What is Product-Led Growth?

Product-Led Growth is a go-to-market 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 read a lengthy whitepaper on the benefits of strong internal communication or cloud-based file sharing. You wanted to see the damn product in action!

What Makes Product-Led Growth Unique?

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 the buyer the “keys” to use the product and helping them experience a meaningful outcome while using the product. At this point, upgrading to a paid plan becomes a no-brainer.

How Product-Led Growth 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. In order to build a successful product-led business, you need to understand what value you bring to the table for your customer. Then you need to make sure you communicate that value to your customer in a way that is relevant to them. Once you communicate your value, you need to make sure you deliver on that value.

As you can see in the graph, each step builds on the other:

The Three Elements You Need To Master Product-Led Growth

In order to build a strong product-led foundation, you need these three elements.

Step 1: Understand your value.

Most technology companies get caught up in the features and don’t really know why people buy their product. So, they create bland headlines that read, “We sell live-chat software for website and mobile support.” From the copy, we know what this business sells, but why choose one option over another? The copy assumes we know the outcome that live chat software solves for.

To build a successful product-led business, you need to understand the three main outcomes that motivate the purchase of your product.

1. Functional Outcome: the core tasks that customers want to get done.

2. Emotional Outcome: how customers want to feel or avoid feeling as a result of executing the core functional outcome.

3. Social Outcome: how customers want to be perceived by others by using your product.

The more in tune you are with what your customer wants, the easier it is going to be for you to communicate the value to your buyer and eventually deliver on your promise. In our experience consulting for SaaS clients, we find that most companies breeze by this one step, but we encourage you not to do the same as it’s arguably the most important step.

Step 2: Communicate the perceived value of your product.

Communicating your value is at the crux of a Product-Led Growth strategy. Sales-led companies love to hide their pricing behind closed doors, asking potential buyers to request the price. Product-led companies eliminate this unnecessary friction with up-front pricing for most starter plans.

As a result, one of the most common “side projects” when launching a free trial or freemium model is rehauling the pricing page. Why?

For companies transitioning from a sales-led to product-led business, most previously hid their pricing. Others required businesses to pay for specific features that are now given away for free as an incentive to encourage signups for free accounts.

In a product-led business, your revenue and customer acquisition model are married together. (It’s an arranged marriage, but a marriage nonetheless.) In a sales-led business, the revenue and customer acquisition models are separated.

A sales-led business can bank on relationships to sell large contracts. In a product-led company, your customer acquisition model is built around your product. If your product sucks, you’re not making payroll this month. If your revenue model is confusing, the number of people signing up for your free trial or freemium model will take a hit. This is why you need to dial in your acquisition and revenue models.

Lastly, we need to make sure we deliver on our promise.

Step 3: Deliver on what you promise.

Do you have a friend or family member who exaggerates their experiences? I know I do. After listening to them for a while, do you find it hard to trust what they say? I can hear you say “yes” from a mile away.

The same thing applies when selling software. What we promise in our marketing and sales is the perceived value. What we deliver in our product is the experienced value. Ideally, the perceived value aligns with the experienced value.

Everyone is happy in this scenario—what we signed up for does exactly what we envisioned. But this is rarely the case. Most companies struggle with overpromising and under-delivering.

It’s one reason why product-led businesses are booming. People want to “try before they buy” and experience your value proposition. If you keep your word, it’s a great way to build trust and sell your product. If you fail to deliver, your user experiences a nasty value gap.

The bigger your value gap, the leakier your funnel. You’ll see users sign up but never return to your product. In our experience, the tally could be as high as 40–60% of users who sign up for your product and never come back after the first visit.

In a product-led business, tackling your value gap can be the single, most profitable lever you can pull. It will help you launch and build a free trial or freemium model that (actually) turns users into customers.

If you can understand, communicate, and deliver on your value quickly, you’ll be able to build a strong foundation for your product-led business.

The Two Main Benefits of Product-Led Growth

Product-led businesses have an unfair advantage and enjoy access to a dominant growth engine and significantly lower Customer Acquisition Costs (CACs).

1. Dominant growth engine

Product-led businesses tend to scale faster than their competitors in two powerful ways:

Wider top-of-funnel. A free trial or freemium model opens up your funnel to people earlier in the customer journey. This is powerful because, instead of prospects filling out your competitor’s demo requests, they’re evaluating your product.

Rapid global scale. While your competitors are busy hiring new sales reps for each region under the sun, you can focus on improving your onboarding to service more customers around the world in a fraction of the time.

2. Significantly lower Customer Acquisition Costs

Free software also builds a moat around your business in three powerful ways:

Faster sales cycles: By having your prospects onboard themselves, you can significantly reduce your prospect’s time-to-value and sales cycle. Once people experience the value in your product, the next logical thing to do is upgrade. The quicker your users can accomplish a key outcome in your product, the quicker you can convert your free users into paying customers.

High revenue-per-employee (RPE): Software was always built to scale well, but with a product-led approach, you’re able to do more with fewer people on your team. Less hand-holding means higher profit margins per customer. Just take a look at Ahrefs in 2019. They have a $40 million ARR business with 40 employees.

Better user experience: Since your product is built for people to onboard themselves, people can experience meaningful value in your product without any hand-holding.

The benefits of a product-led GTM strategy don’t stop there. According to OpenView, product-led businesses are valued more than 30% higher than the public-market SaaS Index Fund.

Want to learn more about Product-Led Growth?

Get the book on Product-Led Growth.

Wes Bush
Wes Bush
Wes Bush is the bestselling author of Product-Led Growth. He founded the Product-Led Institute to help SaaS leaders learn "how" to build a product-led business.
Share
twitterfacebookglobelinkedininstagram