Your Guide to Building a Product That Sells Itself With Product-Led Growth

Usha Vadapalli
January 21, 2022

Notice how your Customer Acquisition Costs (CAC) changed in the past five years. It’s not news to many of us that marketing got a lot more expensive in the past five years. We are in the times when building a SaaS product costs nearly nothing but growing the business consistently has become a bigger challenge than ever.

There are also path blazers that turned the old sales-led model on its head. Slack, Dropbox, Atlassian, and many more chose to use the product as their driving channel of growth. If growth has been on your mind, look no further. You’ll find everything you need to figure out to build a dominant growth engine, lower CAC, and deliver the best user experience in the book, Product-Led Growth, by Wes Bush. This is what I’ve learned from the book.

Whom Do You Need to Convince Before You Launch a PLG Strategy?

By now, you might know that a PLG motion requires all the teams on board. Building a free trial or freemium model requires a shift in priorities. The product team has to allot development time at the expense of feature roll-out, Sales has to let go of the demo request and sales target, and so on. Convincing your stakeholders internally that product-led is going to help everyone grow is going to be the biggest challenge.

After putting in hours of work to create a business case for creating and optimizing a free trial or freemium model, you still risk being shut down by your internal stakeholders. Brace for some pushback. This holds true for established businesses and new products as well.

Luckily, Wes had seen this happen and has a cure-all to de-risk your PLG proposal, super fast.

How to launch a free trial in 24 hours?

  1. Update your CTA from Request a Demo to Free Trial
  2. Change “demo” to “free trial” on your demo landing pages

Once someone signs up, instead of giving them access to the product right away, book a meeting with them through the ‘thank you’ page. Think of it as a “gated” free trial.

In the first meeting, qualify them for fit as you would usually do, ask them about their goals for the product, let them use your product on the call while sharing their screen. Record the Zoom call recordings to see a user’s reactions while achieving an outcome with your product — that’s free customer research. Baby steps!

After a few of these “gated” trials, you now know the key outcomes your product user wants to accomplish, their struggles, and Aha! moments. This gold mine of insights should help address any objections from marketing, sales, and success teams. It works to your advantage if you can get the CEO on board with the PLG vision first.

You can create and launch an MVP version of a free trial or freemium to test the waters. But, if you have stakeholders to convince before shifting gears, start with the smallest of changes and offer a free trial. Bag quick wins, gather data, and present the PLG business case. I’m rooting for you!

Product-led growth might sound simple as try before you buy model. But, now you look deeper into the completely new way of growing your SaaS business. Let’s start with the million-dollar question.

Free Trial or Freemium?

Before you answer that question, know more about the most common hybrid models.

  1. Launching a product-led arm

This hybrid model works best for established businesses who want to experiment with a product-led model. You can build in-house expertise and vet the model without disturbing the current way your business sells.

Vidyard launched Go Video to test their GTM strategy with freemium offering.

  1. Freemium topped up with a trial

Layer a free trial of valuable features on top of your freemium version. Allow the user to experience the blocked feature/s for a limited amount of time before upgrading. This hybrid strategy works well if you have a product with lots of features.

HubSpot offers free trials of blocked features on top of their free marketing and sales tools, allowing their users to experience the new feature for a limited time before upgrading.

  1. Free trial followed with freemium

If a user fails to convert to a paid customer by the end of the free trial, prompt them to use a free version of your tool. Make sure your product is on top of their mind when the time comes to make a purchase decision.

After a 30 day free trial, Nudge.ai if a user doesn’t convert, they are prompted to use the free tool. They still provide value by giving information about leads in the user’s inbox.

Deciding between free trial, freemium, demo, or a hybrid model is unique to your business. To help you choose the right go-to-market(GTM) strategy, Wes Bush has a quiz to help you decide between free trial and freemium. Before you head there, know your total addressable market (TAM), type of customers in the market you are serving, time to value (TTV), and Annual Contract Value (ACV). Thank me later!

Understand, Communicate, and Deliver Value (UCD)

After choosing your growth model, building a solid foundation should be next on your agenda. This requires understanding your value, communicating the perceived value of your product, and delivering your promise, consistently.

Understanding

The biggest difference according to Wes between sales-led and product-led is that we monitor the product usage patterns (often referred to as value metrics) constantly to see if the users are accomplishing meaningful outcomes with the product.

Before you understand which value metrics are important to you, you need to figure out why the customers are buying your product. The three major outcomes any user would buy a product for are

  1. Functional - to achieve a core task
  2. Emotional - to feel or avoid feeling by executing the core task
  3. Social - how they want to be perceived by others by using your product

You can measure anything and everything in SaaS. But, once you figure out the outcomes, you need to ask yourself these questions to be able to identify the value metrics that work best for your business growth. Do a subjective analysis, take a data-driven approach, and stress test your value metrics all the while asking these questions.

