Unlocking Efficient Growth: Collaborative Strategies for a Hybrid PLG+SLG Approach to Transform Your B2B SaaS Company
Summary
Implementing a hybrid Product-Led Growth (PLG) strategy has been shown to significantly impact the unit economics of a SaaS B2B company. And adding PLG to an already established Sales-Led Growth (SLG) model is a challenging transformation to a Product-Led Sales model. It requires deep collaboration across the C-Suite team.
This post provides some ideas on how to partner with your C-Suite teammates around some of the key metrics and topics central to their success and their organizations.
- Chief Financial Officer (CFO): Customer Acquisition Costs (CAC) and CAC Payback
- Chief Revenue Officer (CRO): Average Contract Value (ACV) and Qualified Leads
- Chief Marketing Officer (CMO): CAC, Marketing Qualified Leads (MQL) and Product Qualified Leads (PQL)
- Chief Technology Officer (CTO): Organizational cohesion
- Chief Human Resources Officer (CHRO): Employee Net Promoter Score (eNPS)
Introduction
Business-to-business SaaS companies are embracing Product-Led Growth (PLG) strategies to drive economic growth. However, McKinsey & Company found that a hybrid PLG+SLG (Sales-Led Growth) approach can be more effective for many B2B companies. A Product-Led Sales approach.
Efficiency is now more important than ever for companies. According to Iconic Capital’s 2023 Report on Growth and Efficiency, PLG SaaS companies scale faster than their SLG counterparts.
The transition from a pure SLG model to a hybrid PLG+SLG model is a complex process that requires careful planning and collaboration between departments and executives.
As the Chief Product Officer at Spendesk, and in my previous roles leading product teams at Slack and Microsoft, I have personally witnessed the benefits of this transition and the necessary steps for success. (Interestingly, Slack underwent the reverse transition, adding an SLG motion to a pure PLG approach.)
This post takes a step back and explores the implications of this transition across the C-Suite, and how you, as a CPO, can collaborate with your team members to ensure a successful transition.
Specifically, it discusses key anchor points for collaboration, the impact of the transition on organizations, and how you, as a CPO, can support the success of your teammates.
Working with your CFO
The transition to a hybrid PLG/SLG model simplifies your CFO’s long-term job. They have monthly conversations with the board to report on the performance of their investment. By introducing PLG into an established SLG motion, capital efficiency will increase, leading to a stronger valuation.
During your discussions with the CFO, you will talk about your product strategy and seek their feedback. A crucial aspect of these conversations will be the economic viability of your strategy. Where will you invest? How much will each investment cost? What are the potential returns at a company level? Aligning on these aspects ensures that the CFO can effectively communicate to the board from a financial perspective the reasons behind your planned investments and the impact on other parts of the business.
Throughout these discussions, unit economics will be a recurring topic. The executive team and the board use various metrics to understand the operational health and trajectory of the business.
As a CPO, it is essential to familiarize yourself with the unit economics of the business you’re building. This is the language your CFO speaks, and they will regularly discuss these metrics with the board. One key metric is CAC Payback — Customer Acquisition Costs Payback. CAC Payback Basics: What it is, how to calculate it, and why it matters by Sean Fanning of OpenView Venture Partners provides further information on this metric.
CAC Payback: An Indicator of Business Growth Efficiency
The CAC Payback metric, measured in months, is an important indicator of the business’s growth efficiency. There are different methods to calculate it, each with implications on the interpretation of the result. Customer Acquisition Costs (CAC) represent the average cost, across all existing customers, of acquiring a single customer through the sales funnel, from awareness to acquisition and monetization. CAC is calculated by adding up the costs of sales and marketing staff, demand generation ads and social media campaigns, conferences, events, etc., and then dividing that total by the number of paying customers.
The Payback component is the cash brought into the business to offset the acquisition costs of each customer. In other words, it is the Net New MRR (Monthly Recurring Revenue) generated, multiplied by the Gross Margin, over the observed period.
