Understanding Product-Led Growth

When expanding a B2B company, PLG (product-led growth) is one of the go-to-market strategies you can adopt. Instead of relying on marketing and sales efforts to initiate growth, PLG majorly depends on your product’s functionality. If you implement it correctly, you build a loyal army of fans while lowering customer acquisition costs.

By the end of this post, you’ll understand:

• What product-led growth is and how it can benefit your business

• The differences between sales-led and product-led growth

• How to implement product-led growth in your B2B business and crucial PLG metrics to track

What is a product-led growth strategy?

Product-led growth (PLG) is an approach where the product itself acts as a driver of customer acquisition, retention, and expansion. This approach focuses on delivering value to customers in a way that drives organic growth rather than relying on marketing and sales campaigns. Basically, PLG is for a product that sells itself simply because of what it offers.

However, that doesn’t mean PLG companies can’t leverage marketing efforts to acquire new customers. “Product-led” simply means the product itself drives more growth than any other strategy in your business.

The core principles of product-led growth

Product-led companies implement the following principles:

1. Delight users at first glance with an excellent product experience

The initial experience with a product shapes users’ perception and willingness to continue using it. This principle essentially prioritizes impressing customers with powerful and unique features.

2. Allow users to try the product before they buy

Product-led approaches start by allowing potential customers to test the product for free so they experience its capabilities before investing. For instance, SaaS product companies can do one of the following:

• Provide full access to the product for a limited time (free trial)

• Offer unrestricted usage with limited features (freemium plan)

• Offer a demo model

These strategies make purchasing a premium version the natural next step. That’s because customers know firsthand what they’ll get in return for their money.

3. Ensure the product is easy to use (customer self-service)

An intuitive interface enhances customer success. New users can quickly self-onboard and explore the features with little to no assistance from the support team.

4. Leverage user feedback to optimize the product’s features

Instead of optimizing the product’s features based on what companies think users want, a product-led growth strategy requires regularly collecting customer feedback. This feedback helps improve the product based on users’ needs and preferences.

5. Equip the product with the potential to go viral and boost organic growth

Virality is a key PLG principle, where customers actively share the product with others through word-of-mouth. The referrals create a network effect, resulting in a self-sustaining growth cycle.

Example: Calendly

Calendly is an example of a modern scheduling platform built with virality in mind. Each time you share a calendar invite, you help the tool go viral. The person you shared the link with can instantly see the tool’s value (event scheduling) and use it to plan their events. The constant sharing is what makes Calendly popular.

To leverage this principle, use in-app requests that ask customers to rate your product on the App Store, Google Play Store, and Google Web Store.

Additionally, you can ask customers on your website to rate your product on review platforms like TrustRadius and G2. The goal is to collect as many positive reviews as possible, which you can use in social media campaigns.

That said, reviews may not always be positive. When you get negative reviews on rating platforms, use them to your advantage. Answer negative reviews to help dissatisfied customers get more value from your product and improve their opinions about your company. Responding to negative feedback shows prospects that you care about your customers, which can encourage them to start using your product.

How is PLG different from SLG?

We’ve been talking about how the product-led growth model allows the product to basically sell itself. But, you might be asking yourself if sales-led growth (SLG) is a viable option. While PLG and SLG (sales-led growth) share the same goal (growth), they are entirely different in strategy and priorities.

Sales-led growth (SLG) heavily relies on sales efforts to acquire prospects and inspire growth. Companies with this growth strategy often have complex products that require specialized knowledge. As a result, sales reps are responsible for customer onboarding. Users’ success with the product depends on the quality of communication between them and the sales team.

On the other hand, PLG relies on the product itself as the primary growth driver rather than promotional campaigns. Companies with a product-led growth strategy should have user-friendly products that prospects can explore without help from sales teams. This facilitates a smooth onboarding experience.

Key characteristics of PLG companies

Most companies that adopt a product-led strategy have several things in common as they:

• offer value before asking customers to invest (free trials and freemium models)

• have simple products that customers can use without talking to a salesperson

• primarily rely on word-of-mouth promotion to gain market interest

• don’t invest extensively in product marketing or sales efforts compared to sales-led companies.

