Product-led growth is the strategy SaaS leaders like Slack, Dropbox, Calendly, Shopify, Figma, and Canva are leveraging to scale at speed while keeping their acquisition costs down.
While product-led growth (PLG) is hardly a new concept, with each passing year it has become an increasingly dominant one in the tech space, with the adoption of PLG up by 20% over the last three years, according to OpenView’s 2022 Product Benchmarks Report.
Even as the economy slows, SaaS businesses and startups remain under a lot of pressure to grow fast, but they must do so with fewer resources than ever before. Gone are the days when start-ups could burn through investor capital without turning a profit, with many businesses forced to scale back their spending dramatically. This has resulted in the mass layoffs seen in the tech sector over the past year, with more than 250,000 tech workers being let go in 2022 and early 2023, estimated Layoffs.fyi.
For many SaaS businesses, adopting a PLG model could help them to achieve growth targets that will otherwise be impossible to reach in the current economic environment if they remain dependent on resource-heavy traditional sales-led or marketing-led growth models.
Take the example of Zoom. The SaaS company scaled from 10 million to 200 million daily meeting participants in just three months early in the pandemic. Speaking in an episode of Growth Masters, Wes Bush, the Founder and CEO of ProductLed, estimated that if Zoom had been operating on a sales-led model, achieving the same level of growth would have required 131,944 salespeople.
“Getting 15%-20% of your customers from self-service is often the difference between being cash-flow positive and not,” wrote Jason Lemkin from SaaStr on LinkedIn. “A 20% ‘boost’ from PLG/self-serve is the secret to many of the SaaS stocks holding up well today.”
CAC isn’t the only metric that can be improved by PLG. When the product is selling itself, Revenue Per Employee (RPE) is increased, user numbers grow at a much faster rate and, when you’re collecting feedback and responding to it, Customer Lifetime Value (CLV) and Renewal Rate will increase, which further lowers your CAC.
Product-led companies are more than twice as likely to be growing quickly (100% or more year-on-year revenue growth) than sales-led companies, found OpenView’s report, and the growth rate of public PLG companies is nearly 25% higher than other SaaS companies.
Businesses concerned their customers will miss the person-to-person interaction should consider this: Every day, consumers are signing up for products like Spotify and Netflix in their millions without a salesperson’s help. In the B2B world, even complicated products like Asana and Monday are adopted in major companies with little to no intervention from a sales team.
In fact, in a Forrester article titled Death of a (B2B) Salesman, it was reported that nearly 75% of B2B buyers said that buying from a website is more convenient than buying from a sales representative. And that was back in 2015.
While a PLG function is not a magic bullet, the free trial or freemium model can help minimize or even eliminate the costs associated with scaling a business. It’s likely that most SaaS companies would find some benefit from a product-led strategy. PLG solves a number of the challenges that start-ups face in today's operating environment — and, even more importantly, safeguards them from the challenges the industry has predicted for the future.
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