What is Product-led growth?

Usha Vadapalli
November 3, 2022

The growth motion is driven by your product

Product-led growth (PLG) is the go-to-market motion in which the product is the primary channel to drive business growth. Implementing a PLG motion in your SaaS company means driving acquisition, conversion, retention, and expansion using the product as the main vehicle for growth.

concentric_circles_with_user_at_center_sorrounded_by_product_sorrounded_by_acquisition_expansion_conversion_retension

The way we sold software evolved over the past few decades. We came a long way from selling to buying committees and CXOs for valid reasons.

  • Escalating CAC: It costs practically $0 to build a SaaS product. This means more competition to get the attention of the same pool of customers which dramatically increases the Customer Acquisition Costs (CAC). CAC in B2B has increased by nearly 60% in the last five years.
  • End-user role in the purchase process: The buying power is no longer concentrated with a single decision maker or a buying committee. Most companies are leaning towards shorter sales cycles and seamless onboarding. So, the end-user’s input carries significant weightage in a purchase decision. This gives good product experience a major sway in the software buying process.
  • Preference for self-serve: Customers are not in favor of learning about the product from sales and marketing. Today’s tech buyers want to research and self-educate about the product. A recent Gartner report says that nearly 83% of B2B buyers prefer a self-serve route to a sales interaction.

The product-led growth strategy is not only about benefiting the customers, it is also good for business.

  • Focusing on better user experience and customer-centric product gives you better CSAT and NPS scores.
  • Improved customer conversion rates and lower churn rate because your product delivered value before the customer hits a paywall.
  • The product can be your round-the-clock salesperson. As a result, PLG companies grow faster than non-PLG companies. Growth in terms of revenue, implied Annual Recurring Revenue (ARR), Net Dollar Retention, and gross margin.
bar_chart_comparing_plg_and_non_plg_metrics_and_PLG_companies_are_doing_much_better
Source: Public Comps
  • Not relying on a human-intensive sales process helps PLG companies scale to achieve hyper-growth faster compared to non-PLG businesses.
  • A shorter and more efficient sales cycle is beneficial for the customer and your business as well.
  • PLG companies are valued 30% higher than the public-market SaaS index fund than non-PLG and tend to continue performing better post IPO.

Product-led growth takes different shapes and forms in SaaS businesses. It could range anywhere from freemium, free trial, open-source, or even a hybrid go-to-market model. Adopting a PLG model is not a binary decision. Many successful PLG companies have an enterprise sales motion to support their product-led funnel.

Adopting the PLG GTM motion needs a fresh mindset that puts users and user experience at the center. Product, Marketing, Sales, Support, and Success teams are aligned on goals to get the growth motion on track.

Implementing and measuring the PLG model might look different for different B2B SaaS companies depending on their product and market fit. However, the baseline remains constant — the product is your primary channel of growth.