The last decade has seen the evolution of software — from on-premise to cloud, from perpetual licence to SaaS, from expensive software to highly economical SaaS software. Hence, with the constant evolution in the technology world, the way software is sold is also changing. We are currently in an era where customers have “try before you buy” attitude. They want to experience the product before they pay for it. With this behavioural change, most SaaS companies are switching from the traditional Sales led growth strategy to a Product led growth strategy.
Wondering what is Product Led growth strategy and how is it different from the Sales led growth strategy? Here is all you need to know to start with.
Sales Led Approach — The Traditional Approach
In conventional SaaS companies, the marketing team generates the top of the funnel in the form of signups or inbound interest (calls, emails, website chat, etc.). The SDR team works on lead qualification. They are responsible for passing on the Sales ready leads (SQLs) to the Sales team. Once a deal is closed, the new customer is passed on to the customer onboarding team which is a part of the Customer Success Team. This team focusses on increasing the lifetime (loyalty) of a customer.
In the Sales led growth method, most customer interactions happen outside the product. The major reason behind this is that the Sales led strategy targets the decision-maker rather than the end-user. The Sales process involves the Sales team pitching the benefits of the product to the prospect rather than the user taking a free trial of the product and experiencing the product firsthand.
Who is it suitable for?
1) New categories: While launching a new category, educating the audience about the category becomes important. The adoption of the new category involves changing the consumer’s approach towards solving a problem. Therefore, Sales led approach works better in this case since it helps in educating the customer about the new approach, understanding the consumer’s concerns, challenges to adoption etc.
2) Vitamins but not pain killers: People often forget to take the daily dose of vitamins and set reminders to take them, on the contrary people reach out for pain killers when they have a headache without having to set reminders. Similarly, if your SaaS product is ‘nice to have’ (vitamin) rather than a “must have” (painkiller), Sales led strategy would work better for you. This is because vitamins aren’t urgently needed, and you may not experience any immediate downside if you delay taking them unlike the case with painkillers.
3) Customised Enterprise SaaS: SaaS companies that sell to the large-sized companies (usually Enterprises) that usually have specific software requirements and want customized SaaS use the Sales led growth approach.
Product Led Approach
Product Led Growth, a term coined by OpenView venture partners, is a strategy where the product lies at the core of the growth strategy and the product is the main channel of acquisition. Most of the B2C SaaS companies rely on Product Led growth, some examples being Netflix, Amazon Prime, Spotify etc. Some of the B2B SaaS companies such as Slack, Calendly, Zapier etc. have completely built themselves on Product Led growth. They target users in the company rather than the decision-makers. The main objective of their marketing is to have the user take the free trial of the product. Once the user is delighted with the product and feels that the product solves one of the major challenges, the user becomes an internal advocate for the product in his organization. So, most product-led companies follow a bottom-up selling strategy as opposed to a top-down approach in the conventional sales led model.
Benefits of Product Led growth:
1) Lower cost of acquisition: Since users onboard themselves, the cost of hiring an SDR becomes null because Product Qualified Leads are very high in quality (in terms of chances of conversion) as compared to MQLs in the Sales Led Approach. In fact, in most Product Led Companies, even a Sales team is not required as users who find value in the free trial upgrade to the premium version themselves without any involvement of a Salesperson.
2) Faster Sales Cycle: Since the users onboard themselves, the time-to-value (TTV) is reduced and hence the Sales lifecycle reduces.
3) Wider Top of the Funnel: Since most of the companies who follow PLG have a freemium model, it helps user try the product for free (sometimes forever). Even if the final sales to trial ratio is small, the users who signed up for free trial could be nurtured through marketing activities to increase their chances of conversion.
4) Better User Experience: Since the product itself is the channel of acquisition, all the Product Led companies focus on user experience. The easier it is to understand and derive value from the product, the higher is conversion probability.
Now that we know the benefits of Product Led growth and how beneficial it is for SaaS businesses, should all SaaS businesses adopt PLG??
Well, the answer is NO.
All SaaS companies should not mindlessly adopt product-led growth strategy. PLG strategy is not a replacement for the traditional sales-led growth strategy. A company can also thrive on an amalgamation of the two strategies- sales led and product-led. There is a common misconception in the market that PLG companies do not rely on marketing. Well, that’s not true. What differs is the objective of marketing in a Sales led and a Product led business model. There are other factors such as the maturity of the market, the stage at which the company is in the product life cycle and complexity of the product.