How did product-led growth, PLG, help us grow to $50M ARR (Part-3)

My journey with PLG started long before the current trend. PLG helped us grow the business’s revenue to $50m ARR. PLG works.

In Part-1 I shared how we identified the product value messages that helped us to acquire relevant users into the product’s funnel. In Part-2 I shared how we experimented and measured the product onboarding and the aha moment the user persona had with our product. In this part, I’m sharing the sales and operations efforts around PLG. This is the business part of our PLG story. The posts include actual data and charts that we created over time.

Welcome to the product-led growth (PLG) business part. From flag-bearing pioneers like Slack to mature switchers like HubSpot, product-led businesses are starting to dominate the SaaS landscape.

Why?

• They are worth more: the average PLG company is worth double the public SaaS index.
• They scale faster: 83% of public SaaS companies to achieve $100m ARR in their first five years use product-led models.
• They’re increasingly popular: PLG market capitalization has grown from $21 billion in 2016 to $687 billion in 2020.

As Gartner stated on their webinar about PLG:

Sales-led growth (SLG) revolves around a salesperson. They are responsible for bigging up the benefits of the software to a targeted audience to make sales, renewals, and upgrades. They wax lyrical about the brilliant features, offer great deals, provide tailored demos, deliver the contracts, and take control of onboarding. In PLG, that’s the role of the product.

Whereas sales-led growth is a ‘push’ tactic using reps to spread the word, product-led growth is a ‘pull’ tactic using the product as a magnet for customers.

Where and when do you start the sales process in PLG?

When users are starting to use the product for the first time, it is very important to track and measure when the product’s value was experienced. This is an important goal and a potential trigger to call for a Product Qualified Lead (PQL).

A PQL is an individual who has experienced value from using a product due to a free trial, use of a limited feature model, or other types of first-hand experience with the product. The use of the product takes it a step further than a marketing qualified lead (MQL).

A PQL is more likely to purchase a product than other leads as a result of having a value from the product. These individuals have bought into the product beyond other leads who have only performed research, received promotions, or have been referred to an organization.

Having a PQL does not mean you should start reaching out to the individual and start a sales process. Although the PQL is an important signal about the user, it is just one signal out of a few that you should consider.

Having your definition of the user persona, as discussed on Part-1, you should learn if the individual behind the PQL matches the profile you look for — role, title, region, industry, company size, etc.

Why is that important? You would like to avoid spending your resources trying to sell to an irrelevant person with no purchase intent or budget. For example, if you are targeting mid-sized businesses that can spend $1,000 MRR on your product, however, the individual behind the PQL is a student. You better let that individual have fun with the product for some time and focus your resources on where the money is.

What is the ultimate product trial period?

Giving access to your product for free is an important part of PLG, as you like the user persona to experience the value. However, if you designed the user journey properly, the product value should be achieved within 5 minutes. Otherwise, the user may get frustrated and leave.

Giving free access to your product isn’t your business goal. You need to make money. After getting value from your product, you must ensure these users will become your paying customers. When would that happen?

When we decided about the product trial period, we assumed that our competitors did it right. We just matched their trial period of 30 days. Why 30 and not 25 days? we had no idea.

Over time, we looked at when users converted into customers during the trial period. Here is the result.

We were surprised to learn that most of our users, almost 90%, made the purchase decision on the first two days of the trial. The remaining ones converted on the last day, as we started to alert them that the trial would expire soon.

We got the same behavior when we reduced the 30 days trial to 14 days. We then reduced the trial to 7 days, with the same result.

Although we sent automated emails and in-product messages to the user during the trial, that didn't change the distribution of purchases across the trial period.

This experience confirmed that the highest purchase intent of a user is very close to the time the user experienced the value of the product. This was a great confirmation of our PLG strategy.

Our experiments helped us to understand that we better engage with the user just after the PQL and drive the conversation further, than waiting for the trial period to end. Velocity matters and helps to improve the conversion rate to Won.

Should you have a Sales-development-representative (SDR) or a self-serve monetization option?

Self-serve users typically churn at a much higher rate than users who have the support of a customer success team or inbound SDRs. A lack of focused support and/or sales guidance also leads to self-serve users tending to have a low expansion rate. On average, only 15 to 20 percent of freemium users will convert on their own to paying customers.

We experienced a very high churn with our self-serve users. Although they created a $1.5m ARR business for us, the churn rate was almost 40%, super high.

Having an SDR reaching out to qualified PQLs quickly is crucial. Quickly means hours, not days or weeks after. Read about speed-to-lead and the importance of that to win business.

A PLG SDR is different. This SDR should be a product-minded one. It requires ongoing product training to ensure the SDR is familiar with the latest product releases and values. It is important to ensure the SDR does not just learn the sales script but can discover what value the prospect is interested in and demonstrate it over a call. We invested many resources in this and that paid off. This is why it is challenging to use an external SDR service for PLG, as their SDRs are not product minded, in most cases.

A qualified SDR will increase the average deal size. As the SDR will discover why the user requires the product and who else in the team will use it, the average deal size will likely be higher than just a self-serve deal.

We had a bi-weekly Product call with all sales teams to update them on the latest product release, roadmap, and pricing. This was the most popular and engaging call across the entire company. When you have a PLG-minded team, everyone is keen to learn more about the product, and share their feedback.

What about pricing and packaging?

Setting the correct pricing and packaging of your PLG strategy is a topic for another post. However, before you copy your competitors’ pricing, please spend some time reading how our average sales price MRR increased by 48% after changing the pricing and packaging of our SaaS product.

A common mistake by many companies is to share their entire pricing model on their website, instead of just the first entry package. By disclosing your pricing online you limit your average deal size. This is because a qualified SDR, or account executive, may find that a prospect can pay much more for the same product. In other cases, their use-case requires additional features that can be sold on top of the base product, as long as your product has additional services or features that can be upsold.

Here is how you can do it

Set the trial period of your product to 7 days, unless there is a good reason to extend it beyond that. In other cases, provide a limited functionality of your product for the same period. For example, show partial results or limit the usage capacity.

Ensure your in-product analytics can identify and alert you when users experience your product's value, PQL.

Leverage tools like LinkedIn, ZoomInfo, Clearbit, or Lusha, to enrich the data about the users that are using your product. Check if the user matches your user persona criteria. This will help you decide if you should allocate sales resources.

Once you acquire a PQL and a qualified user persona, rush to engage with that user with the help of your product-minded SDR. If your product only supports self-serve, start messaging the user about a subscription.

While SaaS B2B benchmarks indicate a 25% free trial to purchase conversion rate, we experienced 15%. The 15% was an improvement from 5% and then to 12%. I’m sure we could do better over time. However, our goal was to convert the trial with the help of an SDR, which increased the average deal size over self-serve credit-card-based deals.

Our SDRs managed to x3 the ACV over self-serve credit-card-based deals and helped to create a $50m ARR business over time. While PLG drove 70% of our business, about 30% was created by Sales-led growth (SLG). As we grew in ARR, and needed to increase our ACV, the SLG strategy started to contribute more to our growth.

While PLG helps to create new ARR, you should also not forget your upsell and renewal opportunities. These will further help you to grow the business if your retention rate remains healthy. You can read more about retention in my other post, How We Increased Gross Revenue Retention by 20%?