Product-Led Growth: Why It Works for SaaS Companies

product-led growth saas companies

PLG SaaS startups keep turning into unicorns one after another and all people are now accustomed to product-led methods. The only problem is, that some companies still don’t even realize what is product-led and what it is not.

Maybe your company is a product-led company in disguise, who knows?

Successful SaaS Companies Adopted Product-Led Growth

  • Grammarly
  • Keyhole
  • Octadesk
  • Calendly

That’s why today, we will uncover;

  1. What is product-led growth?
  2. Why it works as a winning strategy for SaaS businesses?

Let’s start with a quick look.

TL;DR

  • Product-led growth (PLG) is a strategy that prioritizes the product and its value to drive growth, reducing human interference in the customer acquisition process.
  • PLG has proven to be particularly effective for SaaS companies, leading to faster growth, better alignment with modern customer preferences, lower customer acquisition costs, and higher customer retention rates.
  • PLG is different from sales-led growth, where the sales team leads the growth efforts. In PLG, the product is the main driver of growth.
  • The future seems to be leaning towards product-led SaaS, emphasizing the importance of identifying and focusing on Product-Qualified Leads (PQLs).

What is Product-Led Growth?

Product-led growth, or PLG, is a growth strategy that relies on minimum human interference between the product and the potential customer.

Product-Led Growth, often abbreviated as PLG, is far more than just a collection of growth hacks or superficial strategies. It’s an entire company mindset that places users at the forefront of all decision-making processes.

It’s a unique growth model where product usage plays a pivotal role in influencing key aspects such as customer acquisition, retention, and expansion. This approach underscores the importance of creating a product that genuinely solves users’ problems and offers them value, thereby fostering organic growth for the company.

What Does Not Make a SaaS Company PLG?

While some of the following attributes can be part of a PLG company, they do not define it. A true PLG saas company is characterized by a holistic product led approach and, placing the product at its growth strategy’s heart.

It’s not just about offering a free plan or high sign-ups. It’s about creating a compelling product that naturally attracts and retains users.

❌ Here are some common misconceptions about being a PLG company:

  • Having a free plan or free trial option
  • Featuring in-app onboarding guides
  • Offering a self-serve purchase option

The essence of being a PLG saas company goes much deeper than these surface-level characteristics.

✅ Instead, here are the key characteristics that truly make a company product-led:

  1. The product solves a real need and is easily discoverable when someone needs it.
  2. Target users can see real value in the product without needing to speak to someone.
  3. Once someone finds value, they continue to use the product repeatedly.
  4. The product has built-in loops where increased product usage leads to more growth.
  5. Users find so much value that they proactively want to talk about it, fostering a community around the product.
  6. The company has full visibility into how people use the product and where and why they run into issues.
  7. Due to the above point, the company is constantly improving the product and strengthening the growth flywheel.

At its core, Product-Led Growth is about crafting a product that resonates deeply with users, a product that they not only find useful but also genuinely enjoy using. This user satisfaction and love for the product naturally fuels the growth of the company, leading to a successful and sustainable business model.

How it’s different than Sales-led Growth?

Sales-led growth, as the name suggests, is a strategy where the sales reps takes the lead in driving the growth of the company. This approach often involves a heavy focus on direct sales efforts, such as cold emailing, meetings, and demos, to convert potential customers into paying ones.

The sales team is often the first point of contact for prospects, and they play a crucial role in guiding them through the sales funnel. In a Sales-led model, the focus is often on Sales Qualified Leads (SQLs), which are potential customers that have been vetted by the sales team as good fits for the company’s product or service.

However, Product-led growth offers a different approach. It shifts the focus from the sales team to the product itself.

In a Product-led growth model, the product is the main driver of customer acquisition, retention, and expansion. This strategy relies on the product’s value to attract, retain, and satisfy customers, rather than direct sales efforts.

In this model, the emphasis is on Product Qualified Leads (PQLs), which are users who have experienced the value of the product during a free trial or freemium model and are more likely to become paying customers.