For example, if the company’s average CAC per customer over the past 12 months is $1000, and the Net New MRR gross margin is $50 per sale, then on average it will take 20 months for the company to recover the costs of acquiring each customer.
CAC Payback is important for the Board and investors because a shorter payback period indicates a more efficient company and a better understanding of how the business operates, how it is measured, and how it can be improved.
As a CPO, there are various ways you can impact this metric, with the main levers being CAC and Gross Margin. As a benchmark, a SaaS startup should aim for a CAC Payback of 15 months or less. The lower the better.
Incorporating PLG to Reduce CAC
PLG is a customer-centric approach to product development that utilizes software-driven mechanisms, automation, and experiences to guide prospects through the sales funnel, covering awareness, acquisition, conversion, retention, and expansion stages. From your CFO’s perspective, this may seem like allocating resources away from directly building value (i.e., product features). It might also be a new business approach for them, particularly if they have primarily worked in traditional B2B enterprise companies. They will view this investment as an opportunity cost, which you need to help them understand. This discussion will be a crucial part of your overall product strategy.
The most straightforward way to explain the need for a PLG component in your go-to-market (GTM) strategy is to highlight that the most expensive aspect of CAC is the workforce. Without software automations (PLG), this cost will increase linearly with the number of customers and hinder growth until the company has no choice but to transition to a higher value Ideal Customer Profile (ICP), such as moving from SMB to Enterprise.
By analyzing research from Iconiq Capital and OpenView Venture Capital, we can observe a decrease in the median CAC Payback period from 20 months to 12 months to 8 months as companies surveyed transitioned from having no PLG to having some PLG, and finally to a core PLG approach.
Increasing Product Value to Reduce CAC Payback
The Gross Margin is another crucial component of the CAC Payback model. By investing in your core product, you can enhance its value, resulting in an increase in its Average Selling Price (ASP) and gross margins. Consequently, the CAC Payback is reduced.
From the perspective of your CFO, this becomes the initial focus. They will seek to understand your roadmap and the anticipated impact on pricing from the deliverables outlined in it. They will also want to know the required investment for successfully bringing those features to the market. Furthermore, they may question why resources should be invested in software that drives PLG (Product-Led Growth) rather than focusing on delivering features.
Engaging in conversations and collaboration with your Chief Revenue Officer (CRO) will greatly assist in prioritizing these considerations and incorporating them into the CFO’s economic narrative.
Working with your CRO
During the transition from a pure Sales-Led Growth (SLG) go-to-market motion to a hybrid model, the revenue organization will be the most impacted. This is when the executive team will really feel like they are building the car while driving down the freeway. As CPO, start by understanding the implications of this transition for your Chief Revenue Officer (CRO) partner and their organization. Establish a common understanding of how Product-Led Growth (PLG) will benefit them and the business, leading to increased success. To create a strong PLS model.
Your CRO has done an impressive job of building, refining, and continuously optimizing a sales engine based on a deep understanding of their team’s capabilities (Sales Development Representatives, Business Development Representatives, Account Executives, Revenue Operations, Sales Enablement, Customer Success, etc.). Each stage of the sales funnel is measured and monitored. As new insights are gained from the measured sales metrics, adjustments are made to steer the business toward the desired outcomes set at the beginning of the year. It requires precise orchestration to manage this army within a frequently turbulent economic environment. They learn how to identify customer problems, guide conversations towards solutions, and ultimately close deals, all while facing competition, talent poaching, and distractions that divert customer attention from evaluating and signing contracts. Sales is hard.
There are two key metrics that will help you navigate the transition to a Hybrid PLG/SLG model: the opportunity-to-win conversion rate and the average Monthly Recurring Revenue (MRR) per customer.
Two Key Sales Metrics
When evaluating the strength of your value proposition from a product perspective, two key sales metrics come into play.
First, consider the Opportunity to Won rate. If this rate is above 20% and either stable or increasing, it indicates that your value proposition is strong and that you are facing a manageable set of technical objections. This excludes pricing and discount guideline changes.