• have products that are way cheaper than SLG products.

5 Benefits of product-led growth models over traditional sales models

In a traditional sales model, you try to convince prospects to buy through extensive marketing and sales efforts. A marketing team will try to generate awareness of your business through things like your social media channels or blog. Things like newsletter sign-up forms or offering downloadable resources like whitepapers will capture contact information.

If the person has agreed to be contacted, your sales team will evaluate if the lead is qualified, i.e. the contact fits the profile of an ideal customer. Then, a sales rep will reach out via the channel that is the most appropriate, as outlined by the outreach regulations of the region the prospect is in.

Acquiring customers with this approach can be costly and comes with a long sales cycle. Here’s how PLG is a game-changer:

Benefit 1: A customer-centric approach

Traditional sales models persuade potential customers through aggressive marketing and extensive sales pitches. PLG, however, starts with understanding the needs of an end-user and designing products that directly address those needs. This makes it easy to attract and retain customers for the long term.

Benefit 2: Lower customer acquisition costs

Initiating growth through extensive marketing can be expensive. PLG ensures a lower customer acquisition cost by relying on organic growth strategies, such as:

• Word-of-mouth referrals

• SEO techniques (e.g., owning an optimized blog and using strategic backlinking)

• Good ratings on platforms like Capterra, TrustRadius, and G2 to scale a PLG product.

Benefit 3: Increased user engagement

The core of product-led growth is providing a seamless user experience to improve engagement. For instance, customers can onboard themselves without sales support, reducing the friction in adopting your product.

Benefit 4: Faster time-to-value for customers

Product-led growth accelerates the time it takes to realize value from your product. As PLG products are easy to use, they accelerate the entire process of converting prospects into paying customers.

Additionally, the PLG principle of “try before you buy” provides customers immediate access with zero financial commitment upfront. This shortens the sales cycle by enabling customers to test what you offer, appreciate its value, and make a buying or upgrading decision quickly.

Benefit 5: Rapid business growth

When you successfully implement PLG, your business can grow incredibly fast. A 2022 study by OpenView revealed that product-led companies grow twice as fast than their non-PLG peers.

Now that you know the benefits, let’s talk about the framework that makes all of that happen.

The product-led growth framework

The product-led growth framework is a five-stage user journey. Learn more about each stage below.

1. The discovery stage: Spread awareness

Your prospects encounter your product at this stage. But you should first make the product as discoverable as possible. The following strategies can make your product more visible.

Build virality into your product

Make your product so valuable that users can’t help but share it with others. Leverage early user feedback to optimize product features and make the user experience as smooth as possible. The goal is to delight prospects at first glance.

Another way to make a product go viral is by building a multi-user mode. Products like Slack, Zoom, Calendly, and Loom excel at this. Most of them are only valuable when more than one person uses them. Take Zoom as an example: As you use Zoom for video conferencing, you also help it become more popular when sharing the meeting link.

Find out how other PLG businesses market their products

They say if you want to get rich, learn from the people who have successfully accumulated wealth. The same applies to product-led growth. Identify brands with successful PLG strategies. Then, try to discover how they implemented product-led growth.

2. The start stage: Optimize for user signup

Once prospects discover your product, the next thing is to get them to sign up for your product. The goal of this stage is to enroll as many prospects as possible. You can achieve this through PLG marketing.

We previously mentioned that product-led growth doesn’t mean you entirely trash marketing and sales efforts. Instead, growth hugely results from the product’s capabilities rather than generic marketing or lead gen campaigns.

For an effective campaign, you need to identify the key problem your product solves. You must also position yourself correctly and write copy that resonates with your prospects’ deepest needs to persuade them to sign up. Below are strategies to use when optimizing for signups.

• Focus on the problems your offering solves, not its features When people search for a product like yours, they're not after specific features. They want a solution to their needs, goals, or issues. They're interested in how your product solves their problems—that's what counts.

• Show, don’t tell  Whenever possible, demonstrate your product’s value through testimonials and case studies. Show how it helped other businesses solve a specific problem and achieve a particular goal. 

