Designing a Sales Funnel for SaaS that Delivers Results for Your Business
mins to read
Ten years ago, you wouldn’t need this article. The SaaS market wasn’t oversaturated yet, and each product could easily find its audience. But times have changed, and now, looking for a solution, buyers usually have several choices. They became more selective, demanding, and cautious.
Additionally, you can’t push people to purchase without the risk they’ll quickly get off the hook. You should carefully guide potential clients through your selling process until they’re ready to pay for your product. Simply put, to become a customer, they have to reach the bottom of your SaaS sales funnel.
The good news is that there are quite a lot of methods to optimize the sales funnel so that it seamlessly guides your prospects from initial awareness to purchase. And of course, as a UI/UX design agency for SaaS, we couldn’t help but share our knowledge on how to do it with UX design.
So, rather than discussing traditional marketing tactics, this article primarily sets its sights on the design aspect of the sales funnel. We will explore its key components and focus on how UX design positively influences the overall funnel performance and helps businesses achieve more revenue.
Still, to be on the same page, let’s start with some basics first.
What is sales funnel and why is it important?
The SaaS sales funnel (also known as SaaS marketing or conversion funnel) is a multi-staged selling process that starts with building the awareness of your brand in clients' minds and extends beyond the first payment.
Unlike e-commerce businesses that focus on getting new customers through short marketing promotions, the SaaS customer acquisition process requires a more delicate approach. Customers need to be sure - your product is the best solution for the problem they face. While interacting with leads down to the bottom of the sales funnel, your ultimate goal is to raise their trust through engagement, expertise demonstration, and values communication.
On the way to purchase, users hit various touchpoints. So the way you treat them along their journey may strongly impact the conversion. Understanding your sales funnel for SaaS will help you find the gaps and analyze where and why prospects drop out and never convert. And in the context of all the above-mentioned, UX design becomes a strategic tool for shaping seamless and engaging interactions with your prospects, ultimately driving conversions and business growth.
We're now moving closer to the sales funnel stages, but at this point, I want you to understand — customers' journey through the funnel is absolutely under your control.
SaaS sales funnel stages
In the marketing books, you'll come across the acronym AIDA that stands for Awareness, Interest, Desire, and Action.
These four stages represent a user's behavior flow based on human psychology. Each step requires a special approach to move a lead to the next funnel level seamlessly (and since we are talking about sales funnels from the design perspective, I will focus on design approaches later on here). It's crucial to stay relevant and consistent, keeping in mind that the wrong treatment at the wrong time can be a reason the lead will drop out of the sales funnel.
AIDA concept has many variations, but I find the HubSpot approach the most applicable for the SaaS industry. As the principal B2B SaaS sales funnel stages, they define
Why I like HubSpot's definition is because it says that raising customers' interest is not enough to get them converted. You should engage your leads and build trust. Also, in the SaaS world, the word "exploration" describes more accurately than "desire" the transition stage, when people finally start showing real interest in your product.
You will get better my idea while learning about all the SaaS sales funnel stages, so let's move on.
Awareness: raise interest, build trust, educate
At this stage, your potential clients are asking questions and looking for information. They may even not fully realize the problem, so not searching for a specific solution yet.
Your potential clients are becoming aware of your company. More likely, they found one of your blog posts in an organic search or came across a mention of your brand in the media.
So, at the awareness stage, potential users come to your website from various channels and your task is to put all your efforts into catching their attention and increasing brand awareness.
Traditional marketing tactics at the awareness stage include promoting your content through paid ads, enhancing the SEO strategy, and so on. Still, SaaS companies can effectively increase brand awareness through strategic UI/UX design as well. Here’s how:
- Incorporate consistent branding elements such as color schemes, typography, and visual styles that align with the company's brand identity to help users recognize and associate the design with the brand.
- Present valuable and engaging content, such as blog articles, tutorials, or case studies, in an aesthetically pleasing and accessible manner to position yourself as a thought leader in your industry and attract a wider audience.
