Product-Led Growth: Driving Growth With Your Product Alone

What is Product-Led Growth?

Product-Led Growth (PLG) is a go-to-market strategy and motion that makes a company’s software product the primary tool for customer acquisition, retention, and expansion. The goal is for a product to deliver value so quickly and easily that it essentially “sells itself.”

The term itself is credited to venture capital firm OpenView Venture Partners, although the concept has been around for a while now.

What defines a Product-Led Growth strategy?

1. It is user-driven 

Customers try the product on their own, and as they learn to like it and rely on it, they share it with friends and peers. As new users weave your product into their daily lives, you can observe their behavior with analytics tools and adapt both the product and your company’s efforts to be most effective.

2. Conversion involves minimal prompting from your sales team

Usage, trials and adoption are all self-serve, requiring few human interactions. Thus, the product must be intuitive, quick, and easy to use. A stellar first impression is the name of the game. 

3. The product becomes the lens that every team sees through 

Within your company, the sales, marketing, product management, engineering and customer success teams all become intertwined, owning and supporting different areas of the user journey. For example, Product becomes more accountable for Acquisition, Retention and Revenue (ARR) vs. traditional marketing, customer success and sales. 

4. PLG complements the traditional go-to-market structure.

Crossover responsibilities means each one of your teams needs access to behavioral analytics, to perform their tasks and support the PLG motion. Analyzing users' adoption gives you real time insights on what they want, and their feedback helps you optimize the product and features, much like water shaping its course through rock.

What are some key advantages of Product-Led Growth?

1. Reduced Customer Acquisition Cost (CAC)  

When the product itself is driving sales, users distribute the product for you, through word-of-mouth or built-in referral mechanisms: by inviting a team member or a friend, or sharing value on social networks. When users voluntarily share your product, their friends and contacts come along for the ride. This leads to a compounding effect where a single user can bring more aboard, but you only paid to acquire the initial user. Schwing! Land and expand, baby!

Increased retention and lower churn rates

• Low to no human touch

• Faster sales cycle. 

• Built-in flows call users back into the product for more value 

• Users onboard other new users for you, 

• CS teams can tailor their efforts to upsell actively engaged users, and troubleshoot for those who are likely to leave. 

• Targeting user buyers is easier, more affordable and more scaleable vs. economic buyers

 In GTM, this is a bottoms-up motion, where the user buyer influences the sale and chooses the product.

Learn about top strategies for retention in our complete guide!

2. Preferred customer experience 

There’s no wait-time to see the product, no curated demo and sales pitch before they’ve had a chance to learn if this is the right product for them. PLG offers users a speedy, self-serve way to experience your product at their leisure and on their own time, just like the other B2C digital shopping and consumption experiences they enjoy.

Minimal friction in the buying process

• No sales pitch

• No demos that disappoint 

• No extensive onboarding experience

• Customers know exactly what to expect when they buy

• Users explore the product at their own pace and choose their own stack.

• Freemium pricing models are the most common seeds

• Value creates adoption, not vice-versa

According to Forrester Research, 3 out of 4 buyers would prefer to educate themselves than talk to a salesperson anyway.

3. Differentiation and defensibility

In a competitive market, the best customer experience wins. PLG allows you to disrupt your category, and build a moat around your brand and its community of raving fans. You can increase your business organically, without a huge advertising budget, or a sales team that’s constantly working the phones. 

Driving demand from buyers

• You understand customers’ needs and pain points upfront 

• You can build the product to meet their requirements 

• Your company aligns to support the product and mission 

• PLG scales faster than competing models

• Sales can focus on leads who are already enthusiastic

• No marketing tactic works better than a great product!

Above all, PLG means a better experience for users. After all, they’re the ones shaping the UX with their preferences!

What’s the difference between Product-Led vs. Sales-Led vs. Marketing-Led Growth?

B2B companies who began relying on their product experience to lead their growth efforts disrupted the entire market.

The three go-to-market motions for B2B SaaS:

Sales-led:

Back in the early Pleistocene age of earthbound mainframes and on-premises systems, growth was led by sales reps out in the field. These were the Glengarry days of booze and schmooze where personal relationships among the stakeholders mattered most, and technical considerations were about hardware/software compatibility. Specialized knowledge was critical, but so was a firm handshake and the right connections.

I like you, you like me, and our products can connect…well enough, anyway. Customer experience? Whatevs.