• Leverage persuasion techniques like FOMO (fear of missing out)  Ensure the core of your message implies that reputable brands depend on your product to solve a specific problem. And that if they don’t want to be left behind, they have to get on board.

3. The activation stage: Enable new users to experience your product’s value

Potential customers have discovered your product and signed up for it. Next, make them quickly realize your product’s value.

In this stage, prospects determine if your product is worth their money and whether they’ll stick around. To engage them, offer a great experience. Then, use the activation metric to track engagement and know who has realized your product’s value.

The metric varies depending on your product’s nature. For a software service, activation could mean using a specific feature. For a productivity platform, it could mean a user completing their first task or project.

Use the following strategies to streamline activation, so prospects can easily realize value in your product:

• Simplify onboarding. Make the initial onboarding process simple. You want users to navigate features and understand what your product offers with little to no assistance from your customer support team.

• Create easy-to-follow tutorials about the product. Create videos and articles that walk users through how to use key features and perform specific actions when interacting with your product. Empowering users to explore your product more deeply enables them to realize its value fast. 

• Allow prospects to try your product before they buy. Ensure users experience the benefit before they invest. Offer them a free trial, freemium plans, or demos to give a hands-on experience with your product. After all, it’s easy to go premium when you know (through experience) what you are getting. 

4. The conversion stage: Adopting product-led sales

In this stage of the product-led growth model, potential customers already know first-hand what value you offer. They’ve interacted with your product through freemium models, demos, or free trials. The next thing is persuading them to upgrade to premium.

However, don’t reach out to every user who signed up for your product since not all will convert. OpenView’s 2022 Product Benchmarks show that the free-to-paid conversion rate is only 5% in companies with a freemium model.

Your sales team should reach out to ideal product users to avoid wasting time on prospects who won’t convert. You only want to focus on customers most likely to go premium. The following actions can help you achieve that:

Create a PQL (product-qualified-lead) metric for your team

This metric ensures you focus on users who are most likely to convert into paying customers. It helps you qualify users for outreach based on specific actions they took. As a result, it’s easy to prioritize the most valuable leads.

Leverage technology to target qualified leads

Powerful technology like Dealfront Connect enables B2B brands to prioritize their target companies properly. With access to huge B2B data, the tool provides complete company profiles. It allows you to assess prospects and personalize sales efforts. You get insights that help you reach out to the most relevant potential customers at the right time to optimize conversion.

Always know when to reach out to the right accounts at the right time

Access rich company data from commercial registries, company websites, news, and social media for deep insights.

Discover Connect

5. The scaling stage: Providing more value to retain user engagement and facilitate loyalty

This is the last stage of the product-growth framework. It focuses on growth through user retention.

Retention and conversion rates are directly correlated. The more people keep using a product, the higher the chances of spending money on it.

Use the strategies below to inspire people to continue using your product.

Leverage support-focused outreach (proactive engagement)

Contact customers before they reach out with problems. In the outreach, which can be through a product-oriented newsletter or a Loom video, equip users with relevant insights to prevent an issue or tackle a problem that may arise. This could improve engagement and the overall customer experience.

Please note that different legal requirements may apply depending on the respective means of outreach and the respective country your customers are located in.

Offer personalized user experience

For users to stick with your product over time, it must meet users’ evolving needs. Customer feedback helps you personalize experiences based on their preferences and needs.

How to implement PLG in your B2B business

Before implementing PLG, you should first and foremost assess whether your product is suitable for this business model.

Is your product suitable for PLG?

Take a close look at your product and ask yourself:

• Can users identify its value quickly without help from a representative?

• What are the strengths and weaknesses of your competitors’ products?

• What makes your product stand out from the competition?

• Is your product scalable? Can customers upgrade their plan on demand?

Product-led growth suits a product with a user-friendly interface. The product should solve a specific problem and have a unique value proposition.

Aligning your organization for PLG success

Once you ensure your product is ready for PLG, you can use data to transition to a product-led growth model. This means determining what PLG metrics you should use to track progress. Data-driven insights from these metrics will help you align your organization toward product-led growth. But the big question is, what metrics matter the most in your PLG approach?

Top 4 metrics to measure the success of product-led growth

You can’t improve what you don’t measure. Without measuring metrics, you don’t have data to inform product-led decisions.

