Product Led Growth or PLG is a growth model under which product usage is primarily driven by user acquisition, initiation, retention, conversion, and expansion. It helps businesses to align all their teams from manufacturing to sales departments around the product considering it to be the foundation to create a highly productive and sustainable business.
Generally, product-led growth is associated with viral, freemium, or bottom–up distribution methods, however, start-ups selling to large enterprises or operating in niche vertical markets can adopt PLG principles to improve user experiences and increase their go-to-market efficiency. When all the business functions such as marketing, product, customer success, etc. are built keeping in mind product-led growth, the start-up can offer a more enriched personalized experience to its customers and get more consumer loyalty & retention in return.
Unlike in the case of sales-led start-ups where the whole process involves around shifting customer leads from Point A to Point B in the sales cycle, product-led businesses make this possible by giving customers a way to experience the product for free, either through a freemium product or some kind of free trial which is opposite of the former approach. And, in case the customer has a humbling experience from the use of the product, availing of the fully paid product comes easily. Read further to find out about PLG strategies, their relevance for start-ups, and the steps to implement PLG strategies.
How do product-led growth strategies work?
Starting a business of your own could be easy but growing them could be a tough job to handle. Though there are low entry barriers for entry, due to the same reason there is fierce business competition. Customers, too are spurred for choices due to hundreds of similar products available in the market, and thus it has become more expensive for businesses to acquire consumers and a reduction in the consumer willingness to pay for the products.
Thus, higher product-led growth is achieved by optimizing the experience of the user, convincing the user to sign up, quickly receiving value from the product, accomplishing their jobs-to-be-done (JTBD), and sharing their positive reviews with others leading to word-of-mouth promotion. Adoption of the product-led growth strategies doesn’t mean that you cannot use other customer acquisition methods like direct sales or marketing campaigns. The use of Product led growth simply indicates that these approaches could be more appealing to consumers and could result in higher user engagement. Thus, businesses should consider creating a PLG mechanism for the product to get aligned with their overall corporate strategy.
For instance, business organizations can offer a clear way for their customers to experience their product value before they finally purchase the product. This way, the product will become as effective as a sales function as those performed by the outbound sales team, and instead of putting money on every sales or marketing tactic, the start-up will be able to make a dedicated investment into your product. Prioritizing the best product experience not only brings new customers but also gives a way to customer growth.
Key metrics to measure Product Led growth
Businesses using PLG use certain metrics & indicators to measure performances and align their teams on the business goals. Having accurate analytics to measure their processes area key to kick-starting and refining their product-led growth plan. Further, metrics should be regularly reported and studied by cross-functional teams who could leverage the data to make better informed and apply synchronized changes across your business. Though most of the standards applied are used across sales & marketing functions, product-led businesses may look at and use these metrics for different purposes than those models due to product variations. However, here are some of the key metrics to start a product-led growth journey-
- Acquisition-In the acquisition phase, indicators such as sign-ups and qualified leads are used to identify the quality prospects to be converted into users, and to look for opportunities and challenges with lead generation. While sales & marketing teams put large efforts to keep the acquisition costs at a minimum, however, product-led businesses reach more by design.
- Free trial conversion rate- Free trial conversion rate is an indicator that measures the number of users who used free products and then purchase products during their trial period. It is calculated by dividing the number of successfully paid users by the overall free trial users during the period. As the adoption of a PLG strategy shapes a positive user experience, businesses should try to maintain a higher value of free trial conversion rate for PLG companies.
- Time to Value (TTV)- Time to value (TTV) could be defined as the time taken to realize the value of the product by the business. Product-led businesses should consider keeping TTV as lower as possible by focusing on the optimization of their customer experience around the main functions within your product that are associated with the activation such as inviting co-workers to your business platform, import of customer data, etc.
- Product-qualified leads-Product-qualified leads (PQLs) are generally those activated users who have either completed key activities such as taking a free trial and experienced its efficacy. To measure the product-qualified leads for your business, you will be required to find out the events that led to the product activation and the actions taken by the users to conclude that they are ready to go to the next stage by availing of the full product. Some of the methods to do it are holding user interviews, session recordings, or taking A/B tests to identify the user actions associated with their conversion and retention.
- Expansion Revenue-Usually it is much easier for a business to churn out more money from their existing happy consumers as compared to acquiring newer ones. Likewise, it is also economical for businesses to upsell to an existing customer than to acquire newer ones and even easier to generate expansion revenue than acquisition costs from a new customer. Also referred to as the monthly recurring revenue (MRR), expansion revenue is one of the key measures for sustainable business growth.
