Aug 10, 2021 Paul Sullivan

A Guide to Product-Led Growth for Saas Leaders

As PLG experts, this article has been written for those Saas founders and leaders who are looking at solutions for the holes in the sales-led approach to product marketing. It is a guide to transforming your business from sales-led to product-led and letting your platform do all of the talking.

What is product-led growth?

Product-led growth or PLG is the process of software as a service, or SAAS companies letting their product do all the selling and customer acquisition. This could mean that there is a large, small or no sales team at all and that upsells and cross-sells are built into the system based on factors around platform usage. Sales teams are usually reserved for more complex enquiries under this approach.

In addition, it is far more than simply opening up your platform as a free trial, freemium model or demo introduction, and in some cases, if a product needs a demo it's then hard to become product-led. These cases can happen in enterprise-level situations where the technology requires in-depth onboarding and or a lengthy sales process.

Furthermore, PLG should become a part of the culture of the business, as much as customer-centricity or an inbound marketing approach would be. But more than that, it’s about aligning the internal product, marketing, customer success and revenue teams to a defined approach. That being to let the product sell itself. 

To achieve this goal, your Saas platform has to remove as much friction from the point of signup to time to value and enable your users to further delight themselves in a way shaped to their usage requirements. If you can achieve this, you can expect shorter sales cycles, lower customer acquisition costs (CAC) and a higher revenue per employee (RPE).

Product-led growth vs. sales-led growth

HubSpot, a leading Saas software company employing a product-led growth strategy, has taken its inbound marketing approach and overlaid it with its product sales approach.

They offer a free CRM solution that is best in class in the mid-market space with valuable add-ons, upgrades and integrations. Time to value when signing up for the CRM is just a few minutes, ensuring it’s easy to adopt the platform and get your reward.

But they have learned that just as buyers in the buying cycle are around 64% educated about the service or product they want/need to buy, they are now just as interested in achieving value in products without the intervention of the sales team.

They no longer want or need a pushy sales rep interrupting their product experience. They want the support team to be there for them when needed. Clever use of onboarding wizards and easy-to-use customer experience interfaces that help the customer try before they buy is where the action is now being fought.

Things like welcome messages, product tours (wizards), progress bars, checklists, and onboarding tooltips help your user find value and manage expectations during any assessment period of your platform.

By operating with a product-led strategy, your platform will aim to use great inbound or product marketing with social proof to attract more individual users and open up the platform to easy adoption through trials, freemium or demo-led approaches. 

Product managers can expect to improve conversions and more paying customers by adopting easy-to-use customer journeys that deliver quick time to value and that combine upsells and cross-sells in a timely fashion.

Wes Bush of the product-led institute puts it down like this:

“Sales-led companies represent the old way. It's complex, unnecessary, expensive, and all about telling customers how the product will benefit them. These companies want to take you from point A to B in their sales cycle.

Product-led companies flip the traditional sales model on its head. Instead of helping buyers go through a long, drawn-out sales cycle, they give the buyer the “keys” to their product. The company, in turn, focuses on helping the buyer improve their life. Upgrading to a paid plan becomes a no-brainer.” 

For sales-led businesses, reasons to remain can be that your total addressable market or TAM is small, so being niche makes it better to lead with sales than your product. Often, when competing in larger, more competitive markets, leading with your product can make more sense.

Another reason for having a sales-led model is launching a new product in a new market. If your product requires you to change how users behave or approach a problem, that can often mean lengthy sales calls and education.

Beyond that, you have to look at your internal KPIs. Many companies ask their marketing teams to focus on marketing qualified leads or MQLs as the key indicator of opportunities but this takes away focus from learning what customers want, to discover what attracts them to sign up or convert.

That may sound like your CMO is doing their job, and they will be according to what they’ve been told to do, but it dismisses any opportunity to focus on why high MQLs may output low sales conversions. 

A better practice might be to focus on converting more of the same type of MQL that convert into PQLs and expand on attracting more of those, aligning MQLs, sales-qualified leads or SQLs and product-qualified leads or PQLs to one goal. If not, high MQLs are a bit of a vanity metric to track.

So, let’s dive deeper into your business model options.

Saas business models: Trial, freemium or demo

Product-led businesses that have reached the “aha moment” often must decide how to proceed. By now, you would have worked out the benefits of a PLG approach, which include:

    • Your platform is becoming a dominant growth engine
    • A wider top of the funnel
    • Lower customer acquisition costs
    • Faster or shorter sales cycles
    • Compound growth over linear growth
    • Rapid ability to scale globally
    • High revenue per employee
    • A better user experience

If marketing’s job is to closely align sales and marketing, then product-led growth aligns sales and marketing with product and customer success. Successful products have acknowledged a transition toward PLG but would have had to address the following business models to knit it together correctly:

    • Free trial - Usage-based free trial
    • Freemium - New product-led arm of the business
    • Free trial then freemium - Sandbox model
    • Freemium then free trial - Hybrid

*productled.com

But to fully develop an “open-top model” you need to have a solid 

    • Pricing strategy
    • Onboarding approach
    • Customer acquisition strategy
    • Upgrade strategy

But whilst this list covers many options available, it isn’t exhaustive. However, the usage-based free trial is often adopted, as data from usage drives data for further sales and learning, both intrinsic to the success of your business. But do not assume a single model will be the ultimate choice for your product-led organisation. Combination models are sometimes employed when upselling and cross-selling new products, too.

