Product-Led Growth Model: Best Practices, Metrics
- Published:
- Updated: October 3, 2024
Openview’s Product Benchmark Report found that product-led growth (PLG) companies are more than twice as likely to outgrow (100%+ year-over-year revenue growth) sales-led companies, especially those with a freemium model. It also found that PLG businesses are valued on average 30% higher than the public-market SaaS Index Fund.
In this article, we’ll explore what it means to be a product-led growth company, pros and cons of the product-led model, how to invest in PLG as a revenue driver, metrics product ops teams closely monitor at PLG companies, and examples of B2C and B2B PLG companies.
What Is Product-Led Growth?
Product-led growth (PLG) is a business model in which the product drives customer and user acquisition, conversion, retention, and expansion. This means the entire organization is aligned—across engineering, product, design, marketing, sales, and customer support—on the product as a growth lever for scalable growth, working together to provide data to support product improvements that enable users.
Sales-Led Growth vs. Product-Led Growth
The main differences between product-led growth (PLG) and sales-led growth (SLG) lie in their approaches to acquiring, converting, and retaining customers, as well as on their focus on driving business growth. Here are the core differences between PLG and SLG:
Product-Led Growth | Sales-Led Growth | |
Focus | PLG prioritizes creating a product that is intuitive, valuable, and easy for users to adopt and use without extensive sales or customer success interactions. | Sales-led growth relies heavily on direct sales efforts, where sales teams actively prospect, qualify leads, and close deals through personalized interactions. |
Acquisition | Users often discover and adopt product-led tools at their own pace through freemium offerings, self-service experiences, and free trials. | Sales-led growth requires a team of sales representatives who actively engage with prospects, conduct demos, and negotiate contracts. |
Conversion | Under the product-led model, conversions are mostly driven by in-product experiences, where users upgrade or expand usage based on the value they perceive from the product. | Sales-led companies convert prospects into paying customers through sales presentations, proposals, and negotiations. |
Expansion | PLG encourages viral adoption through word-of-mouth and network effects as satisfied users share the product with others. It uses product-led experiences to engage users and drive upsells and account expansions. | Sales-led growth focuses on upselling and cross-selling to existing customers, often through account management and relationship building outside the product. |
5 Stages of the Product-Led Growth Cycle
The product-led growth cycle starts the first moment a user encounters your product and decides to sign up and try it out. The product is already doing the heavy lifting, promising to solve specific pain points and invite the user to explore whether and how much by themselves through self-service experiences.
1. Sign-up
Here’s the stage where users sign up for your product, provide basic information about themselves and their needs, and start a trial period. Your objective here should be to lower barriers to entry and encourage as many potential prospects as possible to get started using your product, either through a free trial or a frictionless sign-up process that requires minimal information.
In this stage, product teams want to convert as quality product-led leads from website visitors into users. Don’t overpromise on what your product can do, as it will lead to a leaky funnel in the next two stages.
2. Engage
At this stage, users begin actively exploring your product’s features, functionalities, and capabilities. Your top priority should be to keep them engaged and interested in the product.
To achieve that, you’ll need to build segmented product-led onboarding experiences, product tours, and in-app tutorials based on their use case to help them understand how to use the product effectively and start to realize value early in their customer lifecycle.
Product ops teams must analyze product usage and new user behavior to identify areas of user friction that cause dropoff rates.
3. Value realization
Users reach this stage when they have an “aha!” moment and start experiencing the product’s value. They understand how the product solves their pain points or addresses their needs. Your goal at this stage should be to shorten their time-to-value using proactive support, in-app guidance, nudges, and browsing aids that ensure they quickly realize your product can solve their challenges and improve their lives.
Product operations teams must work to map their user flows and journey, and identify their product’s specific “aha!” moment to have a north-star milestone to work towards, which will provide clear product optimization objectives for teams to build on.