- Use unique and memorable design elements, such as creative illustrations, animations, or interactive components to create a distinctive brand experience that stands out and increases brand recall.
For example, Zapier uses a colorful and eye-catching landing page with animations to raise awareness about its workflow automation tool. The page includes clear messaging about the benefits of their product, as well as a bright call-to-action to sign up for a free trial.
Engagement: become a credible resource
When people come back to your website to consume more content, they're gradually moving to the next funnel stage. The entry point to this SaaS sales pipeline stage is providing an email address to download free material or a lead's sign-up for your demo. These actions show the lead is interested in your content, and it's the right timing to provide them with more detailed information about the product or service to pique their curiosity and engage potential customers.
The engagement stage may be the longest part of the acquisition process as your potential clients need to determine if they trust you enough. They also want to be sure they need a solution to the problem your product solves.
We have some more tips on how to build a successful user engagement strategy in the dedicated article. And here’re several tips on how you can optimize this stage of your funnel with design:
- Present information in a clear and concise manner, ensuring that users quickly understand the key features, benefits, and value proposition of your SaaS.
- Incorporate social proof and testimonials from satisfied customers into your website’’s interface, reinforcing the credibility and desirability of the product.
- Make sure you have intuitive navigation and user flows that guide users through the information and content relevant to their interests. By providing easy and seamless access to relevant sections, you help potential users discover more about your SaaS, deepening their interest and engagement.
- Design interactive elements such as clickable prototypes, interactive demos, or product tours to allow users to actively engage with your product.
Stradigi AI, a low-code AI business automation platform and one of Eleken’s clients, offers its users a detailed demo of their product.We helped them improve the UX of their demo version and turn it into a full-fledged MVP so that now its intuitive design helps potential customers understand the capabilities of the product, build interest and engage leads.
Exploration: show up your product values
If you managed to hook leads attention and win their trust, this stage should be all about highlighting the benefits of your product and warming the leads up for the purchase. This stage involves showcasing the unique selling points of your SaaS, addressing customer pain points, and emphasizing the benefits that differentiate you from competitors. The aim is to convince customers that your product is the best solution for their needs.
At this point, offering a free trial will give leads a possibility to test-drive your product's full functionality within a limited time period. During the trial, the experience they have will influence their decision whether to become a paid user or not. That’s why taking care of user experience is super important here.
And an intuitive user onboarding will help you show the value of your SaaS in a shortest and most effective way. A well-thought-out onboarding can provide options for personalization and customization, allowing users to tailor the product to their preferences, remove friction and obstacles, and lead your leads to the Aha moment when they realize your product is exactly what they need.
Here’s how Busuu, a language learning app uses personalization to help potential customers explore the app and guide them to the Aha moment. It asks a short simple question.
Once the user has chosen an option, Busuu makes sure that the onboarding, as well as lessons, newsletter, and special offers, will be customized to fit one of these categories of users.
By the way, you can sign up for our free email course on how to spark an Aha moment.
Conversion: sell and make customers stay
The paragraph's name conveys the main idea. To sell is important, but to retain is crucial. The SaaS businesses are subscription-based, so it is vital to secure monthly recurring revenue. That's why focusing on customer acquisition only is a short-sighted sales strategy. Retention should always be a part of the discussions related to the company's acquisition strategy.
Here is how you can work on customer conversion and retention:
- Simplify the conversion process by minimizing form fields, reducing steps, and eliminating unnecessary friction. A smooth and streamlined process reduces user frustration and increases the likelihood of customers retaining.
- Ensure your SaaS offers a seamless experience across different screen sizes. The mobile-friendly design increases the chance to convert users who prefer to take action on their mobile devices.
- Incorporate feedback mechanisms and communication channels within the product to encourage users to provide input, report issues, or seek assistance.
- Optimize the checkout page of your SaaS so that it facilitates a smooth and secure transaction, ensuring that customers successfully complete their subscriptions.
