Back in the late 2000s, we all saw the rise of marketing-led sales, driven by content marketing, social selling, and automation.
The next frontier of go-to-market strategy is product-led growth.
Think of Slack, Atlassian, Zoom, or Dropbox. They are typical examples of companies that used product-led growth as the main driver of acquisition, retention and expansion.
I remember working in a marketing agency years ago. At some point, the manager introduced Slack to me. It wasn’t a product having millions of daily active users back then. It was just an unknown tool I never used before.
Years later, I suggested my new boss switch from another messenger to Slack. The reason? I really liked the way I was able to manage tasks and deal with team members via Slack. Since that moment our team of 10 people have been using Slack as the main channel to communicate. In fact, I became a brand advocate.
That’s an illustration of how the PLG strategy works in practice.
What is PLG?
In simple terms, product-led growth is a business methodology in which user acquisition, activation, conversion, retention, and growth are all driven primarily by the product itself, not marketing or sales.
Being product-led doesn’t mean being ‘product-manager-led’. Great products mostly emerge from cross-functional teams.
Being product-lead doesn’t mean that products ‘marketing and selling themselves.’ The way you interact with prospects and sell to them is a big part of the product experience.
The product-led growth approach relies on virality and word of mouth, rather than traditional promotion strategies. More specifically, users will share your product with friends and coworkers on their behalf just because they find it valuable and beneficial. Companies with a PLG strategy consider product features and usage as their primary drivers of customer acquisition, retention and growth.
How can you actually become a product-led company?
There are two critical transformations that should take place in product-led companies: transformation in the product itself and transformation in the company culture.
First and foremost, you need to have an outstanding product that delivers value to the users. The PLG approach requires a product to be well-designed which doesn’t mean just “pretty”. It means that your product is easy and intuitive to use — with minimal friction, sticky features, and a short time to value. To build such a product, you need a deep understanding of your users’ journey and the problems that they’re trying to solve. This is the only way to build a truly engaging product experience.
Successful products also make smart use of user data to monitor bottlenecks and provide a personalized experience in the user journey. The good news is that these days we have the technology to build software that can respond to what a person wants or needs at any given moment.
A more difficult transformation needs to take place in your company. Product-led organizations focus on creating coordination and collaboration across departments. Although building cross-functional teams is a requirement for product-led growth companies, it also has positive effects on teams’ ability to communicate and make informed decisions across your business.
What are the PLG metrics to track?
In the product-led growth model, the following metrics should be tracked:
- Acquisition — the number of users who sign up for your freemium plan or free trial.
- Time to value (TTV) — the time it takes new users to reach their first aha-moment or get value.
- Activation — the percentage of users who have first achieved the value you promised out of total acquired users.
- Revenue — can be measured by monthly recurring revenue (MRR), average revenue per user (ARPU), average revenue per paying user (ARPPU), etc.
- Retention — the number of users who continue using or paying for a product.
- Referral — the volume of referred purchases as a percentage of your total purchases.
Benefits of led-product growth
Rapid global scale. While your competitors hire new sales reps, you can focus on improving your onboarding process to attract more customers.
Faster sales cycles. By having your prospects onboard themselves, you can significantly reduce your prospect’s time-to-value and, thus, sales cycle.
Lower customer acquisition costs. Free trial and freemium — which are basically PLG acquisition models — have much lower customer acquisition costs than other models. Additionally, a product-led growth strategy has a positive impact on acquisition costs by reducing the burden on sales and marketing teams.
Better user experience. Since your product is built for people to onboard themselves, you and your team work hard on building excellent user experience which makes your product stand out from competitors.
Product-led growth is a strategy that is transforming the way companies do business. PLG is all about letting the product speak for itself and showing value to the customer to build trust and make them brand advocates.
Of course, companies cannot become product-led overnight. It is a whole new process that requires a mindset shift, takes time, effort, and commitment. However, when PLG is introduced properly, it is so worth it.
Author: Anna Grechko is a marketing enthusiast and knows the field inside out. She is the marketing specialist at Smart IT. Sharing knowledge is a big part of her career, so Anna actively seeks to spread good vibes, and collaborate with the great tech and marketing minds of the world.