4. Convert to paid user
Once a user has become immersed in your product experience and uses it consistently, your focus should shift to converting them into paying customers. This could be achieved through targeted messaging on premium features, demonstrating ROI by unlocking paid features for short periods of time for new users or offering compelling pricing plans that align with the product’s perceived value.
5. Advocate
Advocacy happens when satisfied users become promoters of the product. They share positive reviews, refer friends or colleagues, or engage in other forms of word-of-mouth marketing.
The ultimate goal at this stage is to turn loyal users into product evangelists who help drive new user acquisition. This can be fostered through referral incentives, providing exceptional customer support, or creating a community where users can share their experiences.
Customers who extract the most value from your product should be identified to build long-lasting relationships. These customers can be utilized at your company events, sponsored dinners, customer roundtables, and more, showcasing the value of your product and the strong partnership formed with your company.
Advantages of Product-Led Growth Strategies
A product-led growth strategy helps you focus on what you can change easily—building a great, intuitive product that solves specific problems— instead of trying to cajole customers and manipulate them into a sale. That way, you’re more likely to attract motivated users who convert quickly and stick around without much fuss.
1. Focus on user experience
A strong focus on user experience ensures that your product is intuitive, easy to use, and effectively addresses users’ pain points. As a result, you’ll be able to acquire users organically, get them to experience the value in your product quickly, and retain them longer (because your product solves precisely the problem they expected).
This requires PLG companies to have strong product, UX, and analytical leadership who can build, map, analyze, and optimize product experiences and user lifecycles.
2. Shorter sales cycles
SaaS sales cycles range from 40 days for annual contract values under $5,000 to as high as 170 days if it’s more than $170k. Yes, if the payoff eventually happens, it pays for itself many times, but what are the odds?
No matter what your sales motion looks like, a sales-led growth strategy requires you to maintain quite a large team of SDRs, and keep them following up with your customers, with the risk of not closing eventually. A product-led strategy inverts your sales machine so your customers can self-select and choose to convert if they determine your product solves their pain points.
3. Buyers prefer self-service education and buying
A study by First Page Sage shows that SaaS customer acquisition costs can reach as high as $1,450 per customer, depending on your industry. If you’re selling into an enterprise niche, you can expect your costs to go even higher as your sales cycle swings back-and-forth, while you try to win the buy-in of multiple decision-makers over several months.
Instead, a product-led growth play frees you from investing aggressively into sales-led tactics; instead, you build the best product possible, optimize your onboarding flows that drive user adoption, and let your users figure it out at their own pace.
4. Higher retention and upsell rates
Well-designed user experiences enhance satisfaction and engagement and make your users more likely to stick with the product, reducing churn rates and increasing their customer lifetime value. This leads to freemium users who convert into paid customers and expand their accounts with advanced features and pricing tiers.
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Risks of Product-Led Growth Models
Among other things, product-led growth relies heavily on having a product that is inherently designed for virality and, as a result, requires significant upfront investments in product development and infrastructure.
Measuring the effectiveness of PLG initiatives can also be elusive. Determining how UI and UX changes impact user acquisition, conversions, and revenue growth efforts requires sophisticated analytics and data integration.
Finally, your efforts will attract copycats with bigger budgets who will try to eat your market share with lower prices, generous free tiers, and aggressive marketing tactics, making it harder to differentiate your product and stand out. After all, if your product is simply the sum of its features, what’s your USP when an identical product shows up, for an even lower price?
1. Organizational change carries higher risks
PLG is often favored by new entrants who don’t have much to lose: as a result, they can focus the entire organization on creating a sticky product and optimizing for virality.
However, legacy software vendors (say, Salesforce, SAP, or Microsoft) that acquire a significant portion of their customers via targeted sales and marketing efforts can’t afford to experiment with PLG. For one, they’re mostly publicly traded and can’t afford to have their revenues shrink.
Product-led growth emphasizes a customer-first approach, where the product becomes a primary growth driver. This shift in focus may be consistent with existing company cultures prioritizing sales-driven or relationship-based growth strategies.
