Is a Product-Led Growth Strategy the Right Choice for My SaaS Company?

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Is a Product-Led Growth Strategy the Right Choice for My SaaS Company?

Introduction

A common misunderstanding many software companies have is that PLG is a good choice to save money. That’s not true. PLG companies spend similar amounts on sales and marketing as regular sales-led companies but spend more on research and development. Adopting a PLG strategy is about creating a fantastic customer product experience.

PLG is a go-to-market strategy where the product is the primary driver of user acquisition, conversion, and retention. Business leaders need to understand the benefits of leading with PLG and its cons.

Pros to PLG	Cons to PLG
User-focused: With PLG, the product is designed to provide value to the user, which leads to high user satisfaction and loyalty.	Longer time to revenue: PLG strategies focus on user acquisition and retention rather than immediate monetization. This means that companies may have to wait longer to see returns on their investment.
Viral growth potential: Products that offer a strong user experience can generate organic word-of-mouth referrals and viral growth. This can accelerate growth rates and reduce customer acquisition costs.	Limited market reach: PLG strategies tend to be most effective in markets with high user adoption rates and low switching costs. In markets with more established players or entrenched user behavior, PLG may not be as effective.
Rapid iteration: Product teams can rapidly experiment and iterate on the product based on user feedback, which leads to faster development cycles and improved user experience.	High product development costs: PLG requires a strong product with a valuable user experience. Building and maintaining such a product can be expensive, requiring significant investment in development, design, and user research.
	Risk of overspending on user acquisition: Companies can be tempted to overspend on user acquisition efforts, such as discounts or promotions, to drive growth. This can lead to unsustainable growth and a lack of profitability in the long run.

Here are some of the critical elements you must have already met or be ready to invest in to start a PLG motion for your SaaS company.

Product Market Fit

Pricing Models

Published pricing is necessary for pure PLG since it builds trust with the user. Products requiring configuration must find the right balance between published and custom pricing, and the reason for the lack of transparency should be clearly communicated.

Almost all SaaS products can adopt a product-led motion, but SMB and enterprise-level products will require sales support. Many SaaS start-ups can use a freemium model with value-added pricing once they meet PLG satisfaction metrics. Other pricing models that often work best with PLG are value- and usage-based pricing.

Buying Committees

Products sold to a buying committee should avoid adopting a pure PLG motion. In a buying committee, multiple decision-makers are involved in purchasing decisions, and including Sales at the appropriate time in the process will help gain traction and drive a close.

Almost all buyers, big or small, want some aspect of a self-serve motion that provides a quick time-to-value (TTV). Companies such as Asana, Vimeo, and MongoDB have incorporated enterprise PLG into their sales teams, using achievable product-led targets to drive a buyer further down the funnel before integrating the journey with Sales. Each company has achieved over $330M in annual reoccurring revenue (ARR), with over 60% of its customers coming from a self-service offering. Their successful model identifies bigger deals, and Sales reps are then brought into the motion.

User Engagement

Ideal User Profile

The product experience is the driving force behind every choice made by a PLG company. PLG companies have identified their ideal user profile (IUP) and a handful of other key user personas. They understand who these customers are, the pains that they experience day to day, and the jobs that they must accomplish. Product-led companies understand how users with these characteristics will derive value from their products. These findings should be based on recent interviews with users (or potential users) that help the company understand their needs, including what they do daily and how their product meets or does not meet them. Documentation of personas that is shared and collaborated on by all departments is crucial.

Effective Self-Service

A critical component of the PLG model is that the customer can quickly solve their problems and issues within the app. This happens seamlessly without ever having to leave or ask a customer service agent for assistance. More complex products should evaluate whether a product-led model is appropriate. All PLG companies should establish metrics to measure the customer experience at the help desk.

Customer Loyalty and Advocacy

Companies that embrace PLG should also consider investing in their customer loyalty and advocacy department. The net promoter score and other key advocacy metrics will be essential to the success of the PLG motion.

User Journey

Human-Led Design

PLG only works if every aspect of the product is focused on the end user. All interfaces should be designed to be user-friendly. Interviews with users should illuminate implicit and explicit pain points, thoroughly examining issues they might not be aware of and those they can clearly describe. Each product development initiative should meet the identified needs of a user now and in the future. The critical stages in human-led design include interviewing, making a hypothesis, testing and iteration, and then the launch. User feedback is crucial to ensure success, so in-app chat should allow target users to provide feedback.

Metrics

Data and Success

Not all data is valuable. PLG companies make their decisions with data, so it is critical to select the correct data. PLG companies define customer-serving goals or metrics and the parameters for success. The parameters for success should align with the buyer's needs rather than the company's. PLG companies identify key data to measure success and integrate it into PLG development. Identifying the right metrics will be essential to measure the success of your PLG motion.

