Day 30 - Product Led Growth
Definition, examples, and why it's useful...
Hello learners!
Welcome to the 30th and the last lesson of the series 30 Days of PM by Crework! Over the last 30 days, we talked about a lot of topics related to Product Management and I hope it was a great learning experience for you. Today, we are going to talk about Product Led Growth, a very famous strategy, yet something that not a lot of people understand.
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Product Led Growth (PLG)
Product-led growth is a business strategy that relies on using your product as the main vehicle to acquire, activate, and retain customers.
If you’ve used Slack or Dropbox, you’ve witnessed this first-hand. You didn't request a demo to have a sales person show you how cloud-based file sharing or instant messaging could revolutionize your work. You just tried the product out yourself for free.
Unlike sales-led companies where the whole goal is to take a buyer from Point A to Point B in a sales cycle, product-led companies flip the traditional sales model on its head. Product-led companies 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. If the customer experiences a meaningful outcome while using the product, upgrading to a paid plan becomes a no-brainer.
Product-led companies often benefit from:
Shorter Sales Cycle
Better User Experience
Lower Customer Acquisition Costs (CAC)
Higher Revenue Per Employee (RPE)
How The Product-Led Growth Model Works
Product-led growth is a life raft that will save you from the flood of rising customer acquisition costs and decreasing willingness to pay for your product.
There’s one key difference between sales-led growth and product-led growth:
In the typical sales-led growth model, the customer acquisition process has four steps: acquire, monetize, engage, then expand.
The marketing team brings leads to the sales team, the sales team does whatever it takes to convince prospects to sign a contract, then a customer success team attempts to deliver on the promises the sales team made. When the customer experiences the value of the product in the engagement step, there may be an opportunity for expansion. But in many cases, the customer never actually experiences the value of the product, leading them to churn.
In a product-led growth model, the engagement step happens before the monetization step.
By offering a free trial or a freemium version of your product, you’re giving customers the opportunity to engage with your value proposition before you monetize them. In a successful product-led business, monetization is the natural result of engagement because customers are solving a costly pain point with your product and can’t imagine going back to life without it.
Examples of Product-Led Companies
Calendly
Slack
Notion
Typeform
The key product-led growth metrics you should consider tracking when transitioning to a product-led model.
Acquisition: The number of users who have signed up for your free experience.
Activation Rate: When the user has experienced meaningful value in the product.
Customer Lifetime Value (CLV): A prediction of how much revenue a single customer will bring in for your business during your relationship.
Time-to-Value (TTV): The time it takes new users to reach their activation moment. The faster you get users to activate, the more likely it’ll be that they stick around. The main goal of a good onboarding experience is to reduce TTV by as much as possible.
Free-to-Paid Conversion Rate: The percentage of users that have converted to a paid account from a trial period.
Expansion Revenue: Expansion revenue is the anti-churn, and one of the most important levers for SaaS growth. Expansion revenue measures the revenue generated from existing customers through upsells, add-ons, cross-sells, etc.
Net Revenue Churn: This metric measures the amount of money lost after accounting for new and expansion revenue and is often expressed as a percentage.
Average Revenue Per User (ARPU): This is a great indicator of the overall health of your business. You can calculate this by dividing the Monthly Recurring Revenue by the number of customers.
30 Days of PM - Completed ✅
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