Transitioning to a PLG strategy often demands new skill sets within the organization. Teams may need training in data analytics, user experience design, and product management to effectively leverage PLG principles. Investing in upskilling employees and recruiting talent with relevant expertise can be costly.
2. Need for digitally mature companies that understand product analytics
Adopting a product-led approach to growth requires robust capabilities in product analytics, user behavior tracking, and data-driven decision-making. Companies with limited digital maturity may face significant upfront costs and resource investments to build or enhance these capabilities. This includes investing in technology infrastructure, hiring skilled personnel, and training existing teams.
3. Leaky funnel
With the PLG model, the conversion funnel typically starts with users engaging with a free or trial product version. The challenge arises in guiding these users through the stages of user activation (where they derive value from the product), customer retention (continuing to use the product), and monetization (converting into paying customers).
The leaky funnel problem manifests when users fail to convert due to pricing concerns, feature limitations, or competing alternatives. Since marketing, sales, and relationship-building are an afterthought in the PLG model, companies may need help effectively address these conversion barriers.
4. Not suitable for enterprise software or complex use cases
Enterprise software often serves complex use cases and requires customization to meet specific organizational needs while PLG typically relies on standardized, self-service onboarding processes and may need help to accommodate the intricacies of enterprise-level deployments.
Likewise, selling enterprise software typically involves multiple stakeholders, rigorous evaluations, and lengthy decision-making cycles. PLG’s self-service approach may not align with the need for personalized demonstrations, extensive proof-of-concept trials, and detailed contractual negotiations common in enterprise sales. This mismatch can lead to slower adoption rates and difficulty scaling within large organizations.
Most importantly, while enterprise clients often require high-touch customer engagement, including dedicated account management, customized training programs, and ongoing support services, product-led growth emphasizes customer self-service and may not adequately address these needs, resulting in suboptimal customer experiences and higher churn rates among enterprise users.
12 Product-Led Growth Metrics to Track
The basic concept behind product-led growth is that software products must be simple and intuitive enough to deliver value to users quickly so they can self-select and convert at their own pace. As a result, most PLG growth metrics are designed to measure user experience, conversions, retention, and your per-user acquisition costs and revenue.
Here are twelve critical PLG metrics to track your product’s ability to drive new user acquisition, retain users, and expand accounts:
- Active users: Active users log in, interact, or perform actions within your product over a specified period, typically daily, weekly, or monthly. For example, active users on a social media platform might be counted as those who log in and engage (like, comment, share) at least once a month or more frequently.
- Account expansion: From a PLG perspective, account expansion involves increasing a user’s profitability (to your company, i.e., the software publisher) by encouraging feature adoption, upselling higher-tier plans, and through positive word-of-mouth.
- Average revenue per user (ARPU): ARPU calculates how much revenue, on average, each customer or user generates over a specific period, typically monthly or annually. Formula = Total Revenue / Total Users.
- Customer acquisition cost: CAC measures the cost incurred by a company to acquire a new customer, usually by dividing your aggregate acquisition costs for a bucket of users by the number of accounts created.
- Customer lifetime value: CLTV is a metric that represents the total revenue a business can reasonably expect from a single customer account throughout its relationship with the company.
- Gross churn: Gross churn refers to the total percentage rate at which customers discontinue their subscription or stop using a service within a specific period, without considering any new additions or reactivations during the same period. It is a straightforward measure that provides insight into the overall loss of customers over time, irrespective of any potential revenue offset by new customer acquisitions.
- Net churn: Unlike, gross churn, net churn accounts for lost customers and includes any revenue gained from existing customers who upgrade their subscriptions or purchase additional services during the same period. This can result from their usage patterns (login frequency, usage time frame, and depth of feature used), behavioral signals, how they fit your Ideal Customer Profile (ICP), and their conversion likelihood scores, which tend to factor in all the aforementioned metrics.
- Product-qualified lead: PQLs are a PLG concept that identifies users who are likely to upgrade to a paid tier, based on their interactions with your product.