For example, a SaaS cloud banking Wise, uses a clear and concise checkout page to encourage potential customers to sign up for their platform. Plenty of white space and a bright CTA helps users easily understand what they are supposed to do on this page and lead them to conversion.
The magic of customers advocacy
I'd also add one more stage to the SaaS conversion funnel. Do you know what all brands' biggest desire is? To be referred by the customers. Customers' loyalty is a powerful weapon against competitors and a valuable asset for business growth. In today's world of social influencing, those who can get mentioned by satisfied clients have much more advantages. Reviews are new money. Keep this in mind, crafting your sales and marketing strategy.
Ok, I think we're done with the theoretical part. Now let's talk about how to design your first (or maybe not) SaaS sales funnel.
Simple steps to design your SaaS sales funnel
At the heart of every exceptional user experience lies a well thought-through design. In the context of a sales funnel, UX design plays a pivotal role in crafting seamless and delightful journeys for your prospects at each stage, nudging them closer to conversion.
Know your audience
This step, being absolutely obvious, is still ignored by many businesses, and I can understand why. When you make a great product, you tend to think - oh, yes, that's what everybody will appreciate. However, the product for everybody is the product for nobody. You should focus only on people who potentially need your product and can be easily turned from leads to customers.
Map out customer journey
Start by identifying the key touchpoints where customers interact with your brand throughout their journey. These touchpoints can include website visits, landing page views, sign-ups, trial activations, purchases, and more. Once you have identified them, create a customer journey map by visualizing the steps customers take from initial awareness to final conversion. This mapping process helps you gain a comprehensive view of the customer experience and enables you to identify potential bottlenecks or areas for improvement.
Create a website
It can be a simple landing page or a nicely-versed website. Ideally, it should clearly articulate your value propositions, main differentiators, product offerings, and price plans. Optimize the performance and loading speed of your landing. Slow loading times can frustrate users and lead to abandonment. Compress images, minimize code, and implement eye-catching CTAs to ensure your leads move further down the pipeline.
Simplify the signup and onboarding processes
When users see a poor sign-up flow that asks for too much irrelevant information, they often become frustrated and quit. The same fact is true for SaaS onboarding (as it often goes right before or right after the signup), if it’s too long or consists of too many steps, it’s likely that people will skip it.
To ensure users complete the sign-up process, prioritize creating short and frictionless forms. Eliminate unnecessary questions and avoid any extra details that can be addressed later on. Instead, focus on asking relevant questions and personalizing the initial interaction.
As for the SaaS onboarding, there are numerous methods on how to optimize it and help the lead experience your SaaS’s value, like creating intuitive product tours, using Wizard design patterns to make complex steps simpler, designing the onboarding in a form of a to-do list, and more. We’ve discussed all of them in detail in our article about SaaS onboarding examples.
Take care of the upgrade process
As SaaS companies often use freemium pricing or provide free trials, they need to actively prompt their leads to upgrade their accounts. You can optimize the upgrade process by minimizing steps and reducing friction. Provide a seamless and streamlined experience, such as offering a one-click button to upgrade, allowing users to complete the upgrade with minimal effort and time.
Also, implement in-app modals strategically and use them to highlight the benefits and value of upgrading, showcasing premium features, additional functionality, or exclusive perks available in higher plans.
Work on retention
As I've already mentioned above, retention is vital for every SaaS business to be successful. So, don't forget about your customers as soon as you see the first payment, as this is not the end of your collaboration; this is just the beginning.
The SaaS sales funnel is a dynamic system, which you should watch and analyze, finding the weak points where the leads drop out and never come back.
Track sales funnel effectiveness
Here are the metrics you should check to evaluate your SaaS sales funnel effectiveness.
The SaaS revenue growth rate is one of the most critical business metrics indicating a company's sustainability and profitability.
(Second Month Revenue – First Month Revenue) / First Month Revenue * 100 = % Revenue Growth Rate
The growth rate depends much on the stage the company is at and can significantly change over time. I won't go into the growth rate details here, but you can learn more in the average SaaS revenue growth article elaborating on this topic.
