Product-led Growth: What It Is and Why You Need It

Product-Led Growth

Product-led growth (PLG) has emerged as one of the best strategies for selling SaaS software. It lets your product do the talking, departing from a sales-led growth strategy that depends on a conventional sales pitch. SaaS businesses adopt product-led marketing to lower customer acquisition costs while improving customer retention and accelerating revenue growth.

In this blog, we’ll cover the essentials of product-led growth. First, we’ll define product-led growth (PLG) and what distinguishes a product-led growth strategy from a sales-led strategy. Then, we’ll look at some of the reasons SaaS companies are opting for PLG and some examples of companies using a product-led approach successfully. Finally, we’ll consider what type of tech stack you need to put a product-led growth strategy into practice.

What Is Product-led Growth (PLG)?

What is PLG? Product-led growth is a marketing, sales, and customer retention strategy that relies on the customer’s experience with the product to drive purchases. In a SaaS context, it can be illustrated by freemium sales strategies where the customer is acquired by first using a free version of the product, which later motivates them to upgrade to a premium purchase.

A product-led growth strategy brings together several critical components of SaaS marketing, sales, and support, including:

  • Customer acquisition: awareness of the freemium product brings the customer to the brand
  • Sales conversion: use of the freemium product motivates the customer to upgrade to a premium version
  • Product expansion: usage of the product introduces the customer to advanced product features and related products
  • Customer retention: a satisfying experience of the product motivates the customer to renew their subscription

In a product-led growth model, all these business functions and their supporting teams come together around the product and the customer’s experience to support a unified strategy for sustained growth. These business functions become unified, similar to how a prism brings together different colors of light into a single ray.

How Does a Product-led Growth Strategy Differ from Sales-Led Growth?

A product-led approach to growth stands in contrast to a conventional sales-led growth strategy. In a sales-led growth strategy, the sales process pivots on the success of your sales team in delivering a persuasive pitch at a sales meeting. The sales meeting may involve a product demonstration, but the customer typically views the product rather than actively using it. In trying to persuade the customer to buy the product, your sales team works relatively independently of other parts of your business.

In contrast, a product-led growth strategy relies on the product experience to sell the product. The customer’s first-hand knowledge of the product drives the sale rather than the selling process being driven externally by a representative’s pitch. Sales representatives may play a role in helping raise the customer’s awareness of the product’s benefits, but this becomes a supporting role, with the product itself playing the primary sales role.

Another difference from the sales-led growth strategy is that when you let your product-led growth, your sales process works in tandem with the entire customer-facing side of your business. Your marketing, sales, customer service, and customer success teams all help support a satisfying experience of your product that will promote a purchase. For example, your marketing team helps shape your marketing strategy to attract qualified prospects who are more likely to buy after using a freemium product. Meanwhile, your support team helps ensure that freemium customers enjoy a great experience with your product. This approach brings all your company’s resources together to support the sales process rather than placing the entire burden on sales demonstrations.

Why Are SaaS Businesses Opting for Product-led Growth Strategies?

When you use a product-led growth strategy to lead your marketing and sales, your SaaS business enjoys several benefits:

  • Because freemium offers are attractive lead generation propositions, your marketing campaigns become efficient and cost-effective, lowering your customer acquisition costs
  • Customers gain the opportunity to try your product before buying, improving your sales conversion rate while lowering the labor burden for your sales team
  • A PLG strategy makes your team prioritize delivering customers a superior product, improving customers’ experience of your brand
  • Higher customer satisfaction rates yield higher customer retention and referral rates while raising revenue

Benefits like these have convinced many SaaS companies to adopt a PLG strategy.

What Are Some Examples of Product-led Growth Companies?

Successful product-led growth companies include some of the most recognizable names in the SaaS market space. A recent example is the video conferencing app, Zoom. The PLG model had been introduced to the video conferencing space years earlier in 2004 by future Zoom competitor GoToMeeting, which used a freemium offer to introduce users to its product. Zoom emerged into prominence under the guidance of Eric Yuan, who came to the company from another competitor, Cisco’s WebEx. Following its launch in 2013, Zoom overtook its rivals by differentiating its product on selling points, such as being mobile- and user-friendly. Customers can use the software for free and pay to unlock advanced features, like the ability to record calls or host more participants. Already growing before the COVID-19 pandemic, Zoom used a PLG model to expand exponentially during lockdowns. By 2021, the company was pulling in $2.7 billion in revenue.

Zoom’s growth was supported by an investment from another company that has made a name for itself by using a PLG model – file hosting site Dropbox. In business since 2007, Dropbox has offered users a limited amount of free storage space with the ability to upgrade to access additional space and features. In 2020, Dropbox generated over $1.9 billion in revenue.

Collaboration platform Slack is another prominent company doing exceptionally well with a product-led growth model. Since 2013, Slack has provided freemium customers with essentials such as user-friendly searches, file sharing, and file syncing, while premium customers can search a more significant number of messages and expand with unlimited apps and integrations. Boasting a 30% conversion rate of free to premium customers, Slack increased its revenue to over $900 million in 2021.

What Kind of Technology Stack Do You Need for a Product-led Growth Strategy?

For SaaS providers, a successful product-led growth strategy depends on a great software product supported by the right technology stack. Elements of an effective PLG technology stack include:

  • Customer data collection and storage tools that allow you to use data-driven insights to guide your PLG strategy (example: Segment)
  • Product analytics tools to help you analyze how customers engage with your product (example: Amplitude)
  • Customer success software to help you engage clients through all stages of their customer journey and spot opportunities to convert freemium into premium users (example: Totango)

Combining an optimized technology stack with a great software product puts you in a position to succeed with a product-led growth strategy.

Put Your Product-Led Growth Strategy into Practice with the Right Software for Recurring Revenue

A product-led growth strategy places your product at the center of your sales strategy, relying on your customer’s experience of your product to make the sale. The PLG approach unifies your entire marketing, sales, customer support, and success efforts around delivering a satisfying experience that sells your product. This departs from a traditional approach that relies on sales demonstrations from sales representatives working independently from the rest of your business.

An effective PLG strategy depends on a robust supporting technology stack, including data collection and analysis tools and a customer success platform. The Totango platform with its Convert Freemium SuccessBLOC provides the tools you need to promote an efficient, cost-effective, profitable freemium upgrade process. Try it free to see how easy it can be to start generating product-led growth.

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