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PLG flywheel
PLG flywheel
PLG flywheel

Ultimate guide to Product-Led Growth: history, Slack/Calendly examples, metrics, transition, pricing, trends, SaaS FAQs.

What is Product-Led Growth?

Product-led growth (PLG) is a go-to-market strategy focused on the product itself as the main driver of customer acquisition, conversion, and expansion. Unlike traditional sales-led models, PLG relies on the product experience and virality to generate growth rather than outbound sales efforts.

With PLG, the product acts as the primary vehicle to acquire, convert, and expand accounts. The model is based on a self-serve, bottoms-up motion where users can onboard, try the product, and even purchase it with little direct sales interaction.

The core principles of PLG include:

  • Product-first focus - Rather than leading with sales and marketing, the product experience comes first. Products are designed to drive their own adoption.

  • Self-serve model - Users can easily sign-up, onboard, and experience value from the product through free trials or freemium offerings without sales assistance.

  • Viral adoption - Products have viral loops, network effects, and incentives built-in to encourage user referrals and organic adoption.

  • Data-driven optimization - PLG products heavily leverage usage data, analytics, and experimentation to optimize the user experience.

In summary, PLG focuses on leveraging an exceptional product experience to acquire and convert users at scale rather than relying on traditional sales motions. The product is the main vehicle to drive growth.


A Brief History of PLG

Product-led growth (PLG) has emerged as a go-to-market strategy for software in the past decade, but it has its roots in software sales models that evolved over previous decades.

In the 1980s and 1990s, the predominant model for selling software was through field sales reps who would go door-to-door to pitch products to potential customers. This was an expensive model that didn't scale well.

In the 2000s, inbound marketing and inside sales gained popularity as lower cost models for reaching customers. Companies invested in content, SEO, and digital advertising to attract potential buyers into their sales funnel.

But even with inbound marketing, software sales still depended heavily on sales reps closing deals. The product itself wasn't the main vehicle for acquiring customers.

That started to change in the 2010s with the rise of SaaS and subscription models. Companies like Slack, Zoom, and Calendly built out freemium models and leveraged virality and word-of-mouth growth.

The product experience itself became the primary driver of customer acquisition. Interested users could easily sign up, try the product, and spread it within their organizations. This product-led approach opened up software to bottom-up adoption and tapped into new viral growth channels.

PLG has now become a proven go-to-market strategy, especially for SaaS companies selling to developers, teams, and businesses. Instead of pursuing top-down sales, PLG companies focus on building great products that users want to try, adopt, and share. The product is the main vehicle for growth.


The Business Benefits of PLG

Product-led growth (PLG) offers some compelling benefits for companies that get it right:

Better Products Built Around Customer Needs

PLG puts the product front and center as the main vehicle for acquiring and retaining customers. This means the product has to actually solve users' problems and deliver value. With PLG, companies are incentivized to build great products that users love, rather than selling mediocre products through aggressive sales tactics. The product becomes the core focus.

Faster Growth Through Virality

In a PLG model, viral product features such as invites, referrals, and in-app sharing can accelerate growth. When you build virality into the product and get users to invite their network, you can achieve faster growth than traditional sales models. Slack grew in part through viral invites sent by users.

More Capital Efficient Growth

PLG can also be more efficient in terms of lower CAC. Without huge field sales teams, companies can acquire customers for less through viral, product-led techniques. This translates into faster growth with less capital burned.

Access to Bigger Markets

Since PLG removes friction by allowing users to sign-up, try the product, and pay, it opens up new market segments that were previously under-served or hard to reach with a traditional sales approach. PLG enables access to bigger total addressable markets.

In summary, PLG done right aligns incentives around building great products users love. This can ultimately translate into faster, more efficient, and less capital-intensive growth.


Examples of PLG Companies

Some of the most well-known and fastest growing SaaS companies have adopted a product-led go-to-market model to fuel their growth. Here are a few examples of successful PLG companies:

Slack

Slack is a great example of a viral, bottom-up adoption PLG model. The core of their product is focused on seamless collaboration and communication between teams and individuals. Slack makes it extremely easy to onboard and start using the product for free. They also built in virality through features like public channels which anyone can join.

Slack facilitates a network effect where the more users brought on, the more valuable the product becomes for the entire organization. This viral, product-led approach allowed Slack to grow exponentially to over 12 million daily active users without relying heavily on traditional sales.

Airtable

Airtable is a collaborative database and spreadsheet tool built for ease of use. Like Slack, Airtable makes it simple to get started for free without mandatory training or complicated setup.