- Referrals per user: Referrals per user are an unorthodox metric used to measure virality or network effects and calculate how adoption and acquisitions (are likely to) increase with each additional new user.
- Time-to-value (TTV): TTV refers to the amount of time it takes for a customer to realize the benefits or value promised by a product, service, or solution after engaging with it. The goal is to minimize this time to ensure customers experience value quickly, improving satisfaction, retention, and overall success.
- Trial-to-paid conversion: Trial-to-paid conversion (or trial conversion rate) is a metric that measures the percentage of users who convert from a free trial or freemium model to becoming paying customers. It is an essential metric for businesses, particularly in software-as-a-service (SaaS) and subscription-based models, to gauge the effectiveness of their trial offerings and the potential revenue they can generate from trial users.
- User engagement: User engagement refers to the degree to which users interact with and are actively involved with a product, service, or platform. Several metrics can be used as a proxy to determine user engagement, including the frequency and depth of interactions, the amount of time users spend actively using the product or platform, retention over a specific period of time, and the quality of feedback and interactions recorded.
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Examples of Product-Led Companies
PLG companies range from B2B platforms designed for teams to B2C products for individual users, communities, etc. They leverage their products’ inherent value and usability to drive user acquisition, retention, and growth organically, relying on viral loops, network effects, and seamless user experiences to foster engagement and expand their user base.
This approach reduces reliance on traditional sales and marketing tactics and aligns closely with modern consumer behaviors and expectations, where the product becomes the primary driver of business success and customer satisfaction.
B2B PLG examples
Here are three examples of B2B SaaS companies that have succeeded using a product-led growth model:
Asana
Asana is a web and mobile application designed to help teams organize, track, and manage their work. Thanks to their product-led play, getting started with Asana is straightforward. Users can sign up quickly, individually or as a team, and begin organizing tasks immediately.
Once onboard, Asana ensures teams remain engaged via a user-friendly dashboard that enables individual users to track progress on their assigned tasks and get real-time updates as action items progress through the pipeline. Finally, as teams grow accustomed to Asana’s features, they are more likely to explore its premium offerings such as advanced reporting, workload management, and integrations with other tools that become essential for scaling operations, only this time, they have enough hands-on experience using Asana to upgrade without much doubt.
Zoom
Zoom is a cloud-based video conferencing platform that enables remote communication, collaboration, and online meetings. It has gained widespread popularity for its ease of use, reliability, and comprehensive feature set, particularly in the context of remote work and virtual interactions.
Now, while Zoom sells into the enterprise, its major selling point is that its product is extremely easy to use: Zoom’s user-friendly onboarding process ensures that new users can start hosting or joining meetings with minimal effort. The simplicity of setting up accounts and scheduling meetings encourages widespread adoption.
And, at the onboarding and adoption stage, Zoom makes it obvious that the platform offers more than just meetings: it positions itself as a virtual experience platform for anything from 1:1 consulting sessions to large-scale conferences with hundreds of attendees.
Zoom’s freemium model entices users with basic, ready-to-go features that draw users in, and by the time they’re considering a premium plan with additional perks like extended meeting durations, cloud storage, and administrative controls, the product has grown on them.
The key to Zoom’s strategy is to give users simple, reliable video conferencing that just works, let them use it enough to build a dependence on it until they finally discover the premium limits (possibly) months later and wonder, “Why not?” Then individual users can introduce Zoom into the companies where they’re decision makers maintaining that cycle of virality that repeats whenever a user tries out Zoom for the first time.
Calendly
Calendly simplifies scheduling, eliminating the back-and-forth of finding suitable meeting times. Simply copy/paste a link to your calendar and whoever you’re sending it to can find a time slot that works for them. Best of all, Calendly is absolutely free to start using which eliminates friction and by the time users encounter the freemium tier’s limits, they’re already getting enough value that paying $10/month doesn’t seem like much.
