Curious about your users’ behavior?

Product-Led Growth: How to Drive Growth With a PLG GTM

11 min read

Product-Led Growth: How to Drive Growth With a PLG GTM

What is Product-Led Growth? Product-Led Growth (PLG) is a strategy that makes a company’s software product the primary tool for customer acquisition, retention, and expansion. The goal is for a product to deliver value so quickly and easily that it essentially “sells itself,” creating revenue without a traditional sales cycle.

What is Product-Led Growth?

Every company wants to grow, preferably as fast as possible. But rapid growth for its own sake is not ideal. You want growth to be healthy, sustainable, measurable, and manageable. This is the idea behind product-led growth.

Product-Led Growth is a go-to-market strategy (GTM) that makes your product the core of your acquisition, retention, activation and expansion tactics. The term itself is credited to venture capital firm OpenView Venture Partners, although the concept has been emerging for a while now.

A Product-Led Growth strategy is user driven—customers try the product, learn to like it and rely on it, and share it with friends and peers. Analyzing their adoption gives you real time insights on what they want, and their feedback helps you optimize it, much like water shaping its course through rock. As new users weave your product into their daily lives, you can observe their behavior with analytics tools, and adapt both the product and your company’s efforts to be most effective.

When you fully grok what your end users want, you can exceed their expectations from the start. And within your company, your product becomes the lens that all teams see through. Sales, marketing, product management, engineering and customer success teams all become intertwined.

What are some key advantages of Product-Led Growth?

Minimizing friction in the buying process.

The demo is going the way of the dodo. Demos tend to play up fancy features and hide the flaws, so paying customers enticed by your carefully curated demo are more likely to be disappointed than those who experience the full product through a freemium model. PLG lets customers use the product from the get-go, so they know exactly what to expect when they buy.

Driving demand from buyers

When you understand customers’ needs and pain points upfront, you can build the product to meet their requirements, and then align your company to support the product and mission. Healthy growth comes from a product that solves real problems.

Growth without dependencies

You can increase your business organically, without a huge advertising budget, or a sales team that’s constantly working the phones. According to Forrester Research, 3 out of 4 buyers would prefer to educate themselves than talk to a salesperson anyway.

Customer-centric SaaS

Users don’t want to endure a sales pitch. They want to explore the product at their own pace and choose their own stack. They don’t want an extensive onboarding experience, they want the option to get help when they need clarity. It’s like Tinder dating vs. a lengthy royal courtship.

Non-committal pricing

Freemium pricing models are the most common seeds of product-led growth. Individual users and small companies can engage with the product without committing to a subscription, allowing them to upgrade to full service at the right time. With product-led growth, value creates adoption, not vice-versa.

How did the market arrive at Product-Led Growth?

The very concept sounds like the old “cart leading the horse,” but it’s an idea whose time has come as times have changed. Not all that long ago it would have been impossible...and now it’s a necessity.

A brief history of the three eras of growth strategies.

Sales-led:

Back in the early Pleistocene age of earthbound mainframes and on-premises systems, growth was led by sales reps out in the field. These were the Glengarry days of booze and schmooze where personal relationships among the stakeholders mattered most, and technical considerations were about hardware/software compatibility. Specialized knowledge was critical, but so was a firm handshake and the right connections.

I like you, you like me, and our products can connect…well enough, anyway. Customer experience? Whatevs.

Marketing-led:

With the introduction of SaaS, buying decisions became way more democratized. C-level executives were now making decisions about the purchase of software systems. Many of them had little to no technical expertise, so they required education to understand the expensive commitment they were about to make. Software companies provided this education with an onslaught of promotional marketing: everything from live extravaganzas like Dreamforce to online webinars and informational campaigns.

Lots and lots (and lots) of advertising. Click here to learn more!

Product-led:

Today, the product experience itself is king. Functionality and purpose are the key drivers of adoption. Does it solve my problem? Does it do this easily and elegantly? I not only want to try it out, I want to live with it a while before I lay out any money! While this would have been unthinkable even a decade ago, with advanced product analytics, having users comb through the product, even for free, is a huge advantage to your company. You get to see what’s popular, works and what doesn’t, optimize users’ favorite features and trim all the fat.

Your users become one giant living focus group eager to provide you with feedback. It’s almost like they’re paying you to perfect the product...and then they actually pay for it! Voila. Product-led growth.

What are some benefits of Product-Led Growth?

Scale faster than competing models

A PLG strategy helps you improve your business model and achieve greatness with your product—and no marketing tactic works better than a great product!

Increased retention and lower churn rates

CS teams can tailor their efforts to upsell actively engaged users, and troubleshoot for those who are likely to leave.

Learn about top strategies for retention in our complete guide!

Lower customer acquisition costs

When users voluntarily share your product, their friends and contacts come along for the ride.

A more efficient sales team

Sales can focus on leads who have come in through the product and are already enthusiastic about it.

Above all: a better experience for users

After all, they’re the ones shaping the UX with their preferences!

How is Product-Led Growth measured?

Here are some popular metrics:

What metrics should you track and optimize? Find out in our complete guide!