The second metric to consider is the average Monthly Recurring Revenue (MRR) per customer. If this metric is steady or increasing, it suggests that you are dealing with a manageable set of business objections and that the perceived value of the product is strong. Note that this metric can also be referred to as Average Selling Price (ASP) or Average Contract Value (ACV).
For you as a CPO, both of these metrics translate into time. An ideal scenario is when the Revenue organization can maintain its business trajectory without the need for new features. This allows you to allocate resources towards building software that supports Product-Led Growth (PLG) rather than focusing solely on value and features.
Additionally, this time provides an opportunity for the executive team to transition the company towards this new way of operating. It is crucial that this transition is driven and led by the CEO. It is important to remember that this is not just a prioritization exercise, but a complete company reorientation.
Once you have a mutual understanding of the available time (in months or quarters), analyze the journeys a customer takes towards becoming successful. Identify areas of inefficiency where software can be used instead of human interventions. This will free up resources that can be focused on providing higher-value services to customers.
By adding Product as part of the PLG Hybrid transformation, you can accelerate the Revenue organization and provide support to your CRO.
Streamlining Customer Onboarding Process
One area where Product can greatly improve company efficiency is the onboarding flow. In many cases, B2B SaaS customers have to go through a manual onboarding process before they can start using the product and experiencing its value. This becomes a bottleneck for growth and expansion.
Manual onboarding can also indicate a lack of understanding of the Ideal Customer Profile (ICP) and user personas/roles within the Product team. Without clear user segmentation and use-case partitioning, everything becomes a configuration option, making automation and pre-setting impossible. As a result, customers spend weeks onboarding, months for expansion, and subsequent upsells get delayed.
The ideal solution would be a self-service onboarding experience, as perfected by Slack. However, regulatory constraints, such as Know Your Customer (KYC) requirements for FinTech products, may introduce steps that are difficult to automate or self-serve.
To address this, start by breaking down the onboarding flow into its component steps. Identify templates and automation opportunities. Eventually, enable users to self-configure and self-serve. As these pieces come together, your Chief Revenue Officer (CRO) can transition the onboarding team towards providing higher-value custom configurations for more complex and valuable customers.
The goal should not necessarily be to achieve a completely self-serve model. Instead, focus on reducing the time and cost of onboarding customers. Your CRO can track onboarding time in days using a shared Key Performance Indicator (KPI) for this initiative.
Empower Customer Success
In an ideal scenario, the Customer Success Manager (CSM) team would dedicate their time to understanding customers/users and helping them derive the maximum value from the product. In doing so, they would provide valuable insights to the Product organization. Furthermore, they would identify upsell and upgrade opportunities for Account Executives (AEs), simplifying their tasks. From a quantitative perspective, they would play a crucial role in increasing Average Selling Prices (ASPs) over time.
Unfortunately, many CSMs focus solely on teaching customers how to use the product. This is especially problematic for early-stage startups, as it means teaching users how to work around bugs and performance issues instead of addressing them. Additionally, CSMs may rely on their product knowledge and customer relationships to reduce churn rather than driving expansion.
Investing in product improvements can enhance user engagement, shorten the time it takes for customers to recognize value, and effectively guide customers through expansion, thereby increasing ASPs while freeing up CSMs.
Automated Expansion and Upgrades
Once the basics are in place, the ideal situation is to automate the upgrade and upsell process using feature flags. By instrumenting the app and triggering based on user engagement, these flags can be flipped to streamline the process.
Initially, simpler features can be made available to the user, gradually revealing more complex ones as they become more comfortable with the product or go through specific flows. This approach declutters the user interface and reduces cognitive load, making it easier for users to learn without relying heavily on customer success managers (CSMs) to teach them the basics.
The next step is to intelligently guide users through an in-app flow that promotes advanced features they have not yet purchased. This can be done through in-app messaging and follow-ups from CSMs. Alternatively, a feature can be temporarily enabled to demonstrate the additional value the product can provide. It is important to notify the account executives (AEs) of these opportunities for upselling.
