What is product-led growth?

It is the so-called "fuel" behind some of the most successful technology companies. It is a growth strategy that promises lower acquisition costs, shorter sales cycles, and more happy customers. And although some product leaders celebrate it as something new, those who have worked in software for many years will recognize the tried and true tactics that make it so powerful.

Product-led growth (PLG) is a business strategy that relies on product usage as the main way to acquire, engage, and retain customers. PLG upends traditional high-touch sales models and instead empowers users to experience and purchase your product. The product is highlighted at every stage of the buyer journey, with the goal being that users can self-educate their way to paying customers with little interference from the company.

This guide tackles some of the most common questions about PLG and provides high-level guidance on how you can implement a PLG strategy at your company. Your approach will reflect the unique factors that make your product special. However, there are some general concepts that underpin PLG which can be applied to any company.

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What is the history of product-led growth?

Product development is the engine that drives most businesses forward. Taking a concept from idea through to market launch is a massive effort that consumes significant company resources and requires broad cross-functional collaboration. For decades go-to-market activities were siloed by function: product management, engineering, marketing, sales, and support. Most technology companies were organized around two tracks with hard lines separating the functions.

A chart showing the elements of a sales-led model

Marketing generated interest and sales closed the deal. Sourcing leads (the process of generating interest in the hopes of making a sale) was the norm. Prospective customers would submit an online form or book a demo with a sales rep to find out information critical to the evaluation process — everything from what the product actually looked like in practice to pricing and policies that could impact decision-making.

This sales-led growth model created a variety of challenges. Marketing was often evaluated against the number of “marketing qualified” leads (MQL) that the team generated. Hitting MQL goals led many marketing groups to focus on finding ways to capture more and more leads — such as creating (and gating) content with the sole intention of harvesting as many contacts as possible to hand off to the sales team.

Sales then tackled outreach to those MQLs, many of whom were more interested in the content that marketing had developed than the product itself. Early-awareness folks may not have even realized that they had a problem that could be solved by software. Sifting through and following up with all of the different leads created long and expensive sales cycles. Commissioned salespeople could become motivated to close bigger deals to justify the effort involved in all the outreach. And in the end, customers paid for the inflated cost of a bloated process.

With the rise of subscription-based software-as-a-service (SaaS) came a new way of thinking. Startups could conceive of and launch a product relatively quickly, but certainly could not afford the expensive infrastructure associated with a sales-led growth model. In highly competitive categories, time to market was essential — teams pushed to get an early version of the product out there for users to try. Many of these product builders were themselves weary of high-touch and high-pressure sales tactics and eager to ditch the old way.

A chart showing the differences between sales-led growth and product-led growth

To reduce friction and gain immediate feedback about the product, SaaS companies embraced a “try before you buy” approach. This could be in the form of a free trial period or a freemium (no charge to start, but with a cost to use advanced functionality) offering. The more value that users found in their early experience with the product, the more likely they were to convert from a trial or freemium account to a paid account. (And to tell their friends and colleagues about the cool new tool they discovered.) The more that people used the product and found value in it, the more the product development team was able to quickly incorporate learnings to iteratively improve and refine it.


Sales-led vs. product-led growth

We will go into more detail on the differences between sales-led and product-led growth throughout this guide. But to get us started, here is a quick overview of the main differences between the two:

Sales-led growth:

  • Focused on senior decision-makers

  • Puts a barrier between users and the product

  • Requires contact with a sales professional

  • Can lead to longer sales cycles

  • May increase to cost to acquire customers

  • Might hinge upon professional setup and configuration

Product-led growth:

  • Focused on product users

  • Empowers prospective customers to explore the product

  • Enables marketing to focus on educational content

  • Can reduce sales cycles as users find value

  • May decrease the cost to acquire customers

  • Usage rarely hinges upon professional rollouts


Examples of product-led technology companies

Whether or not they actually claim the mantle of PLG, many of today’s most successful SaaS companies grew quickly by focusing on a frictionless buying process and investing heavily in product experience. The list of 10 PLG companies below is by no means exhaustive, but instead illustrates a wide range of categories.

10 product-led software companies:

  1. Aha! — product development

  2. Calendly — online scheduling

  3. Dropbox — file hosting

  4. Pinterest — image sharing

  5. Shopify — e-commerce

  6. Slack — instant messaging

  7. Stripe — payments

  8. SurveyMonkey — surveys

  9. Zendesk — customer support

  10. Zoom — video meetings



What does it mean to be “product led”?

The definition is easy enough to understand. You put the product at the center of the customer journey, making usage and experience the core way that you attract and convert. But what does it actually mean in practice? The reality of PLG is much more complex.

If we drop the “g” in PLG and think of the concept in context beyond growth strategies, then it is easier to parse what it actually means to be product led. Putting value at the center of product development is the core of product-led thinking. This means that there is value delivered and received by the business, the team, and the customer — with the product as the conduit. It also means that the product development team is responsible for estimating and measuring that value throughout the development process, including the realized value of what is delivered to end users.