Most new users discover Calendly when a colleague sends them a link to book a meeting: you click through and within a few seconds you can find a free time slot that works for you. And there’s a subtle invitation to try out Calendly yourself. In this case, the product sells itself and every time a user shares a Calendly link, it invites whoever’s on the receiving end to try it for free, untangle their meeting bookings, and save the time they’d have spent going back-and-forth, for free.
B2C PLG examples
Here are three examples of consumer-facing B2C companies who have successfully leveraged the product-led growth model:
Pinterest enables users to discover and curate content on virtually any topic, from fashion to food to design. There are no paywalls from the start, so users can experience Pinterest without signing up—you only need an account when you want to start curating your own collection.
Creating an account becomes a natural step as users curate their boards and save favorite pins. Once a user creates an account, Pinterest’s recommendation engine further personalizes their experience with related posts and invitations to pin, share, and save content, turning passive browsing into active participation.
Citizen
Citizen is a personal safety network that enables users to share and receive location-based 24/7 safety alerts within their community. The application allows users (across multiple metro areas in the US) to report incidents they observe in real-time, such as accidents, fires, or suspicious activities, by pinpointing the location on a map. This information is instantly shared with other users in the vicinity to increase situational awareness. Users receive immediate alerts about incidents near their current location or in areas they’ve chosen to monitor. These alerts include details like the type of incident and its proximity, helping users stay informed about potential risks in their community.
Tinder
As a product-led dating platform, Tinder’s straightforward sign-up process and profile setup make it easy for users to start exploring potential matches almost immediately. To ease that process, Tinder’s algorithm matches users based on location and preferences and makes it easier for users to meet potential partners in their community—all of that without having to pay or make any long-term obligations. Just come, explore the community, and see for yourself.
By the time you decide to take things a step further, you’re likely more engaged and open to paying for a premium experience: Tinder offers premium features like unlimited swipes, Super Likes, and Boosts that enhance user experience and increase visibility, catering to those looking for additional perks and increased chances of finding a match.
How to Become a Product-Led Growth Company
As the name implies, product-led growth implies that you create the best solution to your users’ problems, make it intuitive, remove unnecessary usage and adoption obstacles, and redesign your customer acquisition and retention to be more organic, instead of sales- or marketing-led.
1. Invest in building a well-designed product
When Facebook purchased WhatsApp for $19b in 2019, it had over 450 million users, and was adding 1 million users daily, with a team of just 55 engineers. Its greatest USP was that it was (and still remains) simple, and users loved it because it just worked: it was a light product, easily accessible, had sticky features, and a short time-to-value.
Within minutes, you could download WhatsApp and talk to family members a continent away, completely for free. It was intuitive and did what users had in mind.
If you explore most high-growth applications over the past decade, they have followed a similar playbook: create a simple, easy-to-use UX, solve specific problems as quickly as possible, and make your product stick by encouraging usage. Eliminate any part of the experience that doesn’t add value to the product and try to get your users to an aha! moment that’ll get them immersed quickly.
2. Have a deep understanding of your users, their journey, and their contextual problems
Understanding your users helps you align your product development efforts directly with their needs, preferences, and pain points. This user-centric approach ensures that your product addresses real-world problems that will get them to use it. This approach helps you prioritize your product roadmap, identify flashpoints in your user’s journey where they’re most impressionable, and focus on solving their most pressing challenges early into your product experience.
3. Take a data-driven approach to product improvements based on product and user data
Data helps you analyze how users interact with your product, what features they use most frequently, where they encounter difficulties, and how they move through their journey. This understanding enables you to prioritize improvements directly impacting user experience and satisfaction. Those data points also highlight specific pain points or friction in the user experience. This could be areas where users drop off, encounter errors, or spend excessive time.
As you make those necessary optimizations, you also have to measure product adoption metrics such as usage frequency, conversion rates, click-through rates, and more to identify which features are most valuable to users. Finally, all that data can be used to personalize product experiences by segmenting users based on behavior, preferences, demographics, or other criteria.