Marketing-led:

With the introduction of SaaS, buying decisions became way more democratized. C-level executives were now making decisions about the purchase of software systems. Many of them had little to no technical expertise, so they required education to understand the expensive commitment they were about to make. Software companies provided this education with an onslaught of promotional marketing: everything from live extravaganzas like Dreamforce to online webinars and informational campaigns.

Lots and lots (and lots) of advertising. "Click here, click here!!"

Product-led:

Today, the product experience itself is king. Functionality and purpose are the key drivers of adoption. Does it solve my problem? Does it do this easily and elegantly? I not only want to try it out, I want to live with it a while before I lay out any money! While this would have been unthinkable even a decade ago, with advanced product analytics, having users comb through the product, even for free, is a huge advantage to your company. You get to see what’s popular, works and what doesn’t, optimize users’ favorite features and trim all the fat.

Your users become one giant living focus group eager to provide you with feedback. It’s almost like they’re paying you to perfect the product...and then they actually pay for it! Voila. Product-led growth.

What factors led to the rise of product-led growth?

Market saturation was a big one. Barriers to entry for new players were now lower. Access to data had been commoditized, unlocking deeper insights and mass-customization capabilities. This led to aggressive bidding wars in the marketing-led motion, and CAC costs went through the roof.

If that wasn’t enough, there is only so much information that prospects can absorb, and so many programs that they have time to use. It’s hard to get someone's attention these days with yet another tool—and even harder to quickly explain why yours is better than that of the incumbent, who has huge brand awareness.

New players could no longer compete with or outbid the big boys, so they needed a new, cheaper way for distribution. How could they win against the competition and establish new categories? PLG was the answer.

What are some examples of successful product-led growth for SaaS?

• Slack is a cloud-based collaboration tool widely used by businesses around the world. Slack's freemium model focuses on delivering a seamless user experience. Thanks to its ease of use, Slack now has millions of daily active users.

• Zoom is the video conferencing platform that kept us all (mostly) sane throughout COVID-19. While a pandemic was undeniably good for business, investing heavily to make their interface reliable and user-friendly has made Zoom the category leader.  

• Dropbox is a cloud-based file storage and sharing platform that has grown significantly by offering a simple self-service product with a freemium tier. Word-of-mouth referrals have earned Dropbox millions of users worldwide.

How is Product-Led Growth measured?

What metrics should you track and optimize? Find out in our complete guide!

Here are some popular metrics:

Customer Acquisition Cost (CAC)

Customer acquisition cost is what you spend to get a new customer: banners, articles, whitepapers, social media, etc. What are those clicks costing you? And what is the payback period of time to get this cost back?

The formula: (Total costs of conversion efforts - marketing, advertising, sales expenses, etc.) / (# of customers you’ve acquired in the same time period)

Activation Rate:

Typically refers to the percentage of people who have completed a specific action or set of actions indicating they are active users—creating an account, completing a tutorial, or using a particular feature for the first time. The steps required to reach AHA depend on the product.

The formula: Activation rate = (Number of activated users / Total number of users) x 100%

Activated users are users who have completed the specific action you are tracking. This could be anything from creating an account to completing a certain number of onboarding steps. Total number of users is everyone who has signed up for your product or service.

For example, if you have 1,000 total users and 200 of them have completed the activation criteria, the activation rate would be:

Activation rate = (200 / 1,000) x 100% = 20%

Adoption Rate

Adoption rate is the percentage of users who move past exploring your product or feature and start to use it in earnest. First, determine what event(s) count as “adoption.” This should be an action that signifies a customer’s getting value—using it for the purposes it was designed. This may require a customer to have used a product or feature multiple times.

The formula: Adoption rate = (Number of new users / Total number of users) x 100

Monthly Recurring Revenue (MRR)

MRR includes all recurring subscription-based revenue, including upsells, cross-sells, and renewals. Don't forget about downgrades and cancellations!

The formula: MRR = (Total recurring revenue in a month – revenue from one-time charges) / number of months in the subscription period

For example, if you have 1,000 customers who pay $100 per month, your MRR would be $100,000.

Annual Recurring Revenue (ARR)

ARR measures the predictable revenue generated by your subscription-based business model. It’s a KPI for investors, analysts, and executives to evaluate a company's financial health and growth potential.

The formula: ARR = MRR x 12

If the customers above maintained their $100K MRR for a full year, your ARR would be $1,200,000 ($100,000 x 12).

It's important to note that ARR is a lagging indicator and does not capture revenue generated by new customers who sign up during the year. Therefore, it's essential to track other metrics such as CAC, customer lifetime value (CLV), and churn rate to ensure your company's growth and financial health.

