The Role of Product-Led Sales in a Freemium Business Model

Businesses with product-led growth (PLG) in place have made a revenue-boosting discovery: the sales team. You might think, well, that’s no brainer! But think again.

Instead of aggressive sales methods, these companies have built a framework with new, product-led sales teams. Product-led sales (PLS) approach usually uses a freemium business model or free trial.

While offering free products or services with core functionality, the paid tiers let users upgrade for more functions. These freebies help companies increase adoption, collect user action data, and extend their consumer base on a budget.

Still not sure how offering something for free help generate revenue?

Let me explain 🙋‍♀️

TL;DR

• If you’re evolving into a product-led company, you are undoubtedly interested in your business’s financial future.
• This article explains how product-led sales propose free products or freemium business models to drive growth.
• It explores the structure of the freemium pricing model and the benefits of integrating it into a PLS system.
• A few examples of companies that use freemium models including Asana, Atlassian, and GitHub, and how they succeeded.

Product-Led Sales: A Paradigm Shift in Revenue Generation

The product-led sales (PLS) model is revolutionizing the customer journey. It places the product at the center of the experience to guide the users toward conversions.

Users have nothing to lose and everything to gain here. This model allows them to explore and experiment with the product before making a purchase. This is done through free trials and free-forever pricing plans.

The freemium business model provides the customers with substantial proof of the product’s value. And this experience is the ultimate goal of the product-led sales model.

What Is Product-Led Sales?

It’s hard to believe that many product-led companies have a sales team that runs without a clear strategy. This setup leaves the reps unsure about how to proceed.

What should they follow? Market trends or competitors’ efforts? Perhaps the new product feature launch? The answer is none of the above! For starters, a product-led company needs to:

1. Know its potential customers (ICP to decide on their PQLs)

2. Be able to draw a clear map of the user journey. 

These two concepts come together only if the company can reduce the friction between the user and its product. A typical product-led brand relies on self-service to achieve this.

Unpacking the Freemium Business Model

Yes, freemium options are completely free. However, these models let you collect user data and analytics that are not otherwise accessible.

But what makes this data valuable? 

The quality of data you collect from the product, user actions, and analytics can make or break a business’s success. This info lets you handpick your product-qualified leads using data filtering and analytics.

SaaS companies use these practices to create robust and high-converting strategies. But that’s not all! They also provide an option to unlock features at the right touch point. Done right, this model can bring in the buck and much more for your business.

What Does ‘Freemium’ Mean

The word “freemium” is a combination of “free” and “premium.” The term was initially introduced by Jarid Lurkin and popularized by Fred Wilson, who referred to it as his preferred business model:

“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base.”

Jarid Lurkin

Freemium is a business strategy that markets a free version of a product or service with basic functionality. Subscribers can use the free version for as long as they like.

Meanwhile, the company will gently encourage them to consider the paid version with extended features. 

Key Characteristics of a Freemium Business Model

Traditional pricing models sit at the bottom of high-churn sales funnels. It means users can see the promised value of a product only after they pay for it. Instead, the freemium model focuses on providing immediate value to users.

What else does it offer? Well, let’s see:

• Free Access: Users have free access to the main features of the product or service.

• Limited But Core Functionalities: The free version could come with a few restrictions or limitations on functionality. However, consumers can unlock features through a paid subscription. 

• Possibility of Including Upselling and Premium Options: The company offers premium or paid versions with expanded features and functionality.

• Segmenting Customer: The segmentation includes both free users and potential paying customers for targeted communication and more.

• Displaying Product’s Value: The free version highlights the worth and advantages of the paid tier.

• High Potential of Scalability: The model is built to support a large number of users and constantly draw in new ones.

• Data and Metrics: Collecting user data and metrics to track user behavior in order to find new consumers for upselling and enhancing the offering.

• Lifetime Value and User Retention: The emphasis on customer retention to promote sustained usage and customer satisfaction.

• Ongoing Improvement and Innovation: Constant development, upgrades, and new features.

Generally, there is a noticeable difference between the free and premium plans. This leap is intentional so that you can entice free users to want the benefits of paid subscriptions.

Combining Product-Led Sales and the Freemium Model

The product-led sales model redefines the awareness stage by taking it to a whole new height. Without any upfront financial commitment, almost any inserted prospect would give it a try. 

This is an inclusive approach. It attracts a range of potential customers while fueling your organic marketing. And you know the rule: satisfied users spread positive word-of-mouth.

After establishing the building blocks of your Product-Led Sales system, it’s time to integrate your sales strategy with the freemium model. Your customer journey starts well before they make a purchase, but the product journey begins with onboarding.

Delivering a successful onboarding experience starts with a core product-led principle: guiding users towards behaviors that lead to success.

Integrating Freemium Models with Product-Led Sales

Let’s start with some questions:

How do product-led businesses integrate freemium into their PLS? And what are the key principles they should consider? Here are some pointers that can shed light:

• Changing The Existing Sales Practices: Hard-selling to strangers creates friction and increases your customer acquisition costs. Instead, focus on self-service models and targeting existing customers.
  
• Becoming Product-Led: Efforts like training the sales representative, forgetting the idea of selling to people who aren’t ready to buy, keeping an eye on customer support, collecting user feedback, and anything in between.
  
• Building Cross-Functional Teams: You can begin by specifying your KPIs, objectives, data assessment standards, and projected expenses. Also, make sure that everyone across different teams is on the same page.
  
