What is product-led growth (PLG)?
Definition: Product-led growth is a business strategy focusing on driving growth through the product itself.
Companies using PLG focus their engineering, marketing, sales, and customer support efforts around the product creating a company-wide alignment.
With the whole company focused on product development, it produces a high-quality experience for users driving user acquisition and retention.
History and evolution of product-led growth
1940s – First software creation.
1960s – First commercial software.
1980s - 1990 – Sales-led growth with salespeople being the primary source of revenue.
1996 – Cloud software started being developed, bringing more products to the market.
1999 – The creation of the first SaaS company.
2000s – Marketing-led growth became popular and focused on communicating product value through campaigns.
2010s – SaaS is becoming the trend spawning many new products in the market, making companies focus on quality and customers to survive in the crowded market.
2016 – First use of the term “product-led growth.” Since then, it has dominated the software industry with its potential for growth and focus on customer experience.
Product-led growth process and frameworks
The two critical players in a PLG strategy are customers and the product itself. The PLG process focuses on acquiring new customers, driving them through the customer journey, and improving the product based on their feedback to retain them.
The PLG process starts as soon as the product launches on the market.
It looks like this:
Acquisition - At first, the acquisition is made through marketing campaigns to get the first users, but when the product gets established, users are acquired by word of mouth and light marketing/branding.
Segmentation - The customer base is segmented by job titles, location, and personality, and specialized onboarding flows are created for each group.
Onboarding - Each customer goes through the product learning how to use it and how it can help them solve their problems. The onboarding sequences are personalized based on segment and can be in-app guides, videos, or customer experience calls.
Engagement - Building systems to engage users to interact more with the product, invite new users, and give positive feedback. This is done by delivering the content they want, integrating the product with the product they use, and improving the features they use most.
Collecting Feedback - Getting insights into areas that need improvement through analyzing customer feedback in every part of the process.
Improvement - Using customer feedback and improving the product and every aspect of the PLG process.
To support the PLG process, companies use various frameworks that focus on customers or products:
- Flywheel - Focuses on user growth by turning viewers into buyers into supporters by focusing on delivering excellent customer experience.
- Hook Model - Creating a habit of using the product through the Trigger, Action, Reward, and Investment loop.
- Growth Loop - Used to improve the disadvantages of classical funnels where the product does all the hard work and keeps the customers in the loop of coming back and using the product.
- RICE - Used to prioritize product backlogs by ranking them by Reach, Impact, Confidence, and Effort.
The six most important metrics are:
- Retention rate - The percentage of customers who continue to use the product over a period of time.
- Lifetime value - The average revenue expected to be generated from one customer.
- Time to value - The time it takes for customers to get value from the product.
- Churn rate - The percentage of customers who stop using the product within a certain time period.
- Activation rate - The percentage of new users actively engaged with the product.
- Free to paid conversion - The percentage of trial customers that convert to paying customers.
Example of a product-led growth
Mindmesh offers two plans, the core and scale plan, the core being free.
Customers sign up for the free plan to test Mindmesh and start onboarding.
Before onboarding starts, Mindmesh asks users what they will be using Mindmesh for, their profession, and what features they expect. All of this information is used to tailor the onboarding to their needs.
Through the onboarding, in-app pop-ups guide the user through Mindmes’s features with tasks to complete and understand them.
After some time of using Mindmesh, the users are informed about Mindmesh Academy, a way to learn about different project management concepts and how they can be used through Mindmesh.
Users can also leave feedback and new request features, and if the team finds them important to the users, they will start working on them.
Throughout the Mindmesh user experience, users will be prompted to get the paid plan with more features focused on team experience.
The goal is to acquire single users that will invite their team members to try Mindmesh, exponentially growing the user base.
What is the difference between sales-led growth and product-led growth?
Sales-led growth relies on the sales team gathering leads and selling to customers.
In contrast, product-led growth prioritizes the product as the primary driver of new customers.
Product-led growth builds its pipeline into the product, like user onboarding, while sales-led growth has one on one onboarding requiring more effort.
In short, you can picture SLG as a manual process and PLG as an automated one.
What is the difference between marketing-led growth and product-led growth?
Marketing-led growth relies on marketing campaigns and advertisements as the primary driver of new leads.
In contrast, product-led growth prioritizes the user experience as the primary driver of its success.
PLG still does use marketing in its strategy, but the focus is to create word of mouth with its customer base.