Monetization Rate

Measures the amount of conversions from free to paid, renewals, and upgrades. This is an important metric for measuring the effectiveness of your pricing strategy and overall revenue generation.

The formula: Monetization rate =  MRR  / Total number of active users.

If you have an MRR of $10,000 and 1,000 active users, the monetization rate would be $10 per user per month. This means that, on average, each active user generates $10 in revenue for your SaaS product. 

Retention Rate (aka churn rate)

Basically, this is your customers who’ve quit, expressed as a percentage. 

The formula: (Customers lost during X period) / (# of customers at the start of the period) X 100

While churn is easy to grasp, it’s deceptively difficult to to calculate, so we recommend you read this detailed piece we wrote about churn.

What are some popular models and concepts for Product-Led Growth?

Product-Led Growth requires some new tools and new ways of thinking. 

Growth Loops

Funnels are foundational, and we’ve loved them, but they were best for the “online brochure” digital experience of 10-20 years ago. Today’s customer journey is much more rich, complex, advanced and customized. 

Treating product and acquisition strategies as separate silos is risky—you can wind up with distribution failures from making your product fit your channels, instead of the other way around. Additionally, treating monetization as a silo overlooks its ability to enable or disable certain channels. 

To overcome these issues, you need a framework that combines product, channels, and monetization into one system and seeks compounding growth, not linear growth. This will help you know where to focus and what to invest in to achieve sustainable progress.

Products that experience rapid growth are most accurately depicted as loops: self-contained systems that utilize inputs to generate outputs that can be reinvested back into the inputs, resulting in further growth. Different types of growth loops create various forms of value, such as attracting new users, retaining existing ones, enhancing defensibility, or improving efficiency.

Growth Loops give you a whole new perspective

• Decisions now take a long view. Loops encourage you to consider the ways acquisition, product, and monetization work together in a system, and make decisions accordingly. Instead of constantly filling the top of the funnel with more tactics and channels, loops encourage you to reinvest in what you produce. Investment decisions are geared towards long-term results that will compound over time, rather than short-term gains.

• Teams can support each other. Organizing and setting goals for teams also changes with loops. Cross-functional data, engineering, and design teams become necessary for acquisition, retention, and monetization, since loops cross traditional boundaries and require all functions to work toward the same output goals. Now your teams are in alignment, no longer optimizing at each other's expense.

• Growth plans become multifaceted. When you take time to assess the function and impact of loops on your product, then you can create a quantitative growth model that includes all the various factors affecting your metrics. In this way, loops are an invaluable tool for enhancing your approach to product growth, enabling you to communicate, prioritize, and make informed decisions like never before.

The Hook Model 

Developed by entrepreneur and investor Nir Eyal, the hook model is a framework designed to help companies create products or services that form strong user habits. It’s particularly useful for experiences that require repeated engagement, such as social media, mobile apps, and subscription services.

The hook model offers a structured approach to understanding user behavior in order to design products that can effectively capture and retain their attention. By creating a feedback loop of triggers, actions, rewards, and investments, the hook model creates a product experience that encourages users to return again and again. 

As the consumer passes through the following four phases, their habits become reinforced, along with the product's perceived value to them.

1. Trigger: The initiator of a behavior. Either external (one of the five senses) or internal (emotional/memory)

2. Action: The behavior, which is performed in anticipation of a reward.

3. Variable Reward: Rewarding users for solving a problem using a varying degree of novelty reinforces their motivation for the action taken in the prior step.

4. Investment: Investments are actions requested of the user that load the next trigger to start the cycle all over again.

As Eyal says, “Like it or not, habit-forming technology is already here. If used for good, habits can enhance people’s lives with entertaining and even healthful routines. If used to exploit, habits can turn into wasteful addictions.”

As these two models show, the degree to which you can develop habit-forming technologies influences which of your products and services are destined to succeed or fail.

The Fogg Behavior Model

The Fogg Behavior Model was developed by Dr. BJ Fogg of Stanford University. It proves that three elements—Motivation, Ability, and a Prompt— must converge at the same moment for a behavior to occur.

Motivation considerations: Sensation – Will it bring pleasure or Pain? Anticipation – Hoping for good/Fearing a bad outcome Social Cohesion – Will it cause social acceptance, or rejection?