Natural Rate of Growth (NRG)

NRG is a relatively new metric that examines where most of your users are coming from: referrals, social media, organic searches? (Like a lot of things in life, anything you’re paying to make happen isn’t “natural”.) While sales and marketing is always important, it makes sense that companies that can scale without that help reveal more intrinsic value than ones that can’t. They tend to make better use of their available capital and focus on the right efforts, which leads to higher capital valuations. Zoom, Slack, and Dropbox are great examples of SaaS companies with high NRG.

Here is the formula: NRG = (Annual Growth Rate) x (% Organic Signups) x (% of ARR directly from product) x 100

Customer Lifetime Value (LTV)

LTV compares a customer's revenue value to the company's predicted customer lifespan, to identify the customer segments that are the most valuable to the company.

The formula: (Average purchase value) x (average frequency of purchases) x (average customer lifespan) = CLTV

Customer Acquisition Cost (CAC)

Customer acquisition cost is what you spend to get a new customer: banners, articles, whitepapers, social media, etc. What are those clicks costing you?

The formula: (Total costs of conversion efforts - marketing, advertising, sales expenses, etc.) / (the number of customers you’ve acquired in the same time period)

Logo retention (aka churn)

We’ve written a detailed piece about churn, but basically this is your customers who quit, expressed as a percentage.

The formula: (customers lost during X period) / (# of customers at the start of the period) X 100

Growth Loops

Simply put, growth loops >>> funnels. Funnels are foundational, and we’ve loved them, but they've had their day. They operate in one direction, they keep teams in silos, and they don’t offer ways to amplify what comes out of them. Loops allow output that can be reinvested as new input. As an analogy, think of brakes in a conventional car vs regenerative brakes in a Tesla. Ordinary brakes just slow your car down. Regenerative brakes reduce speed while repowering the battery, helping your car go even farther on its fuel source. Similarly, growth loops can be used to create all kinds of new value. Reforge has done much to build this model.

image

The Hook Model

Developed by entrepreneur and investor Nir Eyal, the hook model is a cycle rooted in habit creation. As the consumer passes through these four phases, their habits (and the product's value to them) become reinforced:

Trigger: The initiator of a behavior, either external (one of the five senses) or internal (emotional/memory)

Action: The behavior, which is performed in anticipation of a reward.

Variable Reward: Rewarding users for solving a problem using a varying degree of novelty reinforcing their motivation for the action taken in the previous phase.

Investment: Investments are actions requested of the user that load the next trigger to start the cycle all over again.

image

As Eyal says, “Like it or not, habit-forming technology is already here. If used for good, habits can enhance people’s lives with entertaining and even healthful routines. If used to exploit, habits can turn into wasteful addictions.”

image

As these two models show, the degree to which you can develop habit-forming technologies influences which of your products and services are destined to succeed or fail.

The Fogg Behavior Model

The Fogg Behavior Model was developed by Dr. BJ Fogg of Stanford University. It proves that three elements—Motivation, Ability, and a Prompt— must converge at the same moment for a behavior to occur.

image

Motivation considerations: Sensation – Will it bring pleasure or Pain?; Anticipation – Hoping for good/Fearing a bad outcome; Social Cohesion – Will it cause social acceptance, or rejection?;

Ability considerations: How much Time, Money, Cognitive Demand, Physical Effort, and Non-Routine learning is required?

Prompt types: The Spark — high ability, low motivation; The Facilitator — high motivation, low ability; The Signal — High motivation, high abilityl According to the Fogg Behavior Model, if a user does not take a desired action, at least one component from the three main elements is absent.

RICE Prioritization

RICE is a scoring system developed by Intercom to help PMs determine and prioritize the importance of ideas, features, and initiatives based on four factors:

Reach: How many people will your initiative involve (via transactions, trials, signups) in a chosen timeframe—monthly, quarterly, etc.

Impact: Can be a quantitative goal, such as a target number of conversions, or a qualitative inquiry, such as customer satisfaction. There are usually multiple factors that can be difficult to isolate, so a tiered scoring system is used: 3 = massive impact; 2 = high impact; 1 = medium impact; 0.5 = low impact; .025 = minimal impact

Confidence: This element quantifies hunches and gut feelings. For ease of use, confidence is multiple-choice: 100% = high; 80% = medium; 50% = low/ Below 50% is considered a moonshot—probably not worth devoting resources to it.

Effort: The total amount of time required from all members of each team— product, design, and engineering—quantified in “person-months.”

RICE models can provide an evaluative framework for projects to help teams make better choices, minimize personal biases, and defend their decisions to higher stakeholders.

In a recent Forbes article, Mattt Darrow observes: “Companies should focus as much on the buyer as the product. That buyer has high expectations, knows more about your product and business than you think, and demands a completely new experience.”

What are the key components to achieving Product-Led Growth?

