Product-led Growth (PLG) refers to software products that are open to end users and allow them to use it immediately. One example of a product that many people use daily that uses a PLG model is Slack. Also open source companies like
End users can sign up for amazing products and then immediately begin using them. End users can also purchase software.
What makes PLG such a profitable business model? Before we dive into the benefits, let’s look at how software was traditionally bought and sold.
How Enterprise Software was Procured
In the past, purchasing software for work required a centrally managed process, controlled by both the IT department and the business function.
You must first speak with a salesperson before you can use web-conferencing software to set up an email server, share files, or make expense payments. A demo is required and you must go through the procurement process.
The central buyer controlled the entire process. This could be an IT executive or business executive who handles sales and marketing. This included the vendor’s entire sales team. During negotiations, the vendor had many options, including access to features and pricing control.
PLG is growing
The traditional selling and purchasing of software has been disrupted by product-led development. End users can now adopt the software that solves their problems without needing to talk to salespeople or involve their IT department. Let’s take a look at the new opportunities and key benefits this model offers.
The advantages of PLG
- A Product Sells Itself… to a certain. PLG’s core business model revolves around the fact that great products are naturally viral, which leads organic growth. To get more integrations and features, users invite their friends. This allows for natural expansion and encourages adoption. These events can be monetized so that users can upgrade or pay for their own products. It is usually more beneficial and more effective to involve the sales and CS teams.
- Less expensive to acquire customers (CAC) PLG products are more popular than traditional software products. Valentines will be sent by investors
- Expand and the Power of Land These bullets are key to the ability to acquire low-income customers and grow them over time. This results in >100% Net Dollar retention (NDR), which is a key characteristic of top PLG SaaS firms such as Snowflake (158%), Twilio (1139%), and Datadog (120%).
PLG’s Challenges to Customer Success and Sales
- Which customers are willing to expand or convert? PLG companies must have a sales and CS team, even though product-led growth companies are more likely than others to experience organic expansion or conversion. These teams often have trouble determining which customers will be ready to convert from organic/self-service to sales-led, and which customers will upgrade or get new features.
- Whom should we talk to? When scaling PLG businesses with thousands of customers and sometimes hundreds of thousands of users, it can be hard to find the right people to speak to. Often, finding your champion is the best way to help an organization grow and upsell.
- Collaboration across Business Teams Product-led growth strategies are only as successful as the collaboration between all business departments, including sales, marketing, sales, and customer service. It is therefore a challenge for all PLG companies to ensure that every business team knows which metrics are important and what their role is in achieving those goals.
