I highly recommend the book Product-Led Growth by Wes Bush if you work for a SaaS company and find yourself in one of these groups:

1. Your organisation is Sales-Led but you have Product-Led competitors
2. Your organisation might consider transitioning to a Product-Led model
3. Your organisation could launch a new product with a PLG model
4. You’re considering working at a Product-Led company at some stage
5. You’re already at a Product-Led org and want to check you’re doing the right thing

What is Product-Led Growth?

Product-led Growth is a go-to-market (GTM) strategy that uses the product to acquire, activate and retain customers.

Bush identifies two types of software company:

1. Those that tell the customer how the product will benefit them – Sales-Led.
2. Those that give the customer the keys to the product and then get them to upgrade – Product-Led.

Why is Product-Led Growth important?

PLG companies have lower customer acquisition costs (CACs), shorter sales cycles, and higher revenue per employee.

According to Bush, there are 3 tidal waves coming for your subscription business:

1. Start-ups are becoming expensive to grow. CACs have increased by 55% over the past 5 years. Costs are up and customers are less willing to pay.
2. Buyers want to self-educate – they don’t want to listen to sales patter.
3. Product experience has become an essential part of the buying process.

Types of GTM

A GTM is an action plan that specifies how a company will reach target customers and achieve a competitive advantage. To create a GTM you need to understand market conditions, competitive positioning, your ideal customer, and product offerings.

The Sales-Led GTM is used when:

1. You’re dealing with high LTV customers and/or you have a complex solution.
2. You have a hyper-niche solution with a small total addressable market (TAM). Your relationships with those accounts are too important. PLG is for large TAMs.
3. You’re in a new category. You have to educate people and understand their pain points and objections. If you go PLG too soon, you’ll have high churn.

Cons of Sales-Led:

• High CAC, which means higher prices. You must be alert for competitors with a lower CAC.
• Customer acquisition model is leaky. 98% of MQLs never result in closed business.
• MQL model encourages marketing to gate content.
• It focuses on content consumption as leading indicator of intent.
• It creates friction in the buying process.
• The org structure hinders great product development, e.g. sales/marketing/CS and then product/engineering. Product is often an afterthought.

With PLG, every team leverages the product:

• Marketing asks how can the product help generate leads?
• Sales asks how can the product help qualify prospects?

Pros of PLG:

• It helps you scale faster in two ways: a) a wider funnel and b) rapid global scale – your competitors will still be still hiring reps while you’re onboarding customers.
• It significantly lowers CAC in three ways: faster sales cycles, high revenue per employee, better user experience.

Freemium vs Free Trial – the Difference

• A free trial is a customer acquisition model that provides a a partial or full trial for a limited time.
• Freemium is making part of the software available free-of-charge without time limit.

“Freemium is like a samurai sword – unless you’re a master of it you can cut your arm off.”

The MOAT Framework

Bush uses a MOAT framework to help you decide if PLG is for you.

1. Market strategy – is your GTM dominant, distruptive or differentiated?
2. Ocean conditions – are you red ocean or blue ocean?
3. Audience – how are you selling? Top down or bottom up?
4. Time to value – how fast can you surface value?

Market strategy options:

• Dominant SaaS growth strategy – you do the job better and you charge less, like Uber or Netflix. Freemium is the most powerful option here. Questions to ask: Is your TAM big enough? Does your product solve a specific problem better and at lower cost than anyone else? Can your users get value from your product without help from your staff? Do you want to be undisputed market leader?
• Differentiated Saas growth strategy – you do a better job and charge more. You choose this when you are fighting a Goliath and your line of defence is specialisation. A free trial or demo will work here. Questions to ask: Does your market have under-served customers? What is your TAM? Is your ACV high enough to support low or high touch sales? Could your prospects experience an Aha! moment during a free trial?
• Disruptive SaaS growth strategy – you charge less for an inferior product, like Canva or Google Docs. Freemium thrives here, as a free trial weakens the magnetic draw. Questions: Is your market full of over-served customers? Are you in a hyper-competitive market? Is your market large enough for freemium? Do you have the resources for freemium? Is your onboarding totally self-service?

Your choice: best solution for lowest price, best specialised solution for highest price, simplest solution for lowest price, or a hybrid.

Ocean Conditions:

• Red ocean = you’re harvesting demand by outperforming rivals. The ocean turns bloody as product becomes commodity and prices reduce.
• Blue ocean = you’re creating demand by accessing untapped markets. Highly profitable growth.

Some niches of a market can be blue while others are red.

• SaaS blue ocean: you start with a sales/marketing-led GTM. If time to value is quick you can change.
• SaaS red ocean: PLG can help to wider funnel, lower the CAC and expand globally.