Sales-Led GrowthProduct-Led Growth
DefinitionDirect sales driven by sales team.Growth driven by product.
FocusOn SQLs.On PQLs.
InteractionSales team leads customer journey.Product experience leads.
Growth DriverSales team efforts.Product value and usability.
TeamProactive sales force.Cross-functional, focuses on product.
Conversion RateHigher, personalized engagement.Higher volume, variable rate.
Acquisition CostHigher, resource-intensive.Lower, automated processes.
SLG vs PLG

This fundamental difference in approach results in a number of operational and strategic differences between the two models. From customer acquisition strategies to customer relationship management, the contrast between Sales-led and Product-led’ growth strategies can be significant. Understanding these differences is crucial for companies to choose the model that best fits their business strategy and goals.

Moreover, there’s a hybrid model known as product-led sales.

In this model, the product still leads the way in acquiring and engaging customers, but the sales team plays a supportive role in converting and expanding high-value accounts. The sales team steps in when a user or account shows signs of high engagement or potential for upselling or cross-selling.

Why PLG works for SaaS Companies

In the fast-paced world of Software as a Service (SaaS) companies, finding the right growth strategy is crucial. One method that has proven to be exceptionally effective is Product-Led Growth, often abbreviated as PLG.

There’s more to the advantages of a product-led growth. As per OpenView, the valuation of product-led businesses is over 30% higher compared to the public-market SaaS Index Fund.

The statistics source is Bessemer Venture Partners

But why is this the case? What makes PLG such a powerful tool for SaaS companies?

In this section, we will delve deeper into understanding the reasons behind the success of PLG in the SaaS industry.

Let’s dive into all those reasons:

Delivers faster outcomes

In contrast to customer-led or sales-led SaaS companies which try very hard to convert the first customer and have a high cost per conversion, PLG is quicker.

You need to set up a free version of your tool, make sure it provides as much value as it costs, and make sure to find people who actually need this product.

While it sounds difficult in writing, doing this is much easier than sending cold outreach emails all day long, or sitting through endless demos just to find out that the lead wasn’t even a lead at all.

In short, PLG minimizes the effort you spend and the amount that goes to waste – hence, faster growth.

That is probably also why 91% of companies that already use a PLG approach plan to invest more in PLG, while no companies plan to decrease their investment.

Better fits for the modern world

In the last decade, the business landscape and customer experiences have drastically changed. This shift towards digitalization, independence, and immediate access to value has made traditional sales-led approaches less effective. It’s paved the way for innovative strategies like Product-Led Growth, a response to the demands of the modern world.

70% of customers prefer self-service onboarding experiences over demos or in-person training.

Self-service onboarding is a key method in the PLG approach, hence, it’s common to see a freemium model or a trial period in product-led growth companies. This approach allows potential customers to test out the product’s features and understand its value proposition before making a commitment.

It’s an effective way to demonstrate the product’s capabilities and build trust with users, thereby increasing the likelihood of conversion.

45% of SaaS vendors have transparent pricing, and this number is likely to increase because the first thing a potential customer looks for is the price. If they can have a quick glance at it immediately, they are more likely to trust you and convert.

Lowers customer acquisition costs

Your product does the selling for you. It’s designed and developed in such a way that it naturally appeals to users and encourages them to convert into paying customers. This approach is highly efficient and can significantly reduce various costs associated with traditional sales methods.

The 2023 SaaS Benchmarks Report by OpenView suggests that interactions with the product are key to reducing customer acquisition cost (CAC). By enabling customers to interact with the product before any sales approach, companies can boost their revenue influenced by the product.

The report includes data on the revenue influenced by the product, broken down by different product experiences, such as contacting sales/requesting a demo, self-serve free trial, and self-serve freemium.

This data serves to underline the effect of product interactions on CAC and underscore the value of product led companies implementing PLG strategies.

Boosts customer retention rates

Product-led growth doesn’t just focus on acquiring new customers, it also prioritizes retaining existing ones. By focusing on creating a product that users love and find useful, PLG companies can maintain high customer retention rates.

When customers find value in a product, they’re more likely to continue using it and less likely to switch to a competitor. This is especially true if the product continues to evolve and improve in response to user feedback and needs.

