Product Led Growth
Companies that focus on product-led growth let their products do the heavy lifting to convert and retain customers.
What is product led growth?
First coined by Blake Bartlett of OpenView Ventures, Product led growth (PLG) is an approach to product strategy in which the product itself is the primary acquisition, retention, and expansion channel. This strategy has led to the success of many of today’s leading SaaS companies (think Slack, Atlassian and Shopify), and focuses on building products for end users.
In companies that harness product led growth, existing customers are fully leveraged to expand product usage. The idea is that an amazing product experience breeds customers who want to share it with others.
The product led growth process looks something like this:
- Build an exceptional product that provides value.
- Allow users to try the product, or parts of the product, for free.
- Users tell others about your product, helping it pick up steam.
- Referred users begin using the product, and refer others.
- The cycle continues throughout the life of the product.
While the above is an ideal scenario, it doesn’t always play out this way. There are a number of things that can derail a product led growth strategy, starting with the product itself.
The product led growth strategy tends to work best for products that:
- Are intended to be used regularly to enhance business operations or daily life.
- Allow for collaboration or social interaction.
- Give users the ability to invite others.
- Are easy to use.
For example, if your product is complex or very expensive, you may benefit from elements of a sales led or marketing led approach to growth.
Product led growth vs. sales or marketing led growth
Let’s dive into sales led growth and marketing led growth a bit more. In simple terms, both rely on messaging and the promise of what a product can do, rather than giving users access to the product to experience it for themselves. For messaging to be effective, it ultimately must create a need in the customer’s mind. Therefore, both of these strategies hinge on how well you know your customer base and their needs.
A marketing led growth strategy might look something like this:
A user discovers a product through an advertising campaign. They then conduct top-level research by checking out the product online. If they’re interested, they schedule a demo or download a white paper with more information. The user is then passed on to the sales team for a personal consultation and (hopefully) to seal the deal.
As you can see, this is very different from a product led growth strategy, which begins with giving users access to the product. Rather than promising value, product led growth lets poeple experience the value themselves in order to win customers, gain referrals, and generate growth.
This is not to say that marketing and sales teams are obsolete when a product led growth strategy is used. In fact, they’re an important part of the process.
For example, product led growth can help the sales team narrow leads to better qualify them before reaching out. These are what’s known as “product qualified leads”—users who’ve tried a free trial or freemium version of the product, and enjoyed it. Sales can also analyze product data to identify actions that suggest a user is likely to convert to a paying customer.
Advantages of product led growth
Wondering if product-led growth is the best strategy for your business? While it isn’t optimal in all cases, product-led growth does have some distinct advantages.
The number one reason businesses use product led growth is to speed up adoption and expansion. In essence, you’re cutting right to the chase and lowering barriers to entry by giving users access to the product for free.
Most companies would be thrilled to reach the same level of success as Slack and Shopify, but scaling up can be difficult. Product led growth is often used by companies aiming for rapid growth because a) it lends itself to a wider top-of-funnel driven by free trial or freemium models, and b) while competitors are focused on building their sales organization, product led companies can direct their resources towards improving onboarding and serving customers.
Lower Acquisition Costs
Using a product led growth strategy drastically reduces the marketing budget a company needs, since customer acquisition channels are built into the product. This, in turn, reduces overall acquisition costs.
Higher Retention Rates
Product-led growth enables users to quickly understand the value in your product, ensuring that user expectations are aligned with your product’s capabilities. This creates a better user fit, and increases user retention in the long run.
Product led growth is based largely on word-of-mouth promotion. Your company isn’t the one convincing people to use your product. Rather, it’s your users who encourage adoption.
Because the product is so focused on delivering value, the majority of customers will have positive feedback. Those reviews and opinions are then read by other consumers, creating an acquisition cycle. The fact that many consumers prefer to research products online that they’ve heard about offline also plays in the favor of companies using product led growth.
Why product led growth relies on user value
At the end of the day, providing value is important for any product. If customers don’t understand the value of a product upfront, or get value from using it, chances are it won’t be on the market for long.
As mentioned above, free trial or freemium models are very common in product led growth. Users receive something of value for free, but then they must pay a fee to unlock other features that bring even more value. Using a free trial or freemium model also gives users the ability to “try before they buy,” which will help you capture a segment of users who might otherwise drop off before even using the product.
But free trial and freemium strategies require a keen sense of what value the product delivers. Discovering where the real value in your product lies, and how best to showcase it, does not often come easy. In some cases, you may not realize how valuable a particular feature or capability is to your target market.
That’s why tapping into the true value of your product requires analytics.
Metrics to track for product led growth
For most companies, product-led growth simply isn’t possible without product analytics. That’s because the strategy relies on creating the best user experience possible and truly understanding how consumers are using your product. That level of deep insight comes from data.
The top metrics to track for product led growth include:
Free trial/Freemium-to-paid account conversion rate: This is a measure of how many of the users who tried your product decided to buy it. In other words, it tells you whether or not the majority of users find additive value in your premium features.
Activation rate: While there are different ways to define and analyze your activation rate, it’s commonly a measure of the percentage of new users who have experienced value. Broadly speaking, activation is a foundational step that primes a new user to become an active user. Depending on your product and industry, activation could be defined as registering, making a first purchase, viewing five videos, or making two deposits within a specified time.
Churn rate: This is a measure of how many people are discontinuing use of your product for a given period. Your churn rate indicates how happy customers are with your product over time.
Daily, weekly, and monthly active users (DAU, WAU, MAU): These metrics indicate the number of active users in a given day, week or month. You can track the metric that applies most to your product, or all three.
Engagement: Broadly speaking, metrics that help measure engagement should be tracked for a holistic product strategy. Understanding how customers are engaging with your product can also be used to create an engagement score.
Remember, these are just some of the metrics to track when you’re implementing a product-led growth strategy (take a look at our Guide to Product Metrics for a more comprehensive overview). Based on what you find, you may need to adjust your product or offering to boost conversion rates and drive continuous momentum in the product-led growth cycle.