When looking at your business model, one thing is how you open the top of your funnel. Finding a suitable pricing model is entirely another.

7 out of 10 companies do not research their pricing research - Profitwell

You need to align a pricing model in line with your trial, freemium, and demo decisions. There are four you can choose from:

    • Best-judgement pricing
    • Cost-plus pricing
    • Competitor-based pricing
    • Value-based pricing

Each option has to be considered, but to do so you need to know the pros and cons:

  1. Best judgement pricing is the least effective because you make assumptions on what buyers will pay based upon consensus amongst your team.

  2. Cost-plus pricing means calculating your cost to sell and deliver the product and add a margin on top. The issue with CPP is you could cap your earnings and leave money on the table without realising it.

  3. Competitor based pricing is risky as using what your competitors are charging for their value and benchmarking that assumes they did their pricing research and have earmarked a healthy profit line. If they don't and you do the same, you can quickly find yourself out of business.

  4. Value-based pricing is an optimal choice. According to Patrick Campbell, Profitwell's CEO, VBP is Saas's only viable option. The sole purpose of your SaaS business is to provide value to your customers and find out how much they are willing to pay for that product.

Combining your open-top model with your pricing model is the basis of your product go-to-market strategy, a key element of your product-led framework. 

Build your product-led strategy framework

So far, we’ve covered much of what needs to be done to kick off your product-led initiative for your Saas business. We’ve explained what PLG is, the differences between a sales-led approach and a product-led approach, available business models and pricing strategies. 

So now we need to look at how you can define a framework that you can use to build a road map to implement your PLG goals.

Choose your open-top model

    • Free trial - Usage-based free trial
    • Freemium - New product-led arm of the business
    • Free trial then freemium - Sandbox model
    • Freemium then free trial - Hybrid 

Choose your pricing model

    • Best-judgement pricing
    • Cost-plus pricing
    • Competitor-based pricing
    • Value-based pricing

Decide how fast you can show value to your users

Ask yourself the following questions when assessing your product experience:

    • Do you have an immediate “quick win” with your product experience? Something meaningful, specific and relevant?
    • Are key tasks completed and indicated clearly to the user?
    • Do social and directional cues indicate high-value behaviours?
    • Do wizards and tooltips drive meaningful actions in your product?
    • Is all unnecessary friction removed from your product's critical workflows?
    • What outcome does your product help people with?

Choose your product-led growth model

    • Pricing strategy
    • Onboarding approach
    • Customer acquisition strategy
    • Upgrade strategy

Build your product-led foundations

To capitalise on your PLG initiative and drive success from your chosen model after your product is designed, you need strong foundations. To achieve this, consider the following:

    • Do you truly understand the value you provide to your users?
    • Can you communicate the perceived value of your platform to potential users?
    • Does your product deliver on its promise?

If you can master these three things, you are well on your way to continued success...

Define your ongoing optimisation process

Finally, but not all, you need to define your optimisation process. Things you need to consider when doing so are:

    • Define the length of your sprint cycles. One month, six weeks, eight weeks?
    • Adopt the triple-A sprint methodology.
      • Analyse
      • Ask
      • Act
    • To Analyse: list all of the inputs that drive desired outputs. Track things like:
      •  the number of signups, 
      • number of upgrades, 
      • the average revenue per user, 
      • customer churn
      • ARR
      • MRR
    • To Ask: consider these questions to optimise your business:
      • Where do you want to go?
      • What levers can you pull to get there?
        • Churn
        • The average revenue per user
        • Number of customers
      • Which inputs should we invest in?
        • Revert to your product-led foundation questions
    • To Act: you have to action your findings
      • Put a framework that enables you to measure your findings and ensure that you revisit the impact the changes have made the following month.

A summary of Saas product-led growth

In closing, I’m sure this article provides you with much to think about, apply and recycle. The article is designed to help you move into a product-led mindset and give you oversight and insight into how you would take this initiative forward and become your PLG champion within your organisation.

Paul Sullivan, our founder, is a certified expert in product-led consulting and can guide you through PLG initiatives in your Saas organisation. Our consultants are always open for informal discussions, so please get in touch.

For more information about our PLG services click here.

 

But before you go, check out these additional resources, which are great interviews with product leaders that have completed the transformation to product-led growth:

 

PLG: An interview with Ramli John from Product Led

PLG: How we did it with Danny Villarreal from Jungle Scout

Published by Paul Sullivan August 10, 2021
Paul Sullivan