Audience – Top Down or Bottom Up:

• Top Down: You sell to the decision makers. For large deal sizes, top down is essential. Pros: high ACV, sell additional services, low churn. Cons: poor revenue attribution, high CAC, long sales cycles.
• Bottom Up: You have a product that can be used in minutes with a free trial or freemium. Pros: wider top of funnel, lower CAC, predictable sales funnel, scale globally, fast sales cycles. Cons: contract sizes, non-paying customers are a drain, expertise shortage on freemium/free trials, churn. Churn for SMB can be 31-58% annually (3-7% monthly); for mid 11-22% annually (1-2% monthly), and 1-10% for enterprise annually.
• Which is right for you? Freemium is for bottom-up. Free trial is for bottom-up or top-down (with caveats). Questions to ask: Are you targeting people who can easily use your product and see its value? What is your ACV for each customer? Can it pay for a sales-led approach?

Time to Value:

There are 4 types of user:

1. Mission impossible users – they have little motivation and find it hard to use you. They flee from you.
2. Rookie users – high motivation but find it hard to use you. They work hard for it.
3. Veteran users – low motivation but find it easy to use. They think you’re replaceable.
4. Spoiled users – high motivation and find it easy. These are the ones you want.

To improve motivation: hire a copywriter. To improve account set up: eliminate unneeded steps. Questions to ask: how motivated are your users? Is your product easy to use?

Choose your PLG model with MOAT

Free trial or freemium or hybrid?

• Freemium
• Free trial
• Hybrid
  • Hybrid model #1 – launch a new PL product
  • Hybrid model #2 – go freemium with a free trial afterwards. Hubspot did this – you sign up for free and get a few things and then you get free trial offers for blocked features.
  • Hybrid #3 – go free trial and follow up with freemium. This can provide good advertising on a long-term basis.

Building your PLG Foundation

PLG is a life raft that will save you from the flood of rising CACs and customers’ decreasing willingness to pay for your product. There are risks, however: free users can overwhelm your support and free trials cannibalise demo requests.

The UCP Framework:

• Understand your Customer
• Communicate Your Value
• Deliver your Promised Value

You can use this in 4 scenarios:

• You’re launching a business that will be PLG led
• You’re starting a product-led arm of an existing business
• You’re transitioning from sales-led to PLG
• You want to relaunch a PL model as it’s under-performing

Understand Your Value

• Businesses do not buy software – they buy the answer to a problem
• We are selling outcomes – what outcome do people expect when they buy your product? Most tech companies get caught up in features.
  • Functional outcomes – they matter but not that much
  • Emotional outcomes – you want customers to feel empowered but do they?
  • Social outcomes – how customers are seen by others when using your products. Are they able to do great presentations or deliver great reports?
• Value Metrics – this is how you measure the exchange of value in your product. For a video platform it might be numbers of videos uploaded.
• There are two types of value metric that we use for pricing:
  • Functional – eg per user, per video etc.
  • Outcome-based – views per video (basically the money you made for your customer). Using outcome based metrics for pricing can reduce churn by 40% but it’s hard to get the data.
• A good value metric must pass 3 tests:
  • Easy for the customer to understand. When someone sees your pricing page do they get it and see where they fit?
  • Aligned with the value that the customer receives – e.g. how many livechat messages are they getting? It must be linked to outcomes.
  • Grows with customers’s usage of that value – you charge more as they use more and charge less as they use less.
• It’s a mistake to use user-based pricing – it’s is not where the value is (Slack is the exception)
• Pricing approaches:
  • Subjective analysis – write down everything you could use (messages sent, users etc) then check against a scratchpad: easy to understand, aligned with customer value, grows with usage
  • Data-driven approach – you’ll have different types of user (power users, churn quickly etc). Filter your best customers – what do they do regularly in the product, what don’t they do, which features did they use, what similarities lead to success (demographics, team structure etc). For churned customers ask how did they differ from the customers who stayed, what activities were different, were they target market?

Communicate Your Value

• Don’t over-complicate your pricing page – customers need to get it in 5 seconds
• Handle objections upfront.
• Put up a prompt asking if they have questions.

1. Don’t create a free plan with no incentive to upgrade.
2. Don’t make it a no-brainer for the customer to downgrade – you need to do the risk analysis on this. Ask yourself how many paying users could downgrade, how many you expect to do so, how many extra users you’ll win, is it worth it etc. Some companies see 10-15% users at risk but do it anyway.