Furthermore, happy customers are more likely to become brand advocates, spreading the word about your product and attracting new customers. This organic growth can be a powerful driver of long-term success for SaaS companies.

In a world where customer acquisition costs are constantly rising, retaining existing customers is more important than ever. By focusing on product-led growth, companies can create a sustainable growth model that values long-term customer relationships over short-term sales.

Increased income per employee

From the financial perspective, Product-Led Growth (PLG) works for SaaS companies because it drives incremental growth and improves efficiency. By leveraging product-based solutions, SaaS companies can replace manual work with automated processes, resulting in increased productivity and cost savings.

PLG also focuses on product-influenced revenue, which measures the amount of net-new revenue generated from customers who have interacted with the product before engaging with sales. This metric is particularly high for SaaS companies that offer a self-serve freemium plan, accounting for approximately 90% of their total revenue.

However, it’s important to note that simply offering a freemium plan is not enough, as the percentage of product-influenced revenue can vary significantly between companies, ranging from 28% to 100%.

Successful SaaS Companies Adopted Product-Led Growth

There are various companies that prove PLG works best in 2023. You probably already know of Slack, Zoom, Dropbox, HubSpot, Atlassian, Notion, and so on.

But have you heard of these hidden gems that rocked the way a PLG strategy is used?

Grammarly – On the spotlight

Grammarly is also a very well-known company, but the details of the PLG strategy they use are often overlooked.

Grammarly’s tip elements

First of all, Grammarly completely re-conceptualized the notion of “self-serve onboarding”, and they created a complete demo experience that works on its own to hook all users that use it.

Grammarly also gives a good taste of what the premium features can provide even without giving access to them.

Grammarly has a product-led landing page design

Their landing page is also easy to browse, and what you see above the fold consists of fully PLG elements:

  • A signup button,
  • A clear button on the pricing page,
  • And a quick demonstration that proposes certain values.

Keyhole – Immense growth

Keyhole is a social listening and influencer marketing platform that businesses and individuals can use to measure the full impact of their marketing efforts. 

When you look at the website, it is not very different from any PLG tool.

keyhole increased conversion rate with product-led growth
Keyhole increased trial conversions by 550% with product-led onboarding

But when you dive into their background and data, you can see how much PLG has helped them grow.

In this success story by UserGuiding, you can see that implementing a self-serve and onboarding process along with interactive checklists helped Keyhole increase trial conversions by 550%.

They realized that people who saw a sample dashboard of their tool were more likely to convert. So, they decided to implement more PLG methods, and voila.

Octadesk – Shifting the strategy

Octadesk is a software company that provides a SaaS multi-channel platform for customer support, help desk, and service desk.

product-led growth saas example
Octadesk increased its NPS score with a product-led growth

Octadesk didn’t actually have a problem converting users with a sales-led strategy. Their sales were steadily increasing. But they weren’t growing.

And they realized that this is because their churn is also increasing. And their NPS scores were low.

So, they increased communications within the teams, and between the groups, and focused on implementing product-led strategies to reduce the load of the support team.

They were successful. Their NPS score went up by 25 points, and their support calls were reduced by 97%

Calendly – Making easy to start

Calendly PLG

Calendly is a tool that helps people schedule meetings easily. They focused on making a really useful product that solves a problem – making it easier to plan meetings. Because the tool was so helpful, people started using it a lot and telling others about it without Calendly having to push for sales.

This sharing by users helped Calendly grow naturally and fast. The idea is simple: make a great product that people need, and then those happy users will help spread the word. Calendly did this very well, showing how focusing on what users need can lead to big growth.

Conclusion: The Future is Product-Led SaaS

All in all, product-led strategies make your job easier and convert better at the same time.

Instead of relying on uncertain leads such as MQLs, or hard-to-convert leads such as SQLs, you should determine who your PQLs – your Product-Qualified Leads are, and move towards that direction for your SaaS.

As digitalization takes over, remote working becomes a necessity rather than a luxury, and people want to become more independent in the digital actions they take; PLG becomes stronger.

Join the tide as early as possible. And don’t forget that no time is earlier than right now.