Is Your SaaS Product Right for Product-Led Growth (PLG)?
Product-led growth (PLG) strategies apply a business model in which user acquisition, expansion, conversion, and retention are all driven primarily by the product itself. Users try the product, like it, buy it, upgrade, and spread the word to their peers. PLG is a hot topic for SaaS companies right now, but this strategy is not the right fit for every SaaS product or company.
When done right, PLG offers significant benefits as a business model:
It meets customer preferences: In a 2021 Gartner B2B buying survey, 66% of B2B buyers said they would prefer a rep-free buying experience.
It’s the ultimate form of buyer self-education. Gartner also found that B2B buyers spend 83% of their time doing research on their own, not interacting with vendor sellers.
It means faster and less expensive sales cycles (and lower customer acquisition costs) as buyers learn how your product solves their business needs through direct experience.
It keeps product development focused on things that really matter to customers: improving the user experience and building features that improve user adoption.
It allows your company to grow faster because scaling the business does not depend on hiring more sellers, consultants, and customer success people.
Here are some questions to consider if you’re deciding whether to take the PLG path to market.
How disruptive are your use cases? Will users know what to do with your product?
It’s possible for software to be very easy to use yet hard to know how to use. For example, in the pre-PLG days, I worked with a SaaS company selling a consumer marketing analytics product. Its early adopters were huge brands with large market research teams who knew how to frame research questions and interpret results. These teams loved the product’s user interface because it was very intuitive. The problems that the company’s analytics addressed had a potentially huge addressable market… but there were no established practices for what to measure and how to act on the analytics. The company rolled out a low-touch selling model, and deals closed fast. The bad news: Most of these customers did not renew because they were not consistently realizing value from the product. The company re-tooled its go-to-market approach to be higher-touch, with more use case consultation during the sales process, dedicated customer success teams, and a portfolio of consulting offerings. Sales and customer retention improved.
Slack, Zoom, and Asana are the PLG poster children. All of these products won customers with a great user experience. At the same time, all of them were operating in established software spaces: replacing consumer products (AOL, Yahoo IM), clunkier incumbent products (HipChat, Primavera, Microsoft Projects, WebEx), or both.
If you have a visionary product with use cases that disrupt the way people do things today, your buyers may not be able to understand and achieve your value proposition on their own. They may go astray because they don’t know how to use the product (even if they know how to use the software). Or, they may not be able to figure out how to effectively drive value in their organizations.
What are your users’ motivations to adopt your product and what are their barriers?
Activation rate, or the percentage of users who complete an action within your product that signifies that they are ready to use the product in a meaningful way, is critical to success with PLG. If people aren’t adopting your product, they can’t complete a trial, convert to a paid account, increase their use over time, or recommend the product to their peers. However, product adoption always comes with some barriers. These barriers can be technical (for example, needing to integrate with another internal system), organizational (needing resources from another team), political (needing buy-in from an executive or cross-functional team), educational (needing instructions on how to use the product), or practical (just needing to find the time). Your job is to build your business plan around realistic projections (a 20-40% activation rate is the norm for many SaaS businesses), identify the barriers your users face, and put strategies in place to address these barriers head on.
A previous client of mine sold a SaaS solution for log management. For them, a key milestone was customers sending log data into the system, so it could be used for troubleshooting and monitoring dashboards. However, users faced a few technical, educational, and organizational barriers along the way. Many said they found it hard to make the time for setup.
In addition to building product features and documentation to simplify setup, our team worked on multiple marketing tactics to educate customers on the log ingestion process and to motivate action by demonstrating the many ways they would benefit from once their data was available to them through our solution.
Of course, adoption is just the first step. A PLG-focused SaaS business needs to look at engagement (and potential barriers) over time.
Am I committed to doubling down on user experience and excellent onboarding?
Many product-centric companies have visionary leaders that want to put disruptive functionality into the market. Or, they want to keep customers happy by delivering new features they request. PLG companies still must build differentiating features and meet customer needs, but user experience is the most important product priority. Without a great user experience, you can’t acquire, retain, and grow your customer base.
Beyond an intuitive user experience within the product, onboarding encompasses in-product and out-of-product education that your users will need to adopt your product and get value from it. PLG companies must deeply understand their user journeys and invest in great onboarding materials—even at the expense of hiring more developers.
Am I going to invest in finding the right pricing and packaging?
Pricing and packaging can make or break seller-led deals; so it’s exponentially more important to get right when your products must sell themselves. It’s tempting to just “test until we get it right,” but putting the wrong pricing or packaging in the market can have a long-lasting impact.
Price too high? Users won’t get the opportunity to love your product. Price too low or package too much into a free offering? You could end up with negative margins. (I have seen clients lose a significant chunk of their subscription fees to AWS every month.)
User journeys should drive your packaging. Users need to see (preferably immediate) value in entry-level packages, but you also need them to see compelling reasons to upgrade.
My advice: Take the time to do pricing and packaging right, and hire experts if you need to. And, pricing and packaging is a big reason to invest early in a product marketing team!
Winning with PLG fundamentally changes a SaaS business
PLG is a very compelling business model for the right products from the right companies with the right leadership teams. However, SaaS companies need to recognize that PLG changes almost every aspect of their business, not just their marketing and sales model.
If you want to discover what it would take to be successful with PLG, you’ll have to take a critical look at your own users, market, and company. Here are a few questions to get started.
How big is the user base? Would a lot of people inside a company use my product, or just a few?
What percentage of potential users possess the technical skills to use my product?
To what extent are they internally motivated to solve the problem my product solves?
Are my use cases straightforward and well understood, or are they complicated and/ or disruptive?
Are individual users empowered to adopt a product like mine, or do they need cross-functional or executive buy-in?
Are users in control of the technical environment needed for the software to work?
Does the software benefit the user individually, or do people across the organization need to be involved to derive significant benefit?
Is there established market pricing?
Is the business value relatively easy to determine, or does it require in-depth analysis?
Acknowledgments
I’d like to thank Ken Oestreich of Fountainhead Product Marketing for his input on this post.