Feature
I was introduced to product-led growth (PLG) when a client recently briefed me on a new “free” product they were launching. I made the mistake of thinking of it as a go-to-market (GTM) pricing tactic. Launch a free trial version, land and expand.
I was so wrong! It soon became clear that companies serious about PLG do not remotely think about it as a “slapping on a free trial version” tactic. Francis Brero, co-founder and chief product officer of B2B PLG platform MadKudu, defines PLG as an approach to growing a Software as a Service (SaaS) business by using the product itself as a core driver of acquisition, engagement and monetization.
Limiting PLG to a lead-gen, GTM or pricing strategy misses the bigger picture. And the bigger opportunity. The key is "G," for growth. For companies that have built their fortunes on PLG — from Canva to HubSpot — the product is the vehicle and channel for that growth, and the product experience (PX) is designed to drive growth. Growth comes not just from acquisition, but engagement, value creation, retention, evolution and expansion. The key question for them is, “How can we best use our own product to sell our product and grow our business?”
Baking PX Into Customer Journey Led CX
Typically, customer experience (CX) is the sum of a customer’s interactions with marketing, sales and customer success at different stages of their customer lifecycle. Product-led companies also place unrelenting focus on PX, which ladders up to the CX and ultimately delivers more efficient and sustained growth. For successful product-led companies, a great user and product experience, defined by value and engagement come first, said Wes Bush, bestselling author of Product-Led Growth.
A 2022 Bain and Co. survey found that a PLG strategy produced faster revenue growth and greater market share among software companies. OpenView Partners, which tracks a product led growth index, also found that product-led SaaS companies perform better than nonproduct led peers on all three valuation drivers — revenue growth, gross margin and Rule of 40 (Data from the 1H 2018 IPO cohort).
Done right, PLG enables faster penetration, crashes the B2B buying cycle, reduces the cost of customer acquisition (CAC) and gives sellers more control over the buyer journey. But enabling sign-up, onboarding, adoption, engagement and upgrades inside the product obviously takes a lot more than a free trial version of their main product.
It needs an institutionalized approach to PX at each step of the customer journey. For that, let's relook at the purchase funnel through the PLG lens.
Related Article: How to Operationalize Marketing-Led CX for Marketers at Every Maturity Stage
PX at the Top of the PLG Funnel
At this stage, the key to superior PX is easy discovery, sign-up and onboarding.
With PLG, these are typically user-led and self-serve workflows which perform best when there is a laser clarity on the “ideal customer profile” ICP and their needs.
Even the slightest friction in the sign-up and onboarding process can lead to drop-offs and lost users. The key is to stay as close and connected to the user's granular PX as possible. Unfortunately, the larger companies grow, the further they tend to drift away from it.
For example, an enterprise IT company recently created a product to solve an important business problem and launched a free version as part of their land-and-expand plan. They were so convinced that users afflicted with the problem would snap up their free solution, they entirely underinvested in the sign-up and onboarding process, which was buggy, unfriendly and nonintuitive. The resulting PX led to high drop-offs early into the trial, and the product never got the chance to solve the larger problem despite a good product-market fit.
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Product adoption platform Chameleon uses “friction logs” to identify not just where the drop-offs happen during sign-up, onboarding and beyond; but also why they happen, how they make the user feel, and whether the friction is positive or negative. The former helps the customer by driving involvement and ownership, while the latter hinders the PX without adding any value.
Here's a look at what's happening at the top of the funnel:
Top-Funnel PX Mistakes
- Internal silos and dissonance: Misalignment between product engineering, marketing, sales and customer service teams will mean a bumpy sign-up and onboarding PX.
- Overly complex sign-ups: Every additional scroll, click, form field and decision reduces the prospect’s interest and motivation to complete the process. Too many choices and decisions can lead to disengagement and indecision. Instead, gather only the most important data at sign-up, and stagger the rest as user involvement and engagement grows.
- Overly transactional onboarding: Onboarding goes beyond dry product tours to educate new users on product features and functionalities. In fact, treating new "free" customers as close to real paying customers sets the relationship up for success, and if the product-market fit is right, will lead to higher quality trials that convert and grow.
- Low value and poor CX: Bush reminds us that though PLG leads with a free trial, the focus is on value, not price. Not providing enough value or the right value in terms of features and CX in the free experience can lead to users never coming back, he cautions.
Top-Funnel PLG Metrics
- Product discovery metrics.
- Successful sign-ups vs. abandoned sign-ups (drop-offs).
- Active sign-ups vs. dormant sign-ups (sign-up but don’t use the product).
Related Article: Drive Growth by Improving Your Customer Experience Strategy
PX at the Middle of the PLG Funnel
At this stage, the sign-up and onboarding is complete. The goal now is to drive user engagement and feature adoption.
Pendo’s 2019 feature adoption report found that as much as 80% of SaaS features go virtually unused, costing an estimated $30 billion in wasted R&D. Such results are symptomatic of suboptimal onboarding.
Brands can drive engagement and adoption with personalized onboarding journeys designed to deliver the quickest time-to-value. Leverage insights from product usage analytics to give users everything they need to succeed and realize the full power of the product, during the trial. Leverage network effects by making it easy for happy users to share their success and drive product discovery among peers.