4. Shift your organizational focus on how you approach sales, support, and customer success
Instead of purely transactional sales, a product-led approach emphasizes educating potential customers about the product’s value and capabilities. Sales teams focus on demonstrating how the product solves specific pain points and delivers tangible benefits.
Likewise, offering free trials or freemium versions allows potential customers to experience the product firsthand. This self-service model encourages users to explore and adopt the product independently, aligning with the product-led philosophy of letting it speak for itself. And, instead of waiting for customers to reach out with issues, proactive support involves monitoring user activity and preemptively addressing potential problems or questions.
Similarly, investing in a comprehensive knowledge base and self-help resources such as in-app chatbots, community forums, interactive walkthroughs, and personalized recommendations, empowers users to find answers independently.
How Whatfix Enables Product-Led Growth Companies
Whatfix is a digital adoption platform (DAP) that empowers PLG companies to accelerate product adoption and enhance user engagement through effective in-app onboarding, live training, and self-help support. Whether you’re building a B2B SaaS platform or a consumer B2C application,
Whatfix enables product teams to keep a pulse on your users’ activity, offer them support on-demand, and keep improving your product with continuous feedback.
1. Whatfix Product Analytics for analyzing end-user behavior and custom
Whatfix Product Analytics provides a no-code event tracking, analytics, and reporting platform that allow product teams to track user behavior, engagement metrics, and adoption rates within their applications. These insights help identify areas for improvement and optimize the onboarding and training processes.
With Whatfix Product Analytics, you can:
- Identify areas of user friction that cause drop-offs with Funnels.
- Pinpoint the moment of value realization of users.
- Map the optimal journey for your users to achieve their “aha!” moment.
- Compare cohorts of users to understand which are realizing value faster.
- Track any custom user action without engineering dependencies.
- Extract insights without technical knowledge using Whatfix AI
2. Build contextual in-app user experiences based on your event data
Whatfix Digital Adoption Platform enables you to with a no-code editor to create and embed interactive, step-by-step guides and walkthroughs within your software applications.
Use Tours, Task Lists, Flows, and Smart Tips to guide new users through the product quickly, reducing time to value and increasing initial user engagement.
With Self Help, enable users to overcome any technical issue with a searchable in-app support center. Self Help integrates with your knowledge base, FAQs, in-app tutorials, and other help content which empowers users to resolve issues independently. This reduces dependency on support teams and enhances the overall user experience.
3. Integrate frictionless user support in the flow of work
Whatfix facilitates frictionless user support by embedding help resources directly within the application interface, seamlessly integrating support into the user’s workflow. As a result, your users can access self-help resources such as knowledge base articles, troubleshooting guides, or video tutorials without leaving the application. This reduces disruptions and enhances productivity.
Likewise, you can embed interactive widgets that provide contextual help or allow users to initiate support requests, chat with support agents, or escalate issues directly from within the application interface.
Whatfix’s smart alerts also help you notify users about important updates, new features, or maintenance schedules through in-app notifications, ensuring timely communication and minimizing user confusion or frustration.
4. Collect end-user feedback with in-app Surveys to take a user-driven product roadmap approach
Using Whatfix Surveys, create in-app surveys to solicit and collect user feedback to help you directly understand satisfaction, feature preferences, and areas for improvement within the application. This real-time feedback loop helps you prioritize product roadmap decisions based on what your users want.
That way, you can better validate your product hypotheses, refine features, and align product development efforts with user expectations and market demands. This iterative approach ensures that product enhancements are driven by real user demands, not your team’s whims.
Ready to get started with product-led growth? Request a Whatfix demo today!
What Is Whatfix?
Whatfix is a digital adoption platform that provides organizations with a no-code editor to create in-app guidance on any application that looks 100% native. With Whatfix, create interactive walkthroughs, product tours, task lists, smart tips, field validation, self-help wikis, hotspots, and more. Understand how users are engaging with your applications with advanced product analytics.
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