Standard PLG Metrics

The specific metrics you choose will be based on your goals, sales model, and current readiness for PLG. Some common PLG metrics that product-led companies use include:

Metric	Definition
TTV	Time to Value measures the time it takes for a user to experience their ah-ha or eureka moment.
PQL	Product-Qualified Leads are the leads that have already experienced value. This is usually defined as the leads that have activated after a free trial or similar.
PQA	Product-Qualified Accounts are the number of accounts that haven’t activated yet but are likely to do so based on their level of engagement.
MQL	Marketing-Qualified Leads are the number of leads that have interacted with your lead gen engine and have been qualified by your marketing team.
MQA	Marketing-Qualified Account is an account that has shown a high level of engagement and has been identified by the marketing team as very likely to convert into a paying customer.
EQL	Expansion-Qualified Leads are accounts that have taken prequalified actions and are now ready for expansion, likely in the form of Sales support.
Expansion Revenue	Expansion Revenue measures the average revenue generated by the upgrades and cross-sales from an existing customer.
Viral Coefficient	Viral Coefficient measures the rate at which users share the product with others and drive new user adoption.
NPS	Net Promoter Score measures customers’ satisfaction with the product and user experience through the likelihood that they will recommend the product.
Retention Rate	Retention Rate measures the percentage of users who continue using a product over time.
CLV	Customer Lifetime Value measures the total value a customer brings over their entire relationship with the company.
CAC	Customer Acquisition Cost measures the cost of acquiring a customer.
ACV	Annual Contract Value measures the revenue generated per customer over a given period.
ARPU	Average Revenue per User measures the amount of money you expect to get from one user. Companies with a higher ARPU tend to be more profitable, so this also can measure the health of a company.

User Acquisition

Intuitive Onboarding and First Impressions

In-app onboarding is a vital component of the PLG model. Little, if any, outside help should be required for a suitable PLG product. A freemium model only works when the company has an onboarding experience that has reduced the TTV to an optimal level (i.e. the eureka moment is quick). If your product needs extensive onboarding assistance, it isn’t appropriate for a freemium model. Users are giving you their time, so nothing is free to them. This critical eureka milestone must be met before fully entering the PLG model. If your product still needs extensive onboarding, you can use a Customer Success-led onboarding motion to roadmap this capability.

In-App Communication

Cross-sell, upsell, and nurturing capabilities should be streamlined within the app using tools and software specifically designed to enhance the user journey. The audience is segmented, and communications are personalized. Outreach is best triggered by clickstream events within current apps that signal intent or interest in the up- or cross-sell app area or service. When testing this for the first time, Sales Development Reps (SDRs) are on hand to ensure commercial success while you optimize for pure product-led growth.

Technical Infrastructure

Product Development Process and Testing

Agile development is ideal for PLG. Each piece or product development is tested with users before deployment. Research and development budgets are prioritized to ensure an exceptional user experience.

Product-Led Mindset

Cross-Functional Teams

Cross-functional teams should support driving metrics forward through individual ownership and responsibility. Shared ownership and common goals motivate teams to align for a PLG motion instead of focusing myopically on their own area. PLG teams work together to delight their users and achieve a quick time to value and virality. When the entire team works toward one goal, it reduces departmental silos and supports the single goal of the product becoming the primary driver of user acquisition.

Feedback

A process to collect critical data should be established at regular intervals. Feedback must include a diverse group of users, including your IUP and other essential personas. Their feedback should be evaluated, and departments should be held accountable for metrics that will meet users' needs. The help desk will be an essential data collection point for feedback.

The feedback that meets the needs of the jobs to be done for your key customers should be integrated into regular product updates and improvements. However, not all feedback should be incorporated into product design. You will not be able to improve everything. A deep understanding of your users and their needs will be essential to deciding what to include in the product roadmap and future iterations. All decisions should be based on data, the company's value proposition, and the G2M strategy.

Policy and Process

A policy should be established for the periods when feedback will be taken and incorporated into the product. Expect heavy investment in both collecting feedback and updating the product. Minimum customer satisfaction scores should be established among testing groups before any product feature is live. Versions should be tracked, and users should be provided with easy-to-understand documentation.

Medium-Term Investment

Last but not least, since a PLG motion often takes a significant investment in product development, it is not a quick way to make money. PLG companies have built a sound go-to-market strategy. They have identified their total addressable market (TAM) and the investment needed over the next 12 to 36 months to achieve the goals within a product-led motion.

Recommendations

Assess your readiness for a PLG motion with our research-based PLG checklist. Answer each question with a yes or no answer. If you respond "yes" to all the questions, then you are ready for a PLG motion. If you answer "no" to any of the questions, then ask yourself if you are willing to make the necessary investment that will be required to prepare your company for a PLG motion. If the answer is yes, then you are ready to embark on the path of a PLG motion.