Another metric crucial to track is the churn rate. It shows the percentage of users who left your product over a certain period.
Customer Churn rate = Number of churned users / Total number of users
The average churn rate benchmark varies from 5% to 7% annually. However, this is not the ultimate rule for companies of all sizes—read the SaaS churn rate article to get more useful information.
Customer lifetime value
This metric shows how much money your customers will bring you over time.
To find your LTV, you have to calculate the average revenue per account (ARPA) first.
Then, you can use the formula:
LTV = (ARPA x Gross Margin) / Churn Rate
Customer acquisition cost
CAC measures how much money you spent converting a lead into a customer. This metric is crucial to determine the SaaS business profitability and is calculated by this formula:
Customer Acquisition Cost = Cost of Sales and Marketing /Number of New Customers Acquired
Certainly, the SaaS sales funnel metrics listed above are not the only ones you should use to measure your sales funnel effectiveness. Still, they can help you understand if you have to start working on your marketing funnel optimization.
Optimize your SaaS sales funnel
Firstly, you need to check which stage doesn't work well and where are the "holes" your leads may drop out from.
Let's say you get lots of leads, but they eventually don't purchase your product. It means you fail to properly demonstrate your SaaS differentiators during the engagement and exploration stages.
If they reach free trial but don't convert after trying your product, then probably your onboarding needs improvement.
If your users churn soon after the subscription, you failed to show your product's real value or pay much attention to customer retention.
So, here is what you can do to optimize your SaaS sales funnel with the help of UI/UX design:
- Make a unique and memorable design for your landing page and ensure it clearly communicates your values.
- Design visually prominent and persuasive CTAs that clearly communicate the desired action and entice users to take the next step in the sales funnel.
- Streamline the user onboarding experience by minimizing steps, providing clear instructions.
- Ensure your SaaS product has a responsive and mobile-friendly design.
- Optimize your conversion forms by keeping them concise, removing unnecessary fields, and using visual cues to guide users.
- Continuously iterate and refine your UI/UX design based on user feedback to enhance the overall sales funnel experience.
Drive your growth through UX Design in SaaS sales funnel
In the fast-paced world of SaaS, a well-optimized sales funnel can be the differentiating factor between remarkable success and mediocrity. By realizing the paramount importance of UX design in enhancing the performance of your sales funnel, you are taking a significant stride toward unlocking the true potential of your SaaS project.
Awareness, Engagement, Exploration, and Conversion are the stages your leads should go through to become your clients. It's under your control to track the sales funnel effectiveness, analyze its weak points, and work on your sales pipeline optimization. And in case you need professional help, we at Eleken focus on designing SaaS products that align with our clients' business objectives. By placing user needs at the forefront and transforming complex interactions into exceptional experiences, we can significantly contribute to enhancing your users’ journey at each stage of the funnel. You can schedule a call with us to learn more details about how we work.
Meanwhile, thinking of your sales funnel strategy, you might be interested to check the stories of the best SaaS companies and the secrets of their success.
Roles in SaaS Company: Who You Need to Start Hiring When Your SaaS is Growing
Many startup founders start working on their products alone or with a co-founder to set the product afloat. Often, they work without any budget, dreaming of getting seed funding. But once they get it, a new challenge comes in: who do they need to hire first? The funds might not be enough for a big team, so there's a need to prioritize and start with the most essential professionals.
As a design agency, we have worked with both two-founders-teams and big companies with numerous product teams. In this article, we’ll describe the six roles in a SaaS company that appear at the introductory and growth stages of product lifecycle. But first of all, let’s start with a question that concerns many founders (even after getting funded):
How far can a startup go with just a founder on board?
We can always develop theories on what the perfect team should look like, whether a startup can have just one hire and so on. But instead, let’s look at the real-life example - it would be far more interesting than coming up with thousands of assumptions.