4 common price-setting strategies:

1. Best judgment (least effective)
2. Cost-plus
3. Competitor-based – you’re assuming they’ve thought it through
4. Value based pricing – SaaS has to be this

How to determine your price

• Option 1 – Pricing Economic Value Analysis is great if you’re starting out. Break down the functional value (reduced cost, time savings), emotional value (how they want to feel better or avoid feeling) and social value (making them look great). Then work it out: if they are saving $100,000 a year in hours not spent on admin by using you, follow the 10% rule, e.g. they’ll be willing to pay $10k.
• Option 2 – market and customer research. Bush references the Van Westendorp Price Sensitivity Model and how it can enables customers to be surveyed on what they would consider expensive/too expensive.

Once you have your pricing, you need to have 4 things on your pricing page:

1. Value metric
2. Willingness to pay for all packages
3. Valued features – the leaders, the fillers, the bundle killers
4. Demographic info – name the package after the buyer, eg Beginner

Deliver on Your Value

The try before you buy model means that experienced value is key, rather than perceived value. If you have a big value gap, your funnel will be leaky.

3 reasons for value gaps:

1. Your product has ability debt – this occurs every time a user fails to accomplish a key outcome in your product. This could mean friction during sign up or completing a task in the product. You must reduce friction at every step. Questions to ask: Does the first product experience results in a specific, meaningful outcome? Are you using tool-tips to spur actions?
2. You don’t understand why your customer buys – don’t walk them through the entire product. What outcome does your product help with? If you don’t know, onboarding wil be really hard.
3. Your overpromise or tell them the wrong things.

Who do you need to convince to go PLG?

• The CTO & CRO will often shut you down because of the impacts of PLG, so get the CEO on board.
• Try an MVP version for 24 hours by changing ‘demo request’ to ‘free trial request’. Qualify the people who apply, ask about their primary outcomes, and then watch them try to achieve the outcomes. After the meeting, write down the outcomes and then start chipping away at your ability debt.

The Most Common Mistakes of PLG businesses

• Launching and never updating because no-one is in charge
• You need at least 7 people to run a PL tiger team: a developer, a UX designer, a product manager, a customer success rep, a digital marketer, the CEO, and a CPO or CTO.

Ignite Your Growth Engine

Use Triple A sprints:

1. Analyse your outputs (number of sign-ups, upgrades, ARPU, customer churn, ARR, MRR) and then analyse your inputs of marketing.
2. Ask
   • a) where do you want to go, e.g. your rev target
   • b) which levers can you pull to get there?
     • Churn – lowering this can have a huge impact on revenue
     • ARPU – raising this can have a huge impact
     • Number of customers – everyone focuses on this and ignores the others. Unless you’re just starting out, reducing churn and increasing ARPU will have the biggest impact.
   • c) which inputs should you invest in? Use the ICE model of impact, confidence and ease of implementation to come up with the ICE score for each option.
3. Act – start the Triple A sprints with small wins. Once the small wins dry up in efficacy, go for the bigger swings.

The Bowling Alley Framework

This concept uses bowling alley ‘bumpers’ to knock customers back onto the alley:

• Develop your alley/straight line
  • Map the journey your customer takes, listing all steps, and colour-code them, e.g. green for necessary etc.
• Create a product bumper to move people along:
  • Welcome messages – restate the value prop and set expectations
  • Product tours – focus on what people want to know about
  • Progress bars – start with a chunk of it already filled in
  • Onboarding checklists – 3-5 steps and some should be complete
  • Tooltips – help the user to use the product
  • Empty states – don’t use dummy data; show the user what they need to do
• Build a conversational bumper to educate
  • Use onboarding emails – set expectations
  • Usage tips – only on things of value
  • Sales touch – pick the right moment – just as the customer sees value
  • Case studies – open with a hook and set the story around a conflict
  • Better life emails – focus on functional, emotional, social outcomes
  • Expiry warnings – make it easy for customers
  • Customer welcome emails – if they sign up, acknowledge it
  • Post trial survey emails – ask why they didn’t buy

You will need to set up e-mail tracks that bump users along from sign-up to quick win to desired outcome and customer.

Increasing Your ARPU

What is a user? Make sure you have a clear definition. Some orgs use Average Revenue Per Paying User (ARPPU) instead.

• You calculate ARPU by dividing the total MRR by the total number of users
• It matters because if ARPU is $20, it will take your 8 years to break even if they cost £2000 to acquire
• Low ARPU = use SEO and content to acquire
• Mid ARPU = use inside sales and paid ads
• High ARPU = use enterprise sales

Slay the Churn Beast

• Churn is the silent killer. You’ll never get rid of it completely but you can starve it of oxygen.
• Customer churn
• Revenue churn – churned MRR/total MRR. You might lose two customers but 20% of your revenue.
• Activity churn – you need to identity the signs that users might be leaving, e.g. they are exporting data or haven’t logged in. Apply scores to customers so you can identify them and put mitigations in place.

Your next steps:

Buy and read Product-Led Growth. Let me know if you’ve read the book and what you thought.