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.