Pocket app (saving-texts-for-later service) is a startup that managed to serve 20 million users with just 20 employees. Remarkable, to say the least, but what is more breathtaking about Pocket is that for the first four years, it had been operating with a one man team (and was pretty successful). This one man was Nate Weiner, the founder.
So yes, a startup can be run and bring profit with just one person on board. The question is whether your product is as simple (and genius) as Pocket. And since you are reading this section, you might be having some doubts.
The truth is, you can’t find a perfect team structure on a blog page, even a very smart one. It all really depends on your needs. If you just follow some standard structures, you might end up with a blown-up team. But to have a small but efficient team like Pocket, there are still some simple rules you can follow.
Before building a team
First of all, start from the need: think about your goal and who can help you get there. Second, add new team members gradually. Hiring five people at once will make it hard to onboard each new team member and establish good teamwork.
Let’s imagine you’re on the way of adding team members to your SaaS team one by one. We’ll go through the main SaaS company roles, starting with the ones you might need at the very first stages and going up to the ones that are necessary for a big team of a scaling product.
Describing every position in detail would make this article endless. That’s why we focused on the KPIs of each position so that you know what goals you can solve with the help of each new employee added. We will also focus on soft skills because we believe that successful products are built by people, so you should never underestimate soft skills and communication.
As the statistics show, most startup founders have a background in computer science. So it’s safe to say that they are either able to work on the product development in the beginning or at least know well when they need a developer ways to find a good one.
Now, let’s talk about another important role to consider – designers.
Can you launch a product without a designer?
The story of Pocket teaches us that you’d still have to hire a designer sooner or later. And we wouldn’t be a design agency if we didn’t start the list of essential SaaS team members with UX/UI designers.
To not give unfounded statements, here is a story from one of our clients. Tromzo, a code security app. The company hired us to build their first prototype which they needed for investors’ pitch. Strictly speaking, they didn’t need a well-designed prototype to get funding at early stages… But they went an extra mile to impress the investors and it worked. They got the money needed for further development and launch.
When talking about the Early Stage, the designer’s help will be also needed with creating a website and some marketing materials. Even though it is not our main specialization at Eleken, our designers often perform some small tasks like these to support clients.
But the most important part is that UI/UX designers help you create a good user experience and get more happy users. Some people think it’s hard to measure design impact, but there are lots of metrics that show the quality of design.
Product designer KPI
- Usability metrics: completion rate, effectiveness rate, and such. These metrics help you identify if users can achieve their goals effectively when interacting with your product.
- Conversion rate. Design can make (or break) your conversion rates.
- NPS (Net Promoter Score). The user’s interface is a part of the overall experience with your product. Designers share this metric with the customer success team, but at the introduction stage, it is the result of their work mostly. When the NPS is lower than 30, it means that you need to do something with your design (or functionality).
Soft skills of designer: creativity, critical thinking, persistence.
To learn more about specifics of SaaS designers hiring, read our article on how, where, and when to hire a designer.
SaaS roles at the introduction and growth stages of product lifecycle
Let’s say, you have the development and design figured out. Now it’s time for launch and finding product-market fit. Naturally, to earn customers in a new market, you need a marketing manager to develop a go-to-market strategy and reach all the potential customers.
However, if your product is a B2B SaaS working with few big clients, it would be more beneficial to hire a sales manager first.
Once your product has an established pool of customers, a customer success manager comes into play. Their job is to make sure that the customers are satisfied, stay loyal, and bring more revenue to the company.
At the growth stage, the number of tasks increases and even if in the beginning the founder may act like a jack-of-all-trades, they would need help at this point. That’s where the CTO (chief technical officer), and product owner have to be hired.
From there, the team continues to grow: you will have a finance manager, data analyst, operations manager, and an HR manager to take care of different tasks. Some of these positions are the same in SaaS as in every other company, so we’ll focus on the ones that have direct connection to SaaS metrics.
What are Marketing Manager Responsibilities?
One of the goals of an aspiring startup is to promote your SaaS business and acquire new users. That’s why you need to hire a Marketing Manager who will help you attract new customers in order to generate more revenue.
