What is product-led growth? A fantastic strategy built for consumers and companies

Updated On: December 06, 2019
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The way in which people buy and use software is drastically changing. Consumers are more eager to try a product than to converse with a salesperson—paving the way for a product-led growth approach. 

Letting your product lead means companies must reconfigure their marketing, sales, and service strategies to keep up with consumer demands. Since the future is product-led, I’m going to walk through what product-led growth means, the main principles of it, and some great examples. 

What is product-led growth? 

Product-led growth is a strategy that uses product value to pursue growth and expansion in a market. The main principle behind product-led growth: have a product users can’t live without. 

The traditional approach to SaaS growth involves building a product, then hiring a sales team to sell the product. Product-led growth is a bottoms-up approach in which your company develops a methodology that enables people to discover and adopt your product on their own. It allows people to try before they buy. 

The main principles behind product-led growth

There are some principles to consider behind product-led growth. I’ll walk you through leveraging product need, using that need to expand, and using your product to retain and acquire customers. 

Leveraging your product need

Building an original product isn’t easy, but once you’ve built something that satisfies the needs of entire markets, you know you’re on the right track. Take Dropbox for example. It developed a product people desperately needed—easy file sharing. Dropbox used the need for its software as leverage in its growth strategy. I’ll unpack Dropbox’s product-led growth success later in this post. 

Using your product to expand 

If customers love your product, upselling and cross-selling become easy. Upselling and cross-selling are the primary drivers of expansion revenue. You can upsell customers by upgrading them to a larger plan, and you can cross-sell customers additional features to augment the service they already have. You can leverage your product value to build revenue beyond the primary product. 

Keeping retention high through product satisfaction 

The key to product-led growth is keeping retention as high as possible, and churn as low as possible. You do this by making your product indispensable in a customer’s daily life. 

Acquiring new customers through strong referrals 

Acquiring new customers is easier when they learn about you through word of mouth. Take G Suite for example. Google doesn’t employ an “in your face” referral approach—it’s subtle. You can send anyone a Google Doc. Non-Google users don’t have to join Google to view the document, but it would make idea-sharing much easier. Consequently, obtaining it makes it and easy and logical choice. Google’s product is easy to use and share; once one person sends a link, the product spreads like fire. Today, universities, organizations, and individuals rely on G Suite products for daily tasks. 

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The key to your growth? An awesome product

You can’t grow unless you’ve built a product that shows real value. If your product can easily be replaced by 10 other competitors, you haven’t truly leveraged the needs of your customers. You need to create a product that your customers cannot do without. Having a solid product will inspire growth through multiple channels. Building a solid product means understanding what your customer truly values and tailoring it to their demands. 

2 acquisition models to ignite your product-led growth

There are two acquisition models that go hand-in-hand with product-led growth: the free trial model, and the freemium model. The difference between freemium and a free trial model is time. Under a freemium model, the customer can use the free features forever. A free trial is only free for a set period of time.

Free trial model

The free trial model is extremely popular, but not always as effective as the freemium model. The free trial model gives customers a short demo period, ranging from one to two weeks, or even a whole month. Once the demo runs, customers will hopefully buy your full-scaled product. Some companies even require inputting credit card information at the beginning of the trial and will automatically start charging once the trial ends—requiring some diligence from the customer. 

Freemium

Freemium is a fantastic acquisition model (not a revenue model) and can get customers started using a product that is 75% of your full product. Customers over time use the freemium option so much that they opt for the full product. To drive retention, we recommend freemium over a free trial. Freemium is something we’ve researched quite a bit. For a deeper look into freemium, download The Freemium Manifesto, which addresses some pitfalls, but shows how ultimately, freemium will bring customers into your subscription ecosystem.

Measuring your growth through analytics

You have to measure growth to know if your product is gaining traction or not. There are a wide range of analytics you can track, but I’ll unpack the top four. 

1. Revenue

Revenue is an easily traceable number that will tell you what you need to know, like whether you made more or less than last year. You can track revenue monthly—monthly recurring revenue (MRR), or you can track it annually—annual recurring revenue (ARR), which is simply you MRR times 12. 

2. Churn rate

Churn rate is the percentage of customers who leave your service over a given period of time divided by the total remaining customers. Your churn rate should gradually be going down as you acquire more customers through product-led growth efforts. Tracking churn rate is vital because it’s a direct reflection of the value of your product and features that you’re offering customers. 

3. Usage

Companies that have high usage rates have leveraged their product’s value to get the most of their customers. This simple statistic can show how much customers are in need of your product. To maximize revenue from usage, use a value metric. By doing this, you can scale the price of the product directly with how much value the user is getting from the product. 

4. Referral rates

Is your company getting tons of new users through referrals? This indicates you’re providing real value. Incentivizing customers to refer other customers is a great way to get more users. Uber, Dropbox, and PayPal are some examples of this. 

The one place to track all metrics: ProfitWell Metrics

ProfitWell Metrics provides a fantastic overview of everything happening in your subscription business. It’s been trusted by more than 10,000 successful SaaS companies. ProfitWell accounts for more than 1,000 edge cases to ensure your financial metrics are accurate. It also offers optional paid add-ons to reduce churn and improve pricing. Benchmarks is included with Metrics, a tool revealing how your metrics stack up against the largest data set in the subscription universe. Get started for free today.

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Some of our favorite product-led growth stories

So many companies are employing a product-led growth strategy—Slack, Salesforce, Spotify, etc. Each company has a unique success story, but as promised, I’m going to breakdown Dropbox’s product-led growth journey. 

Dropbox

Dropbox is a great example of product-led growth because the product has lent itself well for sharing and acquiring more users. Dropbox has reached $1 billion in revenue in less than 10 years. Its product-led growth strategy is straightforward and certainly effective. 

OpenView looked at how Dropbox’s product-led strategy delivered a one-two punch. First, Dropbox developed a simple, usable product meeting market demand. It quickly became the best tool for file sharing. Second, it introduced features designed to take advantage of the viral factor. Users earn more storage credit by sharing a referral link. This referral tactic helped Dropbox gain new users while enhancing the experience for existing users. Shared links are user-friendly because people can share files without the recipient needing a Dropbox account. 

dropbox

Advice from an expert 

Product-led growth is something our team has talked about extensively, specifically on Recur Now. In one episode, our team spoke with Despina Exadaktylou, Founder of Reinvent Growth and author of The State of Product-Led Experience: Insights & Data Derived from the Practices of 40+ Product-Led Organizations. She’s an expert in product-led growth as her agency is focused on helping SaaS companies implement and scale a product-led go-to-market plan. 

Exadaktylou’s advice for product marketers:

"Not to be afraid of the transition because eventually the products that are going to survive are those that capitalize on their own superpowers. And trying—even though the transition to a product-led go-to-market model may not be something done overnight—try to capitalize as much as possible on product experience, which is also a very new concept. And see how they can shift the mindset of the end user and the buyer toward a more modern way of buying and trying a SaaS product."

 

Compete with product-led growth

We live in an age of incredible competition. It’s become remarkably easy to start a subscription company and build a product. With that, customer acquisition cost is higher than it’s ever been, and the number of competitors are increasingly high. Having a product that drives its own growth will significantly reduce CAC and the amount of sales resources you need to grow. Implementing a product-led growth strategy is the smart way to go for any aspiring SaaS or subscription company.

 

Tags: product

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