Ability considerations: How much of the following is required? Time, Money, Cognitive Demand, Physical Effort, and Non-Routine Learning

Prompt types: The Spark — high ability, low motivation The Facilitator — high motivation, low ability The Signal — high motivation, high ability According to the Fogg Behavior Model, if a user does not take a desired action, at least one component is missing from the three main elements. 

What are some processes that are important for Product-Led Growth?

PLG has led to a world of new charters between teams. Rather than a waterfall effect of EPD>Marketing>Sales>Customer Success, you can create a non-linear customer journey where everyone touches the customer via self-serve experience. Or offer a very targeted human touch with in-app flows and guides for education and value creation.

EPD and GTM workflows 

These complementary systems are critical to the success of any product development project.

EPD (Enterprise Product Development) is the process of developing a product from inception to launch within a company, from ideation and design through development, testing, and launch. Teams involved include engineering, product management, quality assurance, and operations. EPD ensures that the final product is high quality and meets market needs.

GTM (Go-to-Market) involves launching the new product and promoting it to customers. Workflows focus on the commercial aspects of product development, such as positioning, pricing, messaging, channel strategy, and sales enablement. GTM is concerned with launching successfully, gaining market traction, and generating revenue. The teams involved are cross-functional, including product marketing, sales, customer success, and operations.

Alignment between EPD and GTM workflows is necessary in order to first develop a product with features that meet customers’ needs, then position and promote it in a way that resonates with the target audience. 

Of course, the best way to achieve this goal is with abundant and accurate data. An analytics platform like Heap helps organizations streamline and optimize EPD and GTM workflows by providing insights into user behavior, identifying opportunities for product improvements, and integrating with other SaaS tools to personalize customer experiences and enhance sales and marketing efforts.

RICE Prioritization

RICE is a scoring system developed by Intercom to help PMs determine and prioritize the importance of ideas, features, and initiatives based on four factors:

Reach: How many people will your initiative involve (via transactions, trials, signups) in a chosen timeframe—monthly, quarterly, etc.

Impact: Can be a quantitative goal, such as a target number of conversions, or a qualitative inquiry, such as customer satisfaction. There are usually multiple factors that can be difficult to isolate, so a tiered scoring system is used: 3 = massive impact; 2 = high impact; 1 = medium impact; 0.5 = low impact; .025 = minimal impact

Confidence: This element quantifies hunches and gut feelings. For ease of use, confidence is multiple-choice: 100% = high; 80% = medium; 50% = low/ Below 50% is considered a moonshot—probably not worth devoting resources to it.

Effort: The total amount of time required from all members of each team— product, design, and engineering—quantified in “person-months.”

RICE models can provide an evaluative framework for projects to help teams make better choices, minimize personal biases, and defend their decisions to higher stakeholders.

In a recent Forbes article, Mattt Darrow observes: “Companies should focus as much on the buyer as the product. That buyer has high expectations, knows more about your product and business than you think, and demands a completely new experience.”

What types of analysis are useful for Product-Led Growth?

Effort Analysis 

This lets you quantitatively understand the difficulty users face when moving through every step of every user flow in your digital experience through time spent, interactions between each step, and the average number of visits it takes to complete the flow. Heap’s Effort Analysis helps you prioritize the fixes that will have the biggest impact on your users’ experience.

Segment analysis 

Segmentation lets you find patterns among different user groups by sorting them according to behaviors, such as purchases, clicks, likes, media plays, uploads, page views, data entry, or social shares. This lets you target better customers and prioritize maximizing the behaviors and metrics you’re trying to produce.

Heap's guide to Behavioral Segmentation tells you everything you need to know.

Time-based cohort analysis

Early in the customer lifecycle, cohort analysis helps analyze initial user responses to increase adoption. Over weeks and months, it will reveal how long different groups of users stay engaged and when they’re likely to churn. Teams can uncover patterns to guide them in creating ideal support, marketing and retention efforts, and then evaluate their effectiveness.

To get the most from your analytics investment, you want tools that can find things for you that you would never have found yourself. You also want direct access to your data, real time insights, and the ability to create custom models.

Want to learn about how cohort analysis works? Read our complete guide!

What are some useful tools to have in a Product-Led Growth Stack?

Testing & Personalization 

Analyzing test campaign data against behavioral properties gives you valuable insights towards delivering relevant, personalized experiences using simple A/B testing, complex multivariate campaign deployments, advanced customer statistics, and server-side testing.