This person will be responsible for creating various marketing campaigns across social media, email, affiliates, advertising, and content marketing channels. Marketing Manager runs thorough market research, builds customer journey maps, creates content, and delivers product value to your target audience. It is a metric-based position.
You can see ROI (return on investment) of the Marketing Manager Position by watching three numbers.
Marketing Manager KPIs
- Generated leads. What’s the number of MQLs (marketing qualified leads) you get on a weekly or monthly basis?
- CAC (customer acquisition cost). How much does every lead cost you? Know your CAC for each marketing channel. When you invest time and money, you need to know returns.
- Unique visitors. How many new visitors do marketing campaigns bring to your website? To increase that number, your Marketing Manager should use social media, inbound content, partnerships, and so forth.
Soft skills of Marketing Manager: curiosity, creativity, ability to multitask, tenacity.
Do you need to hire a Sales Manager for SaaS?
There is a common misconception that great SaaS products sell themselves. It only works for organic sales which take a long time to bring revenue. If you are determined to maximize your profit faster, you will need a Sales Manager in your team. Again, you can take this role as nobody knows your product better than you. Or you may hire a professional Sales Representative who will work tightly with the Marketing Manager and generate more revenue for your SaaS business.
This person is responsible for building sales funnels, integrating pricing strategies and discount offers, making demos, communicating with clients, and managing revenue streams. There are four key metrics to track to measure the performance of the Sales Manager.
Sales manager KPIs
- A number of demos. How many demos does your manager do weekly?
- Demos win. What is the close ratio? How many potential clients who had a demo end up becoming customers?
- New MRR (monthly recurring revenue). Is there a new MRR added to the top line every week/month?
- The average revenue per account. How much money can you get from one customer?
Soft skills of Sales Manager: strategic thinking, confidence, analytical mindset, effective communication.
What is the Customer Success Manager responsible for?
As you get your first customers you need to communicate with them, help them figure out different product-related issues, and receive valuable feedback about your SaaS product.
You need a proactive Customer Success Manager who will retain clients, deliver product value, improve the onboarding process, and build long-lasting relationships with customers. CSM is someone who makes sure that customers get activated, retained, and satisfied.
With this role, you will need to measure a couple of metrics to watch how things work and whether this role adds value to your business:
Customer Success Manager KPIs
- Time to first response. How fast does CSM respond to new tickets? People want to get service in a timely manner and do not tolerate long-time waiting.
- NPS (Net Promoter Score). Customer Success Manager owns this metric along with the Product Owner. It tells you how the customers are communicating and interacting with your CMS.
- Expansion MRR. Does CSM generate additional monthly recurring revenue? Does your Customer Success Manager upsell or cross-sell?
Soft skills of CSM: empathy, strategic mind, communication, active listening, problem-solving skills.
Why do you need a CTO?
In many SaaS companies, the founder can be a CTO (Chief Technical Officer) as well. You probably created core technology and built your product on a cloud-based platform with all the features and frameworks. But at the growth stage, the engineering load is growing and it is difficult to cope with all the functions and responsibilities of CTO along with being engaged in other business processes.
You need to hire someone who will be responsible for software development and infrastructure, data centers, and security debugging, and new releases. You need an Engineer to make sure your product is running smoothly and delivers all the necessary features to your customers.
The results of the work of CTO can be also measured with metrics.
- Velocity rate. It is a rate of progress for a CTO or their team. How much work can be done during one Sprint?
- Code coverage percentage. You need to do unit testing. Code coverage can help in evaluating the test performance and quality aspects of your software. It will help you know the efficiency of your development team.
Soft skills of CTO: constant learning, strategic thinking, communication, determination.
Can you be a Product Owner for your SaaS?
This role can also be taken by you. The Product Owner is the link between the target audience and development team who strives to maximize the product value and combine all user stories in a product backlog. This person works closely with the CTO and communicates the customers’ needs to the development team. The Product Owner collects customers’ feedback and work on the issues they encountered.
