Product-led growth is becoming more popular within marketing strategies of newly-minted tech products. But is it the only correct approach for B2B startups, or old good sales team is still needed?
Let's go deep here, as both of them are still alive, and the above question isn't correct. The right one should ask, “When to use one or another?”
What is Product-Led Growth?
Product-led growth strategy is a reverted sales approach when your product sells itself generating buzz, without sales team intervention.
Product-led means customers go through all the steps themselves: signup, choosing billing options, in-app settings, onboarding, integration, and so on. The goal is to give in-app users more independence and a chance to learn product value from the inside.
Product-led marketing isn't focused on MQLs generation anymore but on sign-ups. While product-led sales are in charge of converting current freemium or free trial customers to paying ones.
While it may sound like an incredible and obligatory experience, it's much harder to build and establish, and it isn't a winning strategy for 100% of cases.
Most product-led growth strategies use free trials and freemium options to attract customers and let them experience the actual product before upgrading to paid or expanded plans.
Product-led growth strategies aim for end-users to discover the product's benefits, become brand advocates and a driving force behind the product's growth. It can happen only with satisfied customers who get the desirable experience.
Pros and Cons of PLG for B2B SaaS startups
Slack, Zendesk, Zoom, Calendly, Dropbox, Figma, and Evernote are product-led growth examples and use PLG strategies to grow their customer base and revenue.
The product-led growth model brings more users in the first place. The offer to use something with a free trial or an even better freemium package is genuinely attractive. It allows you to sign up and onboard many more customers than Inbound Marketing or Outbound prospecting strategies.
But it doesn't end here. High customer acquisition rates don't mean the same retention and freemium-into-customer conversion rates.
Your product should be engaging enough and bring real value and positive customer experience to keep a large chunk of these sign-ups loyal to you.
Simply saying, you attract more top-of-funnel customers, which is good. But you need more top-of-funnel customers to close high churn rates and drive revenue, which is even.
DropBox past $100M on freemium, having 500M users. It's a 0.6% conversion rate if we take their Standard plan.
While the freemium-into-customer conversion rate is higher for startups, it is still stuck lower than 10%.
The main advantage of the product-led model is that you don't need a big sales team, and customers can experience your product value from the inside.
But the most significant disadvantage is revenue scalability. You need an enormous amount of users to hit a particular ARR, and it's challenging to close bigger deals.
Another con is the onboarding process. Here we speak about B2B products that are aimed to be used by people in the working environment. This environment has a faster pace and higher entry level. If people don't find an immediate solution to their problem or the processes inside are not plain, they will churn for good.
Connect with us to scale your product to Product-market Fit 🦄
How to convert freemium customers into paying?
Customer acquisition is not a problem anymore for PLG-focused products, as PLG's strategy is aimed at acquiring more freemium customers. The real challenge is a conversion-into-paying customer rate
Fortunately, you can and should affect the conversion rate. Here we gathered 10 techniques to increase your freemium-paying CR, depending on the product type and pricing plan you have.
- Deep product analytics, automation, and personalisation are a hot trio for freemium products. Leverage product usage data to figure out pitfalls, user knowledge gaps, and overall experience. Then personalise your onboarding materials and automate targeted prompts to show them what they're missing out on. Encourage upgrades by showcasing the best practices for a personal case.
- Urgency, social proof, and price anchoring methods are the best trio to free trial products. Grant free trial access to all your premium features and allow customers to experience the full value of your product. Then make an offer they just can't refuse.
Let's go through another 8 popular tactics to speed up conversion rates. - Feature usage limit for freemium users.
But don't over-reduce. Let customer experience value, get some tangible results, and reduce precisely at that moment. There should be a good balance between encouragement and useless product - Segment and personalise.
Use tools to track customer behaviour and product usage. Then build segments to send personalised upgrade messages relevant to each segment. If you don't know how customers use your product, you can't scale it. Not really, not with a theoretical approach. - Show how your premium features work.
Freemium users need to learn your product's premium features and how they can benefit from them. Create simple short prompt videos to show them your arsenal. Or if your users reached the limit of a particular function, show them how they can benefit if upgraded. - Remind them about premium features.
Use modals or popups to show short reminders about higher plans' advantages. It's valuable when they struggle with a limit or are on the threshold of that limit. - Free trials to paid features.
If you use the freemium model, you can offer a free trial to the particular or several paid features. Analyse product usage and segment your users. Offer them to test one of the most valuable features based on their behavior. Once they experience a more extensive version, there is less chance they will want to roll back. - Smooth onboarding process.
If you use the free trial model, make your onboarding materials and process awesome! Personalise it as profoundly as possible, and have a great CS team who can help with the upgrade. - Remind about the free trial expiration date.
Consistently remind your free trial users about the expiration date. The closer they are to the date, the more reminders you should send. If you charge a customer's account without a reminder, they will never return to you. - Offer trial extensions or discounts.