  1. Minimize friction - Strip out any excess complexity.
  2. Understand the value of your product - Deliver it immediately, and make it easy to get started.
  3. Demonstrate the value of your product - Target your users, not buyers.
  4. Use features to drive demand - When users get value and enjoy the experience, they’re incentivized to invite their friends and peers, which in turn amplifies the experience.
  5. Deliver on what your product promises - Create results, which will make the user want to come back over and over again.
  6. Layer sales and marketing onto product usage - Your product IS the marketing. Weave your efforts into what the users are revealing to you through their behavior.

“Understand your value. Communicate the perceived value of your product. Deliver on what you promise.” ― Wes Bush, Product-Led Growth: How to Build a Product That Sells Itself

What are some useful tools to have in a Product-Led Growth Stack?

  1. Effort Analysis This lets you quantitatively understand the difficulty users face when moving through every step of every user flow in your digital experience through time spent, interactions between each step, and the average number of visits it takes to complete the flow. Heap’s Effort Analysis helps you prioritize the fixes that will have the biggest impact on your users’ experience.
  2. Segment analysis Segmentation lets you find patterns among different user groups by sorting them according to behaviors, such as purchases, clicks, likes, media plays, uploads, page views, data entry, or social shares. This lets you target better customers and prioritize maximizing the behaviors and metrics you’re trying to produce. Our guide to Behavioral Segmentation tells you everything you need to know.
  3. Time-based cohort analysis Early in the customer lifecycle, cohort analysis helps analyze initial user responses to increase adoption. Over weeks and months, it will reveal how long different groups of users stay engaged and when they’re likely to churn. Teams can uncover patterns to guide them in creating ideal support, marketing and retention efforts, and then evaluate their effectiveness. To get the most from your analytics investment, you want tools that can find things for you that you would never have found yourself. You also want direct access to your data, real time insights, and the ability to create custom models. Want to learn about how cohort analysis works? Read our complete guide!
  4. Testing & Personalization Analyzing test campaign data against behavioral properties gives you valuable insights towards delivering relevant, personalized experiences using simple A/B testing, complex multivariate campaign deployments, advanced customer statistics, and server-side testing.
  5. CRMs CRM data is a powerful resource to incorporate into analyses. You should be able to leverage information from your provider (such as Salesforce, Sugar, Oracle, Hubspot, Monday etc.) and import usage activity from your analytics back into the CRM—including any built-in or custom fields.
  6. Attribution Platforms Attribution collects campaign data from your ad platforms and gives your marketing team a central dashboard from which they can monitor and optimize their spend. Knowing your visit and conversion information helps you to determine the return on your advertising efforts.
  7. Session Replay While session replays are limited on their own, integration allows you to deep dive into a Fullstory or HotJar session to understand a specific situation or user better.
  8. Data Warehouses Integrating with your warehouse infrastructure allows you to tackle complex analysis and directly query your raw event data. You can run ad-hoc analyses, connect to BI tools, or join the raw data with other data sources from across the company. A good tool will automatically keep your data up-to-date, optimize its performance, and allow you to define and query events retroactively in a clean SQL format.
  9. Testing & Personalization Analyzing test campaign data against behavioral properties gives you valuable insights towards delivering relevant, personalized experiences using simple A/B testing, complex multivariate campaign deployments, advanced customer statistics, and server-side testing.

“Heap Effort Analysis showed us where users are confused between steps in our Express Checkout feature. By hiding some unnecessary customizations from the flow, our overall conversion rate increased by 2%." —Jennifer Thornberg, Product Owner at Updater

How do I know if Product-Led Growth is right for my product?

Some questions to ask yourself:

Are product-market conditions right? Are you encouraging sharing from within the product, enabling word-of-mouth referrals?

Is it easy to sign up? How much friction are users experiencing just to get started?

Does your product offer a uniquely valuable solution? Are you making promises about vague benefits, or easing actual pain for a person with a specific problem?

Do you deliver value to users BEFORE the paywall? Can users understand the premise immediately and receive the benefit straight away?

Do your marketing funnels lead to engagement? What do you want your customers to do at each step of the way?

Are network effects built in? Does the expansion of your product’s popularity make things better for everyone, or cause more problems than it solves?

Heap is the analytics solution made for Product-Led Growth.

Heap enables product teams at SaaS companies to move fast.

Autocapture is a unique feature that requires only a single snippet to capture all of your user data—saving massive amounts of time, since you don’t need to plan all your inquiries in advance. You can experiment with this product data anytime, and in any way you see fit. Teams can iterate without being slowed down by event tracking implementation requirements, such as those imposed by Google Analytics.

Heap’s Digital Insights Platform provides an ongoing pulse on what resonates with users—and what doesn’t—every single time they interact with your product. And our newest technology, Heap Illuminate, uses proprietary data science to uncover hidden opportunities and friction points in your user funnels—— even on untracked events! Illuminate effectively removes the blind spots from your analytics efforts.

Thousands of customers at PLG companies love using Heap and trust us for their digital insights. We make it easy for you to get started down the road to product-led growth. If you’re interested in a demo of Heap’s product analytics platform, reach out. We’d love to chat with you!

Getting started is easy

Interested in a demo of Heap’s Product Analytics platform? We’d love to chat with you!