  • Is it easy for the customer to understand where they fit in your packaging?
  • Is it aligned with the value that the customer receives from the product? Pick the core components that lead a customer to experience a meaningful outcome  and measure that.
  • Does it grow with the customer’s usage of that value? User-based pricing can be a good value metric for products with network effect (like Slack) but you need to dig deeper to find where the value is ascribed to in your product.

Communicating

Wes says, “In product-led, your revenue and customer acquisition model are married together.” And, this is the reason that tweaking the pricing page is one of the popular side projects after choosing free trial or freemium.

Communicating your value comes down to what you put on your pricing page. To make it work, you ideally need four elements

  1. Value Metric
  2. Willingness to pay for all packages
  3. Value features
  4. Demographic information

We talked about value metrics, the willingness to pay is understood through customer research. The value features are best understood with a value meal analogy. As Kyle Poyar (of OpenView) puts it,  the burger in the meal is the leader — the absolute necessity in your pricing; the fries and coke are the fillers; the coffee is your bundle killer. Beware of the coffee in your pricing tier that can kill the user’s purchase intent.

The demographic information is useful to name your pricing tiers. It helps users identify which plan is right for them, immediately. It also helps you prioritize the features and benefits that are most important to your target audience.

Delivering

Many organizations struggle with overpromising and under delivering. This is one of the reasons PLG is booming. People want to experience your value proposition before taking out credit cards.

The difference in a customer’s perceived and experienced value is the value gap. Before launching the product-led part, address the possible value gaps in your product experience.

Here are some action items for you to close the nastiest of value gaps.

  1. Remember the outcomes we talked about? Essentially, you are trying to understand better why someone wants to buy your product. If you know the goal, you can help them get there.
  2. Understand where the user needs a helping hand. This helps close your ability gap which gets bigger every time a user fails to achieve the desired outcome with your product.
  3. Communicate your value clearly and create a superhighway for your users to experience the core value. Challenge every step in your onboarding and eliminate the unnecessary ones.

The biggest mistake in a PLG business after building a strong foundation is to set it and forget it. A successful product-led engine needs cleaning and maintenance from time to time.

Maintaining the Vehicle

Knowing which levers to pull will get you closer to your growth goal, faster, and in one piece.

Many outputs ranging from the number of customers to ARR contribute to your revenue. But, once you figure out churn mitigation and improve average revenue per user (ARPU), increasing the number of customers will multiply your business. They are the multipliers of impact.

Churn

Customer and revenue churn are the after-math analyses. But, activity churn, if you get it right, can flag potential churn risk. It just happens to be really (really) complex to calculate. This is how Derek Skaletsky (of Sherlock) does it.

  1. Define your product engagement. This is unique for each business.
  2. Start tracking these product activities.
  3. Weigh the activities based on their impact.
  4. Give the weightage some context. A score of xyz might not make sense to everybody you work with but a score of xyz on a scale of 1-100 is understandable.
  5. Use the scores and rank users and accounts, calculate your product’s overall score, compare cohorts, and finally correlate with other business metrics.

Time to slay the churn beast! There is no common formula to do this. Look at everything you’ve learned so far — the value metrics, communicating your value, and addressing the value gaps. Also, make sure robust payment systems are in place to avoid churn due to a failed credit card transaction.

Average Revenue Per User (ARPU)

Calculating ARPU is important because it helps you identify which channels you can afford to use. Low ARPU means paid marketing might be too expensive for you, so you have to focus on SEO. Whereas, very high ARPU means you can hire an enterprise sales team.

You got the why, now for the how.

  1. Look back at your north star, the value metrics.
  2. Improve your pricing tiers. Many SaaS businesses have three or fewer tiers with the most popular one highlighted. Avoid choice paralysis with too many options.
  3. Raise your prices. Adjusting prices for inflation can have a sizable impact over the years.
  4. Treat your best customers like royalty. If a perfect-fit customer comes along, even a tailored onboarding experience that speaks to their motivations is worth it!
  5. Upselling and cross-selling is a logical strategy to improve ARPU.

In PLG, especially if you are starting up, you cannot afford to be weighed down by bad revenue. Wes says, “Not all customers are created equal. Learn whom to ignore.” Optimizing ARPU will help you identify the right customers and grow with them.

TL;DR: In sales-led, we focussed on getting the customer from point A to B in the sales cycle. In product-led we will help the user get from point A to point B in their lives in the shortest path (straight line). We do this by letting users experience the value of our product, early. And, build a growth engine with a low CAC along the way. The challenges are to figure out what point B means to the customers, engage them, and guide them back if they get sidetracked.

Ready to see a demo of Inflection in action?
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.