Here's what is happening at the middle of the funnel:
Mid-Funnel PX mistakes
- Treating PX as a cost center instead of a growth driver: With PLG, the PX needs to be reengineered for successful onboarding and usage. Nudges to explore and upgrade, easy sharing and referral mechanisms, and action-linked rewards along the path to purchase all need to be built into the right moments in the customer’s journey. The focus should be on creating user value, not premature conversions.
- Trying to perfect the customer journey: Instead, focus on a deeper, data-backed understanding of the user to continually iterate and improve the PX. Help users keep discovering value by unlocking new features based on usage patterns.
- Gating power features: Avoid feature-usage gates in the trial product, so users don’t feel manipulated or “nickel and dimed.” Making power features accessible delivers a value punch and makes users feel like superstars early into the trial. Even if they don’t convert or upgrade, happy users are more likely to recommend the product based on that PX. “The goal of being product-led is to make whatever you do frictionless,” said Bush.
- Not analyzing data effectively: PLG tends to create a lot of data, and it can be very powerful, but also crippling, said Brero. For example, a PLG company observing a drop in daily-retention could focus on improving user retention, whereas a closer enquiry may reveal that most of the signups were low quality and should not have been considered in the first place. The real problem may lie elsewhere.
Mid-Funnel PLG metrics
- Net Promoter Score (NPS): Product shares and referrals by active users.
- Key features adoption: Depth and breadth of product usage. Poor adoption rates indicate poor product-market fit or ineffective onboarding.
- Activation rates (as a % of total signed-up users): Low activation rates mean users are getting low value from the product and will likely churn. Users who don’t experience value inevitably churn.
- Product qualified leads (PQLs): Are more likely to convert into paying customers because they have experienced the product and are actively using it.
PX at the Bottom of the PLG Funnel
It’s finally time to monetize the user! The goal is to convert and retain (cross and upsell), renew, or upgrade activated users into paying customers or accounts.
PLG strategies are focused on designing an effective expansion path to achieve higher net dollar retention (NDR) or net revenue retention (NRR) numbers. This is a huge advantage in the current economic context. Identifying the right moments to move into an upsell motion in a freemium or forever-free model is crucial to increase revenue while maintaining customer satisfaction, said Brero. He cautions against intrusive upsell motions that come too quickly or frequently into the user journey, and instead suggests tracking product usage to identify when an account is likely to be ready for an upsell. For example, in usage-based pricing models, upsells are very likely when users or accounts hit 80% of the allocated quota.
If users are consistently using advanced product features or getting close to hitting usage quota, it’s a good signal to invite functional buyers to upgrade to a plan that better fits the team needs. In feature-tiered models, allowing users to test higher-tier features during a free trial helps design upsell paths. “This is something companies like InVision, MongoDB, Snyk, Figma and Miro do to drive higher ACV across their customer base,” he added.
Here's what's happening at the bottom of the funnel:
Bottom-Funnel PLG PX Mistakes
- Complex upgrade or transition processes: Can cause drop-offs. Instead, make it easy for the user to transition to a paying customer, including disruption-free upgrade and scale-up. Offer access to human assistance at the right moment in the process, especially for enterprise-scale or multiuser upgrades.
- Complex pricing: Clear and transparent pricing is important to maintain buyer trust. Connecting price to value is important to drive upgrades and expand revenue. For example, deciding what features should be free and what are so valuable to the customer that they can be behind a paywall.
- Not having a clear monetization strategy: Another common mistake, Brero added, is to have an enterprise plan that is not differentiated enough. This creates a low ceiling for the annual contract value (ACV) and makes the task of enterprise account executives looking to upsell large accounts very hard. He cited the example of Trello, which failed to become a $1 billion company because it took too long to monetize and didn’t build for the enterprise.
- Not having an enterprise sales handoff: Going “all in on PLG” is a mistake, said Brero. PLG improves the PX for users, but not necessarily for the buyer. The most successful PLG companies, he suggested, embrace a hybrid motion that combines PLG for users, enterprise selling for IT or executive buyers and procurement teams, and traditional inbound for functional buyers.
Bottom-Funnel PLG Metrics
- Conversion rate: How many active users convert or upgrade to paying customers.
- Monthly churn rate: When active trial users do not convert at the end of the trial, it is symptomatic of suboptimal PX or some other friction.
- Customer acquisition cost (CAC): Compared to traditional sales-led plays.
- Customer lifetime value: Should exceed the cost of acquisition for any customer segment.
- Time to upgrade: How long on average do users take to upgrade to paid versions?
- Self-serve (unassisted) vs. sales-assisted conversions and upgrades: This study found that SaaS companies with a free trial report a median free-to-paid unassisted conversion rate of 4%. The conversion rate jumps to 15.5% when free trialers are assisted by sales. Low self-serve upgrade and conversion rates indicate some friction preventing users from converting without a human nudge. While assisted sales are important in some plays, they are not there to rescue poor PX, so it's important to first optimize unassisted conversion rates.
PLG Works, But It’s Not a Silver Bullet
PLG strategies will not work as effectively with overly complex products that need a lot of technical support or are subject to high security and compliance barriers.
However, said Brero, more complex products are starting to see success. Either way, PX with an average product or vice versa will likely fail, even if the product is free. “Launching a PLG strategy is a considerable investment," he said, "taking around nine months to start seeing results. It can easily fall short of expectations when organizations don’t allocate enough resources."
