Embracing product-led growth: Principles, strategies, and metrics

When was the last time you got so excited about a product that you couldn’t stop talking about it?

I’m not a native English speaker, but I do love writing. Yet, reviewing my drafts had always been troublesome, and I had many blind spots. Once I heard about Grammarly, I immediately got my Chrome plugin and started using it. I couldn’t get enough of it.

My writing leveled up and I talked to everyone about it. A few weeks after using it, I upgraded to premium. That was in 2017 and since then I’m still an advocate of the tool because it helps me to be a better writer.

Grammarly uses a product-led growth (PLG) strategy focused on reducing time to value, increasing user engagement, and continuously improving its value proposition. Because of this, it has been able to grow rapidly within a five year period:

In this article, you’ll learn more about product-led growth, how it differs from sales-led growth, and how to go about implementing the strategy within your team.

What is product-led growth?

Product-led growth (PLG) is a way of using the product to boost business success and user growth. It focuses on simplifying user acquisition, activation, engagement, and referral.

The core of PLG relies on reducing time to value and relentlessly improving the user experience by creating multiple a-ha moments. Here are a few examples:

• Spotify — You discover a new song matching your taste through a weekly recommendation
• Substack — You receive shareable images in your mailbox to post on your social network
• Trade Republic — You earn interest rate on cash sitting in your account

5 goals of PLG

The core of PLG is creating a self-sustaining growth engine. Users stay because the product continuously increases value creation, which leads to referrals and organic growth. PLG hinges on five key goals:

1. Organic acquisition — The product should be highly intuitive with an outstanding user experience. Users should feel the product was made for them. The time to value should be as short as possible so organic growth becomes natural
2. Retention — Continuously deliver value to users so they have a reason to stay. The more the user interacts with the product, the better the experience. The more you use, the more precise the recommendations become
3. Premium conversion — Users should acquire as much value as possible without needing a premium version, but companies need revenue to survive. Giving users a reason to convert without a sales pitch is fundamental
4. Community — One of the keys to PLG products is building communities. For example, Slack has become better with more people using it. When users add, they increase the product value, which leads to the community while improving retention
5. Viral — A key goal of PLG is driving exponential growth from satisfied users. That’s why enabling users to bring their friends to the product as efficiently as possible is essential. This can be done by giving users advantages or rewards

Product-led growth vs. sales-led growth

Shall we talk about the big question? What about sales?

Product-led growth is a relatively new model compared to sales-led growth. For decades, companies invested significantly in sales teams because that was the standard way to drive customer growth.

Product-led and sales-led have several key differences. The most important are:

• Growth driver — In PLG, the product drives sales because of the value it creates and how users perceive it. In SLG, the relationship drives sales. The personal touch is fundamental, and a personalized sales approach will take place
• Customer journey — Another core difference is how customers interact with the product. With PLG, users generally have a freemium version, meaning they use the product without talking to anyone. Meanwhile, SLG is more traditional. Users receive presentations before any interaction with the product
• Scaling — PLG has a tremendous advantage for scaling because it needs more users to grow instead of more people to sell. SLG has a slower scaling model as it requires hiring more sales representatives. It’s essential to recognize that the product’s nature is critical. PLG works well when products can be easily understood, while SLG is a better fit for complex products

PLG and SLG are different strategies with advantages and disadvantages. It’s critical to understand what you aim to achieve and the complexity of your product so you can deploy the best strategy.

Implementing a product-led growth strategy

I imagine you may wonder about how to bring PLG down to Earth. Let me help you with that.

The first aspect is to understand your current scenario. When a company is sales-driven, moving to PLG will be a considerable shift and journey, yet possible. The critical aspects of implementing PLG are:

• Focus — The organization needs to focus on making the product more attractive so it sells by itself. This is a tremendous focus as the product becomes the core of the growth drive. This means that making the product more valuable to the user is everyone’s focus
• Metrics — The ability to measure results is vital to thrive with PLG. Yet, there’s a hint: PLG is about speed, so you need to use leading metrics instead of laggard ones
• Reduce time to value — How long does it take users to collect value from your product? How easily can users receive value? PLG means reducing time to value and facilitating user onboarding. You need to answer those two questions
• Feedback loop — You want satisfied and engaged users, so creating opportunities to collect feedback becomes the core of your approach. The faster you learn, the quicker you thrive

PLG isn’t a process; it’s cultural change.

Examples of product-led growth companies

Let’s look at a few companies nailing PLG and how each approaches it.

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• Notion — A flexible workspace all in one
  • Freemium model for single users
  • Easy to share templates, customize, and engage with other users
  • User-generated content, templates, and guides
  • 20M+ users, 4M+ paid
• Dropbox — Cloud storage
  • Freemium model with limited space
  • Auto sync with all devices
  • Easy to collaborate
  • Extra space in exchange for referrals
  • Collaborative spaces
  • 700M+ users, including 18M+ premium
• Spotify — Music streaming
  • Freemium model paid with ads
  • Extensive library
  • Improved recommendations based on listening habits
  • Users generated and curated playlists
  • Collaborative playlists
  • 600M+ users, including 236M+ premium
• Canva: SaaS Design platform
  • Freemium model excluding pro-assets
  • Wide range of free templates
  • Design trends and continuous recommendation of new templates
  • Design share triggers organic user growth
  • 135M+ users, 90M+ premium users

Note that all the above gives incredible user value for free users, but each has enough premium users to sustain the whole platform.

Measuring product-led growth

To measure the success of your PLG strategy, you need to monitor the following:

• Activation rate — Signing up the users isn’t enough; you need to get them to use your product and collect value from it
• Engagement — How often do users interact with your product? First, you need to understand the desired frequency to find the right metric. For example, social networks would measure daily active users, while Airbnb would benefit most from weekly or monthly active users
• Referral — PLG heavily relies on organic growth, so how is your referral rate? To achieve virality, every user needs to bring another user or more
• Churn-rate — With PLG, you want a small number of users leaving you. Some users will inevitably bounce, but you do need to monitor them and ensure the churn rate is as tiny as possible
• Premium conversion — Driving user engagement is great but won’t fuel the business. You need to have a minimum number of premium users. Having a sustainable premium conversion rate is fundamental to scaling up

Challenges and pitfalls of PLG

PLG won’t fit every single product. Some products are complex and require personal interaction. For example, enterprise solutions are highly complex and unlikely to fly without building relationships. Deploying PLG with a complex product will lead to undesired results.

Another common challenge is the transition from sales to PLG. With SLG, salespeople hold the customers and are responsible for growth, but PLG changes that upside down. It requires a cultural change, which can only happen with the full support of the company leadership.

User acquisition costs and monetization are sensitive topics requiring learning to balance. How much value can you give for free so enough users will convert to premium ones? It’s not a science; it’s an art.

Key takeaways

PLG means that users will collect value from the product as fast as possible without any strings attached. However, a product-led growth strategy requires cultural change as the product becomes the core of the business.

That said, this isn’t to say that SLG doesn’t have a place. The more complex your product, the more suited it might be for an SLG strategy instead.

Remember, when it comes to PLG, having a way to measure key metrics is essential. It’s useful to think of PLG as more of an art than a process. Good luck!

Featured image source: IconScout

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