• Creating a List of Product-Qualified Leads (PQLs): When identifying your PQLs (based on customer fit, product usage, and intent), you’ll also need to define the reach section. This creates a clear plan of action for your team.
  
• Hiring the Right Sales Reps: PLS teams need people who are data-driven, value-oriented, and customer-centric. You can train your existing team or hire new members. Most companies consider recruiting generalists who can manage various roles for early-stage companies.
  
• Putting Your Strategy into Action: Who doesn’t want a complete playbook that tackles critical factors? Create a guide that differentiates between self-serve and sales deals, becomes an info distribution center throughout the whole team, defines your objectives, and makes frequent training sessions a possibility.

How Product-Led Sales Complements Freemium Business Models

Freemium business models and product-led sales are a match made in heaven. Freemium draws a more extensive user base while letting companies highlight their products’ features.

PLS, on the other hand, focuses on nurturing and helping consumers to become paying customers. In both scenarios, the product-led strategy puts the user experience at the center of the sales process.

What are the other benefits of this magic combo? Have a look at these highlights:

• Tailored for Self-Service SaaS Products: A product-led sales model aligns well with the self-service qualities of SaaS. Users can discover the product’s value at their own pace, which increases their conversion chances.
  
• Expanding Sales from Awareness to Purchase: Offering freemium or free trials attracts a larger audience while spreading the word of satisfied users who share their experiences.
  
• Allows Value Metric-Based Pricing Model: PLS often runs on a value metric-based pricing model. It means that it aligns costs with the value the customer receives. Not only does it make sense for users to continue using the product, but it also boosts customer retention.
  
• Reduces Customer Acquisition Cost (CAC): Product-led sales reduce CAC. How? It’s simple. Freemium and free trials let users experience the product’s value upfront, leading to lower acquisition costs.

Have you implemented any of these principles yet, and which ones are still in need of implementation?

Practical Examples of Product-Led Sales in Freemium Models

Several years ago, companies like Slack, Zoom, and Atlassian successfully integrated sales into their PLG strategies. Instead of conventional sales approaches, these SaaS giants focused their sales efforts on their existing user base.

The effectiveness of their approach created a new school of thought: The product-led sales motion that helped businesses maximize sales efficiency and drive growth.

Here’s how they did it:

Asana

Asana is a leading task management software that runs on a freemium business strategy. Their strategy is straightforward: guide existing users toward plaid plans and turn them into commercial clients.

The free plan offers enough to hook the users. They can interact with their team members using Asana’s freemium plan, which includes writing comments on tasks, adding files, referencing others, and more. 

Here are Asana’s main freemium features:

• Unlimited number of tasks within the users’ workspace
• Several viewing options to visualize tasks and projects
• A simple user interface and unlimited storage

Anyone passionate about productivity, collaboration, and task management, really enjoys Asana. The platform’s outstanding features and capabilities make it a deserving recipient of the Editors’ Choice award for collaboration apps.

Atlassian

Atlassian probably doesn’t need an introduction. Their products are also offered in freemium plans, allowing users can get free access to their software before upgrading to premium.

The top three freemium features offered by Atlassian are:

1. Letting the product guide the sales process
2. Customer-driven engagement and easy UI
3. Shortened sales cycles

Atlassian’s goal is to remove obstacles and streamline the customer experience. This way, their consumers can simply point, click, purchase, and begin using their product without trouble or drawn-out sales procedures.

GitHub

GitLab is a super popular yet ungated code hosting platform. Their pricing strategy permits up to 5 (collaborative) users to use the platform at no cost. As businesses grow, users upgrade to paid plans to unlock limited functionalities.

The following are the highlights of GitLab’s freemium tier: 

• Access to a robust Git-based version control system
• A complete CI/CD pipeline system for automation
• Unlimited collaborators on unlimited public repositories 

Git is a distributed version control system that is open-source and free to use. Besides features, their product-led pricing strategy has significantly contributed to the company’s success as a business.

The Benefits of Product-Led Sales for Freemium Businesses

Free plans are loved by everyone. With it, a broader audience can explore and experience your product. This opens doors for more people to engage with your product and potentially become loyal customers.

Are you ready to take the leap? if not, here are some more benefits of combining your PLS strategy with a freemium strategy that helps make up your mind: 

• Increased User Adoption: Once customers experience a product’s value and advantages, they are likely to upgrade and even suggest it to people they know.

• Efficient Customer Conversion: An easy user interface and product-led education make converting free users into paying customers simpler.

• Easy Acquisition and Rapid Growth: The PLS products that are offered through a freemium plan have a low barrier to entry, such as not requiring credit card details. You can use these low-friction models to build a broad customer base and do it fast.

• Higher Retention Rates: Over time, users become more dependent on freemium products. This technique promotes retention and lowers the likelihood of them switching to competitors’ platforms.

• Revenue Generation: Companies can monetize the free tier through user data, metrics, upgrades, and display advertising for free users. 

• Versatility: Some free users are ready to convert to premium status. But those who aren’t willing to subscribe yet become a part of the free user base and help attract new customers.

The Power of Product-Led Sales in Freemium Models

Embracing a product-led sales strategy goes beyond offering free trials or freemium models. First, you’ll need an in-depth understanding of your customers, their challenges, and how your product can help them.

After careful strategic planning and extensive research, you’ll need to experiment. Every aspect of your business should work to ensure your product responds to the needs of your target audience.

This is to say; there’s no one-size-fits-all solution. Sure, you can find inspiration in how other freemium models get results. However your strategy needs to be tailored to your own company structure, users, and product.  

Frequently Asked Questions