Nothing works better than discounts after the free trial ends. Customers have already experienced your product value, and now the price is lower than expected. Isn't that powerful?
Best tools for product-led growth
When you build a PLG strategy, your tools make significant meaning. They should be as simple as possible and smooth customers' way, not to complicate it and create pitfalls.
The following list includes our favourite product-led growth tools for B2B early-stage startups:
- Bliinx (Sales an PLG)
- Clearscope (Content marketing)
- Segment (Data Management)
- Mixpanel (Product Analytics)
- Quantum Metric (User Experience)
- Notion (Knowledge base)
- Hotjar (Product Adoption)
- Stripe (Payments)
- Lemlist (Lead Generation)
- Customer io (Marketing Automation)
- Intercom (Customer Support)
What is Sales-Led Growth?
OSales-led growth is the old good marketing-sales process. It encompasses both Inbound and Outbound channels. It doesn't matter if your leads are driven from inbound marketing channels or if you use a revenue team for prospecting your clients.
One thing is constant - customer acquisition continually depends on the marketing and sales team.
The disadvantage is your potential client doesn't have a chance to try your product before buying it. The purchase strongly depends on the customer's actual need, customer success materials you can showcase and their value, work of reps or Accountant Executives.
The sales-led product becomes riskier and more unpredictable compared to product-led growth. You need winning materials to get the attention and an excellent team with strong selling skills.
But is it that pointless? At Palladium Agency, we are rather convinced otherwise. Let's see why!
What are the benefits of SLG for tech startups
Sales-led growth is still the only strategy for more complicated B2B products where primary onboarding is required. It doesn't mean that complex products are worse. They just take a longer time to adopt.
The same happens with expensive B2B products. You can't convert a freemium customer to a $100K deal. Your revenue team should work on that.
The sales-led approach eliminates friction during onboarding. As your customers interact with humans first, there is a minimal chance they can drop out.
The sales-led strategy helps to smooth customer onboarding and increase chances for product adoption. It also helps collect real-life customer feedback, as your sales team speaks directly with clients.
Palladium will help you to find your growth points and pick the right strategy for predictable scaling 🦄
5 critical differences between PLG and SLG
Focus
Product-led growth framework makes your product the center and primary driver of customers and revenue. And all your company departments treat the product as the primary source of sustainable, scalable business growth.
In a sales-led company, salespeople are the primary growth and revenue driver, which allows you to close bigger deals and get more valuable insights. SLG follows with traditional marketing approach focused mainly on MQL generation.
Users usually interact with the product only after demo sessions and contact signs.
Point of contact
PLG allows customers to experience the product without barriers before signing up. Customers learn the product and its value while using it.
SLG, on the other hand, requires a rep or salesperson to be present and lead a customer through every stage of buying journey before they can use a product itself.
Scalability
PLG gives access to a broader top-of-funnel and can quickly scale the number of customers. It's hard to scale revenue, as conversion rates into paying customers are usually low.
Meanwhile, with the Sales-led approach, it's much harder to scale the number of leads, as you should mount your team proportionally. But revenue scaling is much easier, as your team can switch to bigger deals.
Buying cycle
A shallow entry barrier follows PLG. All customers have to do is sign up, start using the product immediately and add card information if they want to upgrade.
While SLG buying cycle takes much more time as it consists of several parts: demo sessions, objections, negotiations, contract signing, and onboarding.
CAC
PLG serves as an acquisition strategy, so customer acquisition costs will usually be meagre, as the product team needs very little support from sales.
On the other hand, SLG demands vast marketing and sales costs, which continuously rise. Here is where the need to increase prices pops up. But by focusing marketing and sales strategies on more extensive deals closure, you can make your CAC to revenue percentage even smaller than with the PLG strategy.
Which of the strategies is suitable for your product?
There is no one-side answer, right? These two strategies are effective and winning. But everything depends on your product.
If your product is simple and doesn't need deep, focused onboarding while prices are low to medium, Product Led Growth is your right strategy.
Otherwise, if you have a complicated product mainly targeted at enterprise companies with high prices, you can't go with PLG. You must build a strong revenue team, customer onboarding, and CS departments.
Benefits of hybrid solution
Different marketing approaches must be applied as well. Product-led growth marketing should concentrate on generating new sign-ups, while the traditional marketing approach will mainly focus on filling the sales team's pipeline.
A fusion of two strategies will help you gather more valuable and personalised customer insights and support the product team to build a solid and stable solution.
Talk to our experts about scaling your revenue 🦄
Summary
💜 Bottom line
Both strategies play essential roles in scaling and revenue generation. But which one to choose, you should decide depending on your product. The sales-led process can sink SMBs solutions while helping to sail for enterprise-level products.
If you need product evaluation and a solid go-to-market strategy, Palladium can help with that!