Airtable derives much of its growth through word-of-mouth and user content sharing. The flexibility of the product allows users to create powerful applications and workflows that can be showcased publicly to drive viral interest.

Calendly

Calendly, the popular scheduling and appointments platform, is an example of a product where ease of integration and use are core to the PLG model. Users can immediately start using Calendly to schedule meetings with no complicated setup whatsoever.

Calendly also utilizes product integrations and an API to spread virally across organizations. The more users who install Calendly, the more valuable the product becomes through network effects.

These PLG company examples highlight the themes of focusing on ease of onboarding, facilitating viral adoption, and building products where usage drives value and growth. By leading with an exceptional product experience, PLG companies are able to acquire and expand within accounts in a scalable, organic way.


Key PLG Metrics to Track

Understanding metrics is crucial for any company adopting a PLG model. There are several key metrics that PLG companies should focus on to measure the success of their strategies.

Growth Rate

One of the most important metrics is overall growth rate, which can be measured by month-over-month growth in monthly recurring revenue (MRR) or annual recurring revenue (ARR). Since PLG relies on viral product adoption, companies should aim for exponential growth rates. Growth of 50-100% year-over-year is common for successful PLG companies.

Net Dollar Retention

Net dollar retention measures a company's ability to retain and expand revenue from existing customers. This shows whether customers are deriving enough value from the product to continue paying over time. PLG companies should target 120%+ net dollar retention to account for viral expansion.

Product Qualified Accounts

PLG companies rely on users to organically discover and sign up for the product. Tracking product qualified accounts (PQLs) shows how well a product converts visitors into free signups or trial users. A high percentage of visitors converting to PQLs indicates strong product market fit.

New ARR vs. Burn

Since PLG companies invest heavily in the product for growth, new ARR should significantly outpace burn rate. Analyzing new ARR generated monthly compared to cash burn provides a solid health check. The best PLG companies generate 3-4x or more new ARR versus burn.

Tracking these core metrics provides critical insights into the health and sustainability of a PLG model. Companies should establish goals for each and monitor them closely.


Transitioning to a Product-Led Model

Transitioning from a traditional sales-led go-to-market model to a product-led growth model can be challenging, but possible to achieve with the right strategy. Here are some key ways to enable the transition:

Focus on Improving Trial Experience

Make it extremely easy and frictionless for new users to try your product. Offer a generous free trial or freemium plan with plenty of features available. Remove any hurdles to getting started. The trial experience sets the tone for your onboarding and conversion funnel.

Build Virality Into Your Product

Engineer viral loops and network effects directly into your product experience. Integrate social sharing, collaborator invites, chat/messaging features, integrations and API access to help drive organic word-of-mouth growth.

Embrace Product-Led Marketing

Shift your messaging and campaigns to align with product-led growth. Make it easy for potential users to try the product from your website, landing pages and ads. Prioritize product demos and free trial promotions over form fills.

Enable Self-Service Buying

Streamline and automate your sales processes for frictionless self-service buying. Provide transparent pricing, in-app upgrades and easy checkout. Support free users with in-app messaging and prompts to convert.

Invest in Product-Qualified Leads

Focus sales efforts on product-qualified leads who have engaged in a meaningful way. Identify and prioritize trial users exhibiting product interest or expertise for sales to follow up.

With the right strategy tailored to your product and users, the transition to PLG can unlock exciting new growth opportunities.


PLG Implications for Pricing

Product-led growth has significant implications for how SaaS companies approach pricing. Rather than traditional per seat pricing, PLG companies often utilize:

Freemium Models

Freemium models with a free version or free trial are very common in PLG companies. This allows users to experience the value of the product before needing to provide payment information. A freemium model reduces friction for signup and makes it easy for new users to get started. Slack, Dropbox, and Calendly are examples of major SaaS companies using freemium models to fuel growth. The key is to make the free version compelling enough that users are hooked and want to upgrade to paid plans for full access.

Value-Based Tiers

Rather than pricing based on number of seats, PLG companies often use tiered plans based on the value delivered. For example, Calendly has basic, pro, and enterprise tiers. This aligns pricing to the use case and needs of the customer. Companies can design tiered plans that nudge users to expand usage and upgrade over time. Value metrics like number of users, storage, integrations, and capabilities can define the tiers.

Easy to Upgrade

A core tenet of PLG is making it seamless for users to upgrade and expand their usage. Companies should minimize friction during the upgrade process. Options like one-click upgrades, in-app notifications about new features or value in higher tiers, and easy self-serve upgrades are common. The path from free to paid should be clear and require little sales involvement.