Let's see some metrics to understand whether this role is relevant for your SaaS.
The Product Owner KPIs
- North Star metric. It’s your most important metric. It helps you reveal whether your product is succeeding or not. North Star metric is unique for every SaaS business. For example, Airbnb's North Star is the number of bookings within a certain period. Your Product owner should be responsible for this metric.
- Activation rate. The Product Owner needs to make sure that people are interacting with your product and can easily find all the relevant features.
- Completed user stories. This metric can also help you measure the performance of your development team. Both the Product Owner and CTO are responsible for completing user stories. The more user stories they can complete in one Sprint, the more productive they are as a team.
Soft skills of Product Owner: communication, critical thinking, curiosity.
Building SaaS company structure
Now it may look like you get to a hydra team with five “heads”. It may look weird, as if you have people leading unexisting departments. However, it makes sense: once you have a team lead, they can grow their team and find exactly the profiles they need and organize the hierarchy (or horizontal structure) from the initial core team.
If you are at that scaling point when the team has grown to a size that requires more complex structure, you can take a look at how successful companies structure their teams. Not that there is no single correct team system in a SaaS. Roles and responsibilities of each team member can be different from one company to another. If you started from the needs, as advised in the beginning, you know that you got where you had to come.
Alternatives to hiring: outsourcing and team extension
When you are just starting a company, hiring professionals from different fields is a huge challenge and takes lots of resources. That’s why outsourcing some of the work to a design agency is a smart decision in such cases. You get the result faster while saving time on the hiring process.
The downside of the outsourcing is the lack of involvement of the designer in the specifics of the product. At Eleken, we try to address this problem by providing direct contact between a designer and client’s team. Our designers work on one project at a time so that they can dedicate all their attention to it, attending team meetings and being available at any moment. We call it a team extension. Curious to know how it works? You can do that with a free 3-day trial.
Send us a note telling a bit more about your product and we will get back to you.
Product-Led Growth: a Customer-Focused Strategy for SaaS Business Growth
Product-led growth or PLG is a business strategy suggesting that the product itself is the main tool of user acquisition. Within the past decade, this approach has proven to be the most efficient one, especially for software companies. Dropbox, Slack, and Zoom have all chosen this strategy to reach success.
PLG is slowly forcing out sales-led and marketing-led strategies that were prevailing in the software industry just a few years ago. The recent changes of users’ needs and market caused the appearance of a new strategy with a usable intuitive product that promotes itself. Let’s look closely at the factors that facilitated this change and how PLG impacted SaaS businesses.
What is product-led growth?
With the ever-increasing number of software products, users’ requirements also changed. Something that seemed to be magical 10 years ago is now taken for granted. With so many options available, people do not want to purchase software without testing it first.
Since the beginning of the Internet era, people are constantly self-educating. Nowadays, you can find anything on the web: from cooking recipes to tutorials on how to fix your devices.
While in the past people relied on sales representatives when buying something, now, potential clients want to explore and experience the service itself to know what they will get before buying it. People don't depend on sales executives anymore. With numerous lists of helpful apps and software available on the Internet, users prefer testing the service before investing money in it.
Product-led growth allows customers to make full use of all features of the application without paying. This approach has proven to be especially effective for SaaS businesses due to their subscription model. First, you gain free access to the platform, and only after testing a product for some time, you decide if you want a paid subscription or no.
Free trial and freemium models are the two main types of free subscriptions. With the first one, you can use the service for free for some time (from 14 to 30) days. After this, you would need to pay for a subscription to continue using the software. Freemium model offers timeless access to the product but with some limitations.
For instance, Dropbox, a PLG company, has storage limitations for free accounts. Only if users make a paid account, they can store more data.
Free usage of the product becomes an essential part of the buying process with PLG. If your service satisfies customers’ requirements, paying for it is a logical next step for them.