CRMs 

CRM data is a powerful resource to incorporate into analyses. You should be able to leverage information from your provider (such as Salesforce, Sugar, Oracle, Hubspot, Monday etc.) and import usage activity from your analytics back into the CRM—including any built-in or custom fields.

Attribution Platforms 

Attribution collects campaign data from your ad platforms and gives your marketing team a central dashboard from which they can monitor and optimize their spend. Knowing your visit and conversion information helps you to determine the return on your advertising efforts.

Session Replay 

Heap’s unique Session Replay feature allows teams to see the exact moments they want to know more about. Rich detail makes the information truly actionable, allowing app builders, devs, customer satisfaction, marketing and sales teams to quickly identify and fix any problems their users encounter. Our replays are fully integrated with Heap data, so it’s easy to understand and gain a full picture of every issue.

Data Warehouses 

Integrating with your warehouse infrastructure allows you to tackle complex analysis and directly query your raw event data. You can run ad-hoc analyses, connect to BI tools, or join the raw data with other data sources from across the company. A good tool will automatically keep your data up-to-date, optimize its performance, and allow you to define and query events retroactively in a clean SQL format.

Testing & Personalization

Analyzing test campaign data against behavioral properties gives you valuable insights towards delivering relevant, personalized experiences using simple A/B testing, complex multivariate campaign deployments, advanced customer statistics, and server-side testing.

What are the core components to achieving Product-Led Growth?

1. Minimize friction - Strip out any excess complexity.

2. Understand the value of your product - Deliver it immediately, and make it easy to get started.

3. Demonstrate the value of your product - Target your users, not buyers.

4. Use features to drive demand - When users get value and enjoy the experience, they’re incentivized to invite their friends and peers, which in turn amplifies the experience.

5. Deliver on what your product promises - Create results, which will make the user want to come back over and over again.

6. Layer sales and marketing onto product usage - Your product IS the marketing. Weave your efforts into what the users are revealing to you through their behavior.

“Understand your value. Communicate the perceived value of your product. Deliver on what you promise.” ― Wes Bush, Product-Led Growth: How to Build a Product That Sells Itself

How do I know if Product-Led Growth is right for my product?

A list of questions to ask yourself:

✅ Are product-market conditions right? Are you encouraging sharing from within the product, enabling word-of-mouth referrals?

✅ Is it easy to sign up? Is your product easy and intuitive enough for users to sign up and get to value quickly on their own? If not, what’s the investment required to get to a version of the product that could be? How much friction are users experiencing just to get started?

✅ Does your product offer a uniquely valuable solution? Are you making promises about vague benefits, or easing actual pain for a person with a specific problem?

✅ Do you deliver value to users BEFORE the paywall? Can users understand the premise immediately and receive the benefit straight away? Do you offer a free trial or freemium tier? 

✅ Do your unit economics allow for users to start small? Either at a price/cost they can afford, or one that is within their discretionary amount?

✅ Do your marketing funnels lead to engagement? What do you want your customers to do at each step of the way?

✅ Are network effects built in? Does the expansion of your product’s popularity make things better for everyone, or cause more problems than it solves? Can you build in referral and distribution mechanisms? 

✅ Can you generate content growth loops around templates, best practices, and listings such as Yelp, Miro or Notion?

Heap is the analytics solution built for Product-Led Growth

Heap enables product teams at SaaS companies to move swiftly. 

Heap Illuminate uses proprietary data science to remove the blind spots from your analytics efforts by evaluating every user journey on the site or product. By analyzing behavior and tracking key metrics, Heap enables product, marketing, and customer success teams to:

• Gather data on feature usage and customer-reported issues

• Run experiments with full control—then see the impact

• Identify areas of the product that cause frustration or confusion for users. 

• Make informed decisions quickly about what features to build next. 

• Watch user sessions and identify common pain points that affect multiple accounts.

• Uncover hidden opportunities and friction points in your user funnels—even on untracked events! 

Heap offers automatic integrations with popular SaaS tools, allowing users to personalize feature announcements and onboarding flows with Appcues, Chameleon, and WalkMe. You can also enrich your customer and account data with tools such as Salesforce, Hubspot, and Clearbit, and trigger customer emails based on product behaviors using Marketo, Salesforce, and Hubspot. Additionally, Heap provides managed ETL services to blend product data with other business data and deliver behavioral data to users' data warehouses automatically.

Thousands of customers at PLG companies love using Heap and trust us for their digital insights. We make it easy for you to get started down the road to product-led growth. If you’re interested in a demo of Heap’s product analytics platform, reach out. We’d love to chat with you!