Lastly, the product itself can guide users through the entire customer journey, from awareness to trial, and self-service checkout and payment, all within the app. This approach is 100% product-led growth (PLG).
Supercharge Sales
As PLG enhancements improve the efficiency of the complete user journey over time, there will naturally be a shift up the value chain of sales resources. This means reallocating resources from low-end SKUs (Stock Keeping Units, i.e., price/product packages) to upselling and expanding high-end SKUs and services. It may also involve expanding into the Enterprise space from SMB and mid-market.
These changes will lead to an increase in average revenue per AE and have a nonlinear impact on overall MRR.
These are just a few examples of how you can support your CRO in driving growth while transitioning to a hybrid PLG/SLG GTM approach. They can help you prioritize investments that will have the greatest impact on the business, taking into account the appropriate level of urgency. This transition will take time, and it’s important for both of you to be aligned and work together as an executive team.
Working with your CMO
The CMO, like the CRO, focuses on improving efficiencies to enable non-linear growth. They also want rapid delivery of features around which to build marketing motions. By discussing your current market position with the CMO, you can determine how to best support the business and the sales organization together. And based on this conversation, you can allocate investments to these two priorities. Additionally, it is important to stay connected with users, understand their needs and challenges, and develop solutions to address them.
While there are several marketing metrics that Product-Led Growth (PLG) can positively impact, it is useful to focus on three metrics under the Demand Generation umbrella:
- CAC reduction
- Marketing Qualified Lead (MQL) generation
- Product Qualified Lead (PQL) generation
Automatic In-Product Lead Building and Nurturing
Often, there is a disconnect between a SaaS company’s website, the SaaS product experience, and the process of building and nurturing marketing qualified leads (MQLs). Typically, an MQL is generated when a prospect clicks on the “Demo” button on the website, and then the sales team engages with the prospect. While this is a measurable metric that commercial organizations can optimize, it is not ideal.
With PLG (Product-Led Growth) investment, you can collaborate with your CMO to create a customer journey that follows the flow below.
The entire customer journey is tracked and automated. Tools are implemented to enable visitors, prospects, users, and customers to send messages, reviews, emails, etc. to their networks and the web, thereby increasing traffic to the website. Ideally, this automation is integrated with tools like Coho.ai and Hubspot, built upon instrumentation from platforms like Amplitude. This enables the entire process to be optimized through collective experimentation and learning across triggers, content, and channels.
Lowering CAC through PLG
Your CMO has implemented a well-coordinated team of marketing professionals, content, and tools to generate leads at the top of the funnel (TOFU). A crucial aspect of this effort is creating engaging content to optimize search engine rankings (SEO) and drive traffic to various landing pages. The goal is to maximize conversion rates and turn leads into Marketing Qualified Leads.
In addition to the CMO’s efforts, you can contribute to traffic generation without impacting their budget. This can be achieved through prospects following links shared directly by existing users or through links embedded in app reviews and other platforms where satisfied users have left feedback.
To start, analyze the current Customer Acquisition Cost (CAC) and break it down by channels. Then, work with your data team to segment prospects using cohort analysis. Define the workflow for triggering messages and determine how marketing can control and write the automated messages that will be sent through the product.
By aiming for a common CAC target and collaborating with a cross-functional team, you can make a significant impact on this key metric as you transition to a Hybrid PLG/SLG model.
Using PLG to Increase MQL
An MQL (Marketing Qualified Lead) is identified based on their demographics (who they are), firmographics (who they work for), and their actions on your company website. One key action that qualifies a visitor as a market lead is when they click on the “Demo” or “Trial” Call To Action (CTA) button strategically placed on the website.
Visitors who come to the website through a referral from someone they know or a trusted product review site are more likely to make a purchase. As a result, the percentage and absolute number of visitors who click on the CTA will increase. This can be achieved without a significant increase in the CMO’s budget.
PLG to Generate PQLs
In summary, this refers to the automatic identification of a lead generated by the user’s engagement with the product.
As users engage with the Trial/Free product, they indicate a propensity to buy. Instead of waiting for the lead to reach out to sales, you can automatically notify the sales team to guide the user through the purchasing process.