With a “try-before-you-buy” strategy, you do not invest heavily in marketing. Indeed, SaaS companies that implement this approach rely more on the word of mouth, positive experience, and good reputation because the users who enjoy their service will definitely spread the word about it.
How to build a product for end-users
If the product itself is the key aspect of your growth strategy, it means that all the departments of the company are improving and enhancing it in close cooperation.
The next questions demonstrate how each team in the company focuses on product development:
“How can the product resolve the issues of our customers?” - customer success team
“How can the product create the demand?” - the marketing team
“How can the product boost sales?” - the sales team
“How can our product design help to resolve the problem of our users? - design team
“How do we create a product that is useful for our customers? - engineering team
Your SaaS application needs to be better at resolving users’ issues than other products available in the market. Your targeted customers can always check it by subscribing for a free trial, which comes with a product-led growth strategy.
The PLG model also shows that you respect your users and do not make them pay for something they do not need. By offering a free trial, you let your customers choose your product because it works best for them. Consequently, they do not become buyers right after registration. Indeed, the conversion from free users to paying users happens only after a positive experience with your service.
One more example of a prosperous “try-before-you-buy” business is Zoom. Only a year ago, this SaaS solution was popular mostly among people involved in the IT industry. Nowadays, this product is a must for anybody who is studying or conducting business meetings online and simply has video calls with friends now and then.
It seems that all of a sudden, everybody started talking about Zoom as a leading video-conferencing tool. However, the trick here is that with free 40-minute first video call, all the users got to know why this solution is actually great.
With a PLG strategy, where the product speaks for itself and demonstrates all the best features in action, Zoom gained worldwide recognition and popularity by the word of mouth. If you find something useful and awesome, it is quite logical to share with friends and close people.
How to make product-led growth work for you
Product-led growth seems to be a relatively easy approach, especially if your product advertises itself. However, to build a solid foundation for a freemium SaaS company, you would need the next three things:
- Understanding your value
Unfortunately, many SaaS companies fail to understand what’s special about their product for targeted customers. A core value of your product is a central part of a PLG strategy and a key to differentiating a SaaS solution in the market whether it is the lower price or one more feature that your competitors do not have.
- Communicating the value of your product clearly
Without the previous step, you will not be able to show the benefits of your product. The core value of your SaaS solution should be noticeable and stand out. In many cases, users do not understand why your application is better than the others so you need to show and explain this.
- Delivering on what you promise
Finally, providing the expected and promised services is a must for a product-led growth strategy because it relies on the performance and functionality of your application. If you do not deliver on what you promise, it may cause negative UX and, as a result, no paid subscriptions after the free trial.
Advantages of product-led growth strategy
Let’s find out why PLG strategy became so popular and effective during a short period of time. There are two main advantages of this approach:
Product-led companies can grow much faster because their users immediately start testing the product within free trials. The onboarding process is almost instant and, in most cases, does not require any assistance from customer support.
Consequently, customers get familiar with the software much quicker. They do not need to read or learn about service because they can use it straight away. The point when a user creates a paid account happens pretty soon as well, due to a free trial. In such a way, the company grows and gets new customers at a surprising speed.
Lower сustomer acquisition costs
If your customers onboard themselves, the sales cycles become significantly shorter. Moreover, you do not need large customer support, sales, or marketing teams in a PLG company. The costs of customer acquisition are pretty low because new users are joining after experiencing the value of your product, not because of expensive advertisement.
In the 21st century, freemium models of software products have modified the rules of competition and growth for many SaaS businesses. Freemium model is the business strategy that currently works for all types of SaaS applications.
With no hidden and sophisticated marketing or sales techniques, the product-led growth approach is built upon a usable and effective product that proves its advantages at each user’s click. It does not mean that this strategy is less challenging or complicated. You still need to think of advertising, but you should do it wisely.
The company’s growth strategy, along with many other factors defines the company’s development. The role of the growth product manager is also a crucial component of a success formula as this person plans and facilitates this scaling. If you are curious about the tasks, responsibilities, and impact of a growth product manager on the company’s future, check this article in our blog.