- Net Revenue Churn-It is obvious that not everybody is satisfied with the products and some are going to leave the products offered. Thus, revenue churn is a more useful metric for the growth of the business as compared to the gross churn rate as it gives a complete picture of the financial health of your business.
- Net revenue retention-With net revenue churn, it is also important to measure the overall retention rate measuring the total number of customers retained by your business and keeping track of how much money each one is spending on the product. After all, not all consumers spend equally on the products while some retained customers may have upgraded and adopted the latest features or services, other existing customers may have either demoted their plans or reverted to the free version again. Net revenue retention measures the amount of revenue generated after taking into account the expansion revenue rate and the average churn rate.
How to become a product-led company?
Ensure alignment across your organization :
Since it is not always possible for every team to undertake disparate long goals, businesses should employ their resources & efforts toward the development of a world-class product. More than the development part, they should be focused on designing the entire customer journey around a seamless experience. But, none of this could happen unless there is close coordination and collaboration among people, teams, and across departments in the organization. However, the adoption of a PLG strategy could help them to align their business functions along various teams from sales, design, customer support, etc.
Determine your product’s appealing attributes
It is not possible for any business to develop interesting products for customers without developing an understanding of your end users. However, identification & communication of the unique features of the product would help you to correlate the customer values with your business goals. Hence, you should have a good product that could deliver the value as promised to customers. The product should be developed in a way to resolve existing consumer problems resulting in an effective boarding of the users around their goals while also offering regular personalized communications for the latest updates, new features, etc.
Using behavioral analytics to improve
Lastly, it is also crucial for businesses to make product development & improvement-related decisions based on measurable analysis of customer data. Behavioral analytics could measure the product-customers interaction, and in turn, find ways to personalize and improve their experiences with the product. Alternatively, businesses should develop a deeper knowledge of customer experiences and answers to problems they are looking to resolve. If your start-up is passionate about product-led growth, it should consider investing in an event-based analytics platform.
Advantages of Product-Led Growth
Today most people are aware and self –educated, thus they do not want to buy any product just on a sales pitch, they want to try the product understand its effectiveness, and then make the final decision. This is where PLG helps start-ups to identify their potential consumers through a self-service model allowing them to explore the product. PLG strategies could be hugely beneficial for businesses empowering them to invest their time & efforts toward building a great product rather than working on various long-term projects. Other than this, here are some of the benefits of the product led growth-
Achieve higher scalability
Being primarily driven through free trials /freemium tools without any time-based dependency or availability of sales personnel, it becomes easier to build and scale a business. The only thing to be focused on is building an ideal customer profile and then formulating strategies to attract him. Thus, when the rival businesses are focusing on improving their sales team, your start-up could be using that time to expand its resources towards expansion.
Reduces costs of consumer acquisition
Employing PLG strategies helps business organizations to spend lesser funds on marketing and promotional activities since the product itself results in word-of-mouth referencing, and thus an effective tool for the acquisition of newer customers. Alternatively, start-ups do not require a large team of sales professionals & staff, which further reduces customer acquisition costs.
Higher Customer Retention
Start-ups who fail to communicate the unique features of their products face a higher churn rate. Since customers who purchase the full product know the value of the effectiveness of the products, the business can enjoy customer retention. Not only this, but product-led growth also allows businesses to focus more on product development helping them to improve or evolve with changes in consumer preferences which leads to a significant increase in the number of satisfied customers and a lower churn rate.
Increased Word-Of-Mouth Marketing
Businesses employing PLG strategies consider the product itself to be the key tool for acquiring customers. Since there are a high number of happy & content users, this directly leads to increased word-of-mouth referencing.
Focused Product Development
With product-led growth, businesses have abundant time on their plates to focus on the improvement of the products rather than building sales & marketing strategies to boost their sales numbers. Thus, start-ups can focus entirely on user feedback & suggestions or market trends to offer more personalized & thoughtful products.
Access to First-Party User Data
Change of privacy policies allows businesses access to customer data that could be used to get a better understanding of the user and market their products accordingly.
Final few words about Product led growth
Regardless of whether you are a start-up or an established business, product-led growth could help your business to disrupt the existing saturated markets. It motivates your business to dedicate its prime focus to offering the best quality products and consistently improving them to boost business growth. Further, it also helps your business to save money from being used for sales or promotional activities and invest it in ways to generate a better return enhancing financial productivity.