Even better, enable the user to sell themselves within the product itself. However, this may not be suitable for enterprise customers.
Additionally, paying customers can use the product and continually onboard more colleagues or exhibit behaviors indicating readiness to upgrade to a higher-value SKU.
CSMs can play a role in this process as well. Based on in-app data of usage and engagement, the CSM team can assist with upgrades and upsells based on the customer’s actual needs.
It’s important to note that this effort should have a minimal or no budget impact on your CMO, but it will impact EPDs investments. This impact should be considered in relation to features and will be a central topic of discussion with your CMO.
By working with our CMO to identify PQL characteristics, you will both gain a better mutual understanding of your Ideal Customer Profile (ICP) and target users.
Working with your CTO
The transition from pure SLG to a hybrid PLG/SLG motion can greatly benefit your CTO partner as the company moves from startup to scale-up. This transition allows the engineering organization to shift from a monolithic feature-factory model to a more structured, scalable, and user-centric approach.
For horizontal products like Outlook or Slack, you can build structure and organization around different experiences. For products with distinct user types and journeys like Spendesk, squads can be organized around personas or a combination of both approaches. By grounding the product in user-centric principles and value, you can create a more cohesive engineering organization, foster a stronger identity, and increase productivity and satisfaction across and within squads.
Furthermore, this is an opportunity to bring the Data Engineering team closer to the Data Analyst or Research team. They likely collaborate on various projects, and this collaboration will be enhanced as they come together around product and user data, including instrumentation, normalization, and visualizations. This alignment will provide a stronger foundation for scaling the product and the business.
Just like your other collaborations, your discussions should consider priorities, timing, and resource constraints. Moving away from features and focusing on value creation also creates space for PRQ, as mentioned earlier. Additionally, there may be opportunities to deprecate or refactor certain features within a better-structured IA (Information Architecture).
Working with your CHRO
All of the previous conversations and decisions will lead to a significant change management exercise throughout the company. Your CHRO partner will play a crucial role in facilitating this transition.
Just like with the entire executive staff, collaborating with your CHRO should begin with a shared understanding of “The Why” behind the change. This narrative starts with your CEO’s vision and encompasses all the subsequent changes required for the transformation, aimed at enhancing company efficiency through PLG.
Your CHRO will assist the entire executive team in planning the phases, communication strategy, training, and hiring. Job descriptions may be adjusted, and performance evaluations may be modified. More emphasis will be placed on OKRs (Objectives and Key Results) than before. As you embark on this journey together, there will be countless details that need to be addressed and resolved.
As the transformation progresses, they will pay close attention to overall eNPS (Employee Net Promoter Score). Pulse surveys and frequent AMA (Ask Me Anything) sessions with executives will also be key.
Externally, all of the above work will help them craft a more compelling EVP (Employer Value Proposition) that positively impacts talent acquisition and retention. Aspirational towards accomplishing the CEO’s vision, with a clear strategy and plan grounded in a modern approach to building employees, teams, products, and companies.
Final Thoughts
Multiple reports from firms such as Iconiq and OpenView, as well as successful exits from companies like Slack, have demonstrated that incorporating PLG (Product-Led Growth) into a go-to-market strategy can significantly impact the unit economics of a SaaS B2B company. It can alter the company’s trajectory towards an exit. Despite its name suggesting a leading role for the CPO (Chief Product Officer), implementing PLG is undoubtedly a team effort. The process is challenging, time-consuming, and requires everyone to work together towards the same goal.
By fostering team collaboration and communication, PLG can benefit various roles within the company. Your CFO can effectively communicate more favorable unit economics to the board. Your CRO can allocate valuable sales resources to higher-value customers and sales opportunities. Your CMO will find it easier to provide sales with a greater quantity and higher quality of leads. Your CTO can align the organizational framework with customers, users, and the marketing message. Lastly, your CHRO can establish a strong narrative rooted in operational and financial effectiveness, facilitating the company’s transformation.
