What is Product-Led Growth: A Definition and Why It’s Taking Off
Every few years or so, a new buzzword pops up in the marketing space. A few we’ve seen in the past include “digital marketing,” “growth hacking,” and “viral loops.” But these days, there’s a new phrase making the rounds: Product-led growth.
Companies with a product-led growth (PLG) strategy can grow much faster and much more efficiently by leveraging their products or services to create a pipeline of active users that are then converted into happy, paying customers. But what exactly is product-led growth, and why is it taking off?
What is Product-Led Growth (PLG)?
PLG is an emerging term used to help define how companies have built their acquisition, expansion, and retention strategies around their product or service. However, while the increasingly popular term itself has only surfaced within the past year or so, SaaS marketing experts have been using PLG strategies for over a decade to acquire, expand, and retain their customer base.
At its core, product-led growth is a go-to-market strategy that relies on the value of a brand’s product to enable them to attain rapid growth. The principle is that as customers gain value from interacting with a product or service, they’ll begin to weave it into their day-to-day lives and encourage others to do so as well.
So, how do you spot a product-led brand? Here are a few key characteristics that you’ll notice:
- Usually, they’ll have a freemium model (i.e. start free today!).
- Habit-building (they slide into your tech stack and become essential).
- Laser-focused on user experience (expect glowing reviews).
- They always solve a real need in a lower-friction way than competitors.
- Low barrier-to-entry (self-serve vs. forced sales demo).
- Expansion based upon their existing network (they have a growing fan base that refers others).
Dropbox is an excellent example of product-led growth because the product has lent itself well for sharing and acquiring more users. Dropbox has reached a whopping $1 billion in revenue in less than ten years. Its product-led growth strategy is straightforward and, without a doubt — effective.
So, how did Dropbox do it? Well, their product-led strategy delivered a one-two punch. First, the increasingly popular hosting service developed a simple, usable product meeting market demand. From there, it quickly became the best tool for file sharing. Second, Dropbox introduced features designed to take advantage of the viral factor — users earn more storage credit by merely sharing a referral link.
This smart referral tactic helped Dropbox gain new users while enhancing the customer experience for its existing users. Shared links are user-friendly because customers can share files without the recipient needing a Dropbox account.
Why Should I Be Paying Attention To This Shift?
Customers are demanding — plain and simple. They want to try before they buy, their attention spans are low, and they’d much rather see your product or service than read a whitepaper about the problem it solves.
However, product-led growth is about so much more than “try before you buy” — it’s about creating an incredible product or service and investing in ways for it to sell itself.
And there are some pitfalls that product-led growth marketing can help you avoid:
- Difficulty achieving profitability
- Low retention and CLV
- Long sales cycles and low revenue per employee
- Rising advertising costs
How To Drive Conversions Through Product-Led Growth Concepts and Strategies
PLG is inherently incompatible with marketing-led and sales-led strategies. Your sales and marketing teams no longer own the customer experience. Now, clients research and find your product online and then experience it firsthand to see how it fits into their lives. They no longer need a sales team to introduce them to your product or explain how your product could work for them.
Product-led growth allows your entire company to focus on providing the best possible product at all times. So, the decision to embrace product-led is a binary one — you either go in a different direction, or you fully commit to it.
However, the process of becoming a product-led company can be a long and circuitous journey that looks different from brand to brand.
Product-Led Growth Starts With An Amazing Product
Naturally, as a PLG company, you’ll need to have an amazing product that delivers. So if “product-led” sounds similar to “design-led” to you, you’re right. They sound identical because the innovation and empathy inherent in design-led thinking are crucial to product-led growth. After all, a well-designed product is a requirement of PLG.
Well-designed doesn’t simply mean “pretty”; it means that your product is light and intuitive — with minimal friction, sticky features, and a short time to value. To create a truly engaging product experience capable of demonstrating value on its own, you need a deep understanding of your customer and the problems they are trying to solve.
Your entire product should be built around making it much simpler for your customers to solve their problems. That means removing pain points whenever possible, offering effective user onboarding that is centered around customer goals, and providing ongoing, contextual in-app communications for things like upsell prompts, new features, specials, and more.
Executing Sales and Marketing Strategies Based on Product-Led Growth
There are two main acquisition models that go hand-in-hand with PLG: the freemium and free trial models. The primary difference between the two is time. Under a freemium model, the user can use your free features forever. On the other hand, a free trial is only free for a set period of time (i.e. two weeks or one month).
Free Trial Model: The free trial model is popular but not always as effective as the freemium model. This strategy gives users a short demo period, ranging from one to two weeks or even a whole month or two. If the user has a great experience during the free trial period, the hope is that they will then convert into happy, paying customers of your full-scaled product. Some companies even require inputting payment information at the start of the trial, which will automatically start charging once the trial ends — requiring some diligence from the user.
Freemium: Not to get confused with a revenue model, Freemium is a fantastic acquisition model. It works by allowing customers to use roughly 50-75 percent of your full product. Over time, users will use the freemium option so much that they will eventually opt for the full product and become life-long customers.
Growth Metrics You Should Be Tracking
Whatever your business model might be, you have to measure growth to know if your product is gaining traction or not. There is a wide range of analytics to track, but we’ll cover the top four:
Revenue: Most businesses track their revenue over regular time periods, whether it’s monthly, quarterly or yearly. Successful PLG would cause this number to increase.
Churn rate: Churn rate is simply the percentage of users who leave your service over a given period of time divided by the total remaining customers. If your PLG efforts are successful, you will see this metric gradually decrease. Tracking churn rate is critical because it’s a direct reflection of your product’s value that you are offering customers.
Usage: Brands with high usage rates have leveraged their product’s value to get the majority of their users. This simple metric can show which groups or users have been using your product and how often for any given time. Tracking usage gives you insight into your power users so you can go find more of them.
Referral Rates: Is your brand getting a ton of new customers through referrals? This indicates that you’re providing real value. Incentivizing your happy customers to refer others is an excellent way to get more users. Peloton, Dropbox, and Uber are some examples of this.
The Bottom Line
Product-led growth begins with the product — that’s obvious. But what makes it so powerful is that momentum is maintained and exponentially grown by the increased inbound interest and word-of-mouth promotion that comes from having a well-designed and innovative product. And once you have a memorable product, tracking analytics through a powerful tool like Kissmetrics will only help accomplish your business and brand goals.
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