Product-centric thinking is common in most startups. This is because when you are first starting out, the company is the product — everyone is focused on launching the offering in order for the business to grow. But for more established enterprises who are adapting to new ways of working, it can be more challenging to orient the organization around a product mindset. Yet the benefits of doing so, such as rapid innovation, faster time to market, increased revenue, is why so many large organizations are fundamentally transforming. More and more companies are establishing product development teams, hiring product managers, and investing in roadmapping software.




How to develop and implement a product-led growth strategy?

A PLG growth strategy puts the product at the center of the overall business model and plan. You position the product as your main channel for and driver of customer acquisition and scalable market expansion. Once you capture your vision, target customers, market opportunity, organization strengths and challenges, essential elements of the product, and how it will be sold, you can dive into the tactics and tools you will need to achieve the goals you set.

B2B SaaS funnels for product-led growth

There are four basic funnels for product-led growth: self-serve, sales-assisted, bottom-up, and top-down. The funnels map to how an organization operates, to whom it sells, and the specifics of the product itself. Notice how three of the four funnels rely on salespeople or targeted marketing to facilitate conversions. No such thing as a product that sells itself, right?

Self-serve funnel:

  • Sales: “No touch,” meaning customers purchase subscriptions directly

  • Goal: Self-serve annual-recurring revenue

  • Customer: Individual users

Sales-assisted funnel:

  • Sales: Transactional, meaning a salesperson closes each deal

  • Goal: New opportunity pipeline

  • Customer: Individual users, SMB buyers

Bottom-up funnel:

  • Sales: Land and expand, meaning salespeople focus on growing each account

  • Goal: Add-on opportunity pipeline

  • Customer: SMB and enterprise buyers

Top-down funnel:

  • Sales: Outbound and account-based marketing, meaning salespeople proactively contact prospective accounts

  • Goal: Sales enablement

  • Customer: Enterprise buyers

A graphic showing the types of growth funnels: self-serve, sales-assisted, bottom-up, and top-down


Tactics for product-led growth

Going from a siloed to product-oriented organization is no small feat. It often requires reorienting teams, reimagining workflows, cultivating skills, and hiring new talent. With the right structure and people in place, you can begin to implement some of the common tactics for product-led growth (PLG).

Best practices for PLG:

  • Orient the organization around a product development mindset

  • Align product development teams against a clear strategy

  • Minimize friction during the sign-up process (transparent pricing, free trial, etc.)

  • Weave the product into marketing efforts (topical guides,

  • Build an interactive and personalized user onboarding experience

  • Incorporate virality into the product (user referrals, free invites, social sharing etc.)

  • Develop an account expansion strategy (customer marketing, plan upgrades, product add-ons, etc.)

  • Estimate the value of functionality and measure the worth of the what was delivered

  • Continually improve based on customer feedback and long-term business goals


Tools for product-led growth

Every organization needs basic B2B tooling for communication and asset storage. Beyond that individual functions will require specialized software to best complete their work. Just as finance needs tools to manage payments, payroll, and accounting, product development teams need purpose-built software to manage all aspects of building and managing a product.

A robust product development software suite should include some or all of the functionality needed for:

  • Strategy and positioning

  • Ideation and whiteboarding

  • Roadmapping

  • Design and development

  • Launch plans

  • Customer feedback

  • Product analytics



How to measure product-led growth?

Access to analytics is critical to PLG. You need to capture and analyze a wide breadth of data to understand the value that customers are getting from using your product and the value that the product brings to the business. In isolation these measurements do not tell much of a story. But taken as a whole and viewed through the lens of customer feedback, market shifts, and overall business goals, PLG metrics can provide a sort of health check for the product and the company.

Product-led growth metrics for SaaS companies

Most of the metrics that are associated with PLG are commonplace in SaaS companies. The focus is on profitability and measuring the company’s return on investment. A few the metrics below are specific to PLG, though. Engagement scores, time-to-value, and virality measures are hallmarks of a product-centered growth strategy.

Common PLG metrics:

  • Active users: Number of people who actually use your product — typically broken out by daily active users (DAU), weekly active users (WAU), and monthly active users (MAU)

  • Average revenue per user (ARPU): Total revenue divided by the number of users

  • Average revenue per account (ARPA): Total revenue divided by the number of accounts or subscriptions

  • Customer acquisition cost (CAC): Total cost to acquire a new customer, including marketing spend, sales efforts, and staff salaries

  • Customer lifetime value (LTV): Average net profit a business can expect from a customer

  • Engagement score: Users who meet a threshold for finding value in a product, such as time spent or

  • Expansion: Rate at which existing customers upgrade or expand paid accounts

  • Gross churn: Rate at which customers cancel, fail to renew, or downgrade

  • Trial to paid conversion: Rate at which trial (or freemium) accounts convert to a paid account

  • Product-qualified lead (PQL): Prospective customer who has found value in using your product and reached defined milestones that indicate intent to buy

  • Net churn: Lost revenue from cancellations and downgrades calculated after new revenue from upgrades or expansions by existing customers

  • Retention: Rate at which the business retains customers

  • Time to value (TTV): How long it takes a user to find realize the value expected from using the product

  • Virality: Number of new users generated by referrals from existing customers


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