In summary, PLG shifts the pricing emphasis away from rigid per seat models to flexible freemium, value-based, and easy upgrade options. This aligns closely with the product-led motion of acquiring, retaining, and expanding accounts.


The Future of PLG

Product-led growth is poised to continue gaining popularity, especially amongst SaaS and developer tools companies. As more businesses realize the benefits of PLG, we'll see even more transitions from traditional sales-led models to product-led models.

However, the increasing competition will force companies to constantly innovate on their PLG techniques for acquisition, expansion, and retention. The bar will be raised for delivering an exceptional onboarding experience and building virality into the product. Companies will need to experiment with new pricing models and packaging to optimize expansion revenue. Retention will take more creativity as users have more options to switch products.

The future is bright for PLG, but staying ahead of the curve will require tapping into customer insights around where frustration points still exist. Finding ways to further simplify and delight users throughout their journey will become a competitive advantage. Companies will also need to marry PLG with a solid go-to-market motion to achieve optimal growth.

In summary, PLG is poised for continued popularity but will require ongoing innovation to stay ahead of the competition. Companies that can tap into user insights, simplify customer journeys, and blend PLG with sales and marketing have an opportunity to join the elite group of product-led growth success stories. However, a "set it and forget it" approach will lead to being left behind as more businesses make the PLG transition.


Product-Led Growth FAQs

What is product-led growth?

Product-led growth (PLG) is a business strategy focused on acquiring, retaining, and expanding customers primarily through the product itself rather than more traditional sales motions. The goal is to get users to experience the value of the product firsthand through things like free trials, freemium offerings, in-app messaging, and viral loops.

How does PLG differ from traditional sales models?

In traditional sales models, a sales team drives customer acquisition through activities like cold calling, email outreach, and field sales. Product-led growth flips this model by making the product the main vehicle for getting users and converting them to paying customers. PLG companies invest more in the user experience and product marketing than heavy touch sales motions.

What types of companies use PLG models?

PLG models are most common in SaaS, developer tools, and other digital products where users can easily sign up and experience the product on their own. Companies like Slack, Zoom, Dropbox, and Canva have grown rapidly through viral, bottom-up adoption fueled by the product experience.

What metrics are important for PLG?

Some key PLG metrics include trial-to-paid conversion rate, viral coefficient, product qualified leads (PQLs), time to first value, and net revenue retention. These provide insight into how well your product converts and retains users.

How do you transition from sales-led growth to PLG?

It requires rethinking go-to-market around the user experience. Companies need to invest in self-serve onboarding, in-app messaging, viral loops, and bottoms-up adoption. It also requires marketing and sales to align closely with product development.

What are the challenges with PLG models?

It can be difficult to viral loops and retention. Companies must obsess over product-market fit. PLG also requires more upfront product investment for things like free trials and onboarding. Monetization can also be challenging if users get too much value for free.

Is PLG right for my company?

PLG tends to work best for digital products where users can self-serve and experience value quickly. But it depends on your market, customers, and business model. Some companies combine PLG with human sales touches when needed. Evaluate if your product can drive growth intrinsically before fully committing to PLG.


Conclusion

Product-led growth (PLG) is rapidly emerging as the go-to-market strategy of choice for many of today’s fastest-growing SaaS companies. By focusing on delivering an exceptional product experience through generous trials and freemium offerings, virality features, and bottom-up adoption, PLG companies are able to efficiently acquire and expand within accounts.

As we've covered in this guide, some of the key benefits of a PLG model include:

  • Building products that directly meet user needs through constant feedback and iteration

  • Achieving faster growth through strong word-of-mouth and viral effects

  • Requiring less capital investment in sales teams to acquire customers

  • Accessing larger addressable markets by reducing friction

  • Leveraging product usage as the primary driver of expansion and retention

However, PLG is not without its challenges. Companies need to carefully balance ease of adoption with pricing and value. As competition increases, standing out through excellent product experiences will be critical. Metrics like growth rate, retention rate, and product qualified accounts help companies track PLG success.

Overall, PLG represents an exciting shift in how modern SaaS companies go-to-market. By putting the product at the core of the customer journey, PLG companies can achieve incredibly capital efficient growth. While not a fit for every business, for those that embrace user-focused product design and iteration, PLG offers a compelling path forward.

Published on

Jan 16, 2024

in

Product-Led Growth

Chase Wilson

Chase Wilson

CEO

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Flywheel brings clarity to product-led growth. Experience the frameworks used by cutting-edge PLG marketing teams, all in one tool.

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Flywheel brings clarity to product-led growth. Experience the frameworks used by cutting-edge PLG marketing teams, all in one tool.