Tracking the correct product-led growth metrics ensures you make informed decisions. It helps you effectively align your strategy with business goals. So, here’s what you should track:

1st metric: Activation rate

The activation rate measures the number of users who take a desired action after signing up for a product. This metric helps a B2B brand understand how effectively it onboards users and gets them to experience the core value of a product.

To calculate the activation rate, you divide the number of users who have taken a desired action by the total number of registered users. Multiply the result by 100 to get a percentage.

2nd metric: Expansion revenue metric

The expansion revenue metric measures the additional revenue you generate from existing customers who upgrade their subscriptions, purchase more features or increase product usage over time.

Tracking revenue from upsells, add-ons, and cross-sells is easy. Calculate expansion revenue by adding the number of customer upgrades and upsells in a specific period.

3rd metric: User retention rate

Retention rate measures the percentage of users who continue to use your product over a particular period. Calculate it by dividing the number of remaining users by the initial number of users in a specific period.

4th metric: Churn rate

Your churn rate is the percentage of users who stop using a product over a month or year. It’s also called attrition rate. Calculate it by dividing the total number of users lost by the total number acquired in a particular period. Multiply the result by 100 to get a percentage.

Real-world examples of successful PLG companies

The following companies got it right when it comes to product-led marketing.

Dropbox

Source: Dropbox

Dropbox lets you store files in the cloud and sync them across devices. It has a simple interface to make it easy to use without the company’s support. Dropbox also comes with a freemium plan.

When it launched in 2007, owners tried to scale Dropbox using traditional paid ads, but the approach was too expensive. To initiate organic growth, Dropbox posted a demo video on Reddit and Digg, a strategy that scaled the company’s beta waiting list from 5,000 to 75,000 overnight.

From there, Dropbox leveraged its user base to achieve even more growth. It offered users additional storage for referring the company to others. Fans could also easily share a Dropbox link with non-users on social media to get extra storage for free.

Besides these methods that make it easy for a product to go viral, Dropbox is scalable. You can easily upgrade your Dropbox premium plan for more storage and priority support. Statistics say that the company currently has over 17 million paying users.

Loom

Source: Loom

Loom is a video messaging tool. Since its launch, it has faced a huge market risk due to stiff competition in the communication tools sector. So gaining early traction was challenging.

The founders knew that for Loom to stand a chance in fierce competition, they needed to build unique features. The goal was to create a product powerful enough to delight customers, persuade them to pay for the tool, and ensure they continue using it for the long term. The company also wanted Loom to go viral.

To ensure people realized the tool’s value quickly, the owners leveraged early user feedback and feature requests to make customer-centric improvements. The goal was to make Loom instantly appealing to first-time users, and they achieved it. Loom’s availability on every platform its customers work on (Mac, Android, Chrome, iOS) enabled product usage to become a habit for users.

Additionally, the owners equipped the tool with a built-in viral loop, which opens when a user shares a Loom video with others. Collaboration workspaces also helped Loom go viral and grow organically. Today, a company that was on the edge of existence in its early days has about 14 million users.

What is the future of product-led growth?

While product-led growth is a relatively new concept, it’s here to stay and help businesses take their brands to the next level. PLG ensures your product teams develop something that offers value to customers without sales support. The company also relies on the product’s capabilities as the primary growth driver instead of marketing efforts.

All these come down to one thing: capital-efficient growth in the long term. PLG helps you cut expenses on sales and marketing efforts since growth happens organically through referrals. With rising ad costs, businesses will increasingly lean on product-led growth for sustainable scalability.

Power product-led growth with data-driven insights

We’ve covered what product-led growth is, what the benefits are and how to implement it for sustainable business growth. The whole process boils down to just one thing: keeping the focus on your users.

Understanding how people use your product, what hurts their experience, and who is ready to buy (and who isn’t) won’t just support fast growth but long-term growth. They’ve gone on this self-led journey with your product, building a strong foundation to turn them into your biggest fans.

If you need deep insights for qualifying prospects and targeting the right accounts at the right time, leverage Dealfront’s go-to-market platform for Europe.

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