trial offerings that are more appealing to your target users.

Examples of Brands Using Product-Led Growth

There are plenty of great examples of product-led growth that you can use to get ideas for how you might use PLG to grow your own business. Examples of successful product-led growth strategies include the strategies employed by companies such as:

Atlassian

Atlassian is a SaaS company that offers a large suite of cloud-based products, including BitBucket, Trello, Jira, and much more. To promote these products, Atlassian lets you sign up for a free trial of its entire suite of products. Unlike many companies that utilize the free trial model, Atlassian does not require a credit card to sign up. This strategic decision encourages more users to sign up for a free trial of Atlassian products and relies on the quality of those products to generate sales rather than automated billing.

Asana

Asana is a project management platform and a great example of a company that utilizes a freemium model. Asana’s base product is free of charge and provides users with access to an impressive list of the platform’s core features, including the ability to create projects, assign tasks, and communicate with your team. Along with this freemium product, users are also given the option to subscribe to Asana Premium or Asana Business for a fee. This upgrade gives users access to additional features such as a workflow builder, task templates, and a custom rules builder.

Trello

Like Asana, Trello is a project management app that utilizes a freemium model. With the free version of Trello, users are given 10 project management boards and 250 workspace command runs per month along with all of the software’s basic features. Upgrading to paid versions of the software provides unlimited boards, more workspace commands runs per month, and a variety of advanced features.

HubSpot

HubSpot is a CRM platform that offers a wide range of sales, marketing, and customer support solutions. What makes HubSpot somewhat unique is the fact that they utilize both free trials and freemium products to promote their solutions. For each product that HubSpot offers, the company provides customers with the option to either use a base version of the product for free or try out a limited-time demo of the full product.

Calendly

Much more than just a basic calendar app, Calendly is designed to automate the process of scheduling meetings and provide a user-friendly platform for keeping track of your appointments. Calendly is another company that utilizes the freemium model by offering the platform’s basic features free of charge and requiring a paid subscription for additional features such as more automation tools, integrations, and customization options,

Slack

Slack is a team management software ideally suited for promoting effortless communication and collaboration among members of remote teams. With the free version of Slack, users can send messages back and forth and place one-on-one voice and video calls. Upgrading to paid versions of the software provides additional features such as group voice and video calls, unlimited integrations, and 24/7 customer support.

Notion

Another well-known team and project management platform, Notion offers a free version of its software that allows users to create unlimited pages and blocks and share the account with up to five guests. Upgrading to one of Notion’s paid subscription plans provides features such as unlimited guests, unlimited team members, and admin tools.

Shopify

Shopify is a comprehensive ecommerce platform that makes it easy to design an ecommerce store, get it online, and start selling products. Shopify offers several different paid subscription plans that each offer a different set of features. For each plan, Shopify enables customers to try the software out for 14 days free of charge and does not require a credit card to sign up.

Scale Your Product-Led Growth Strategy With Sales Assembly

Employed by almost every company selling a software product, product-led growth offers plenty of notable benefits. From providing an abundance of customer data to streamlining the sales process, there are a lot of good reasons why so many B2B SaaS companies offer free trials or freemium versions of their product.

At Sales Assembly, we are experts at training sales teams on how to best leverage the PLG model. If you would like to learn more about how Sales Assembly can help your company take full advantage of all that product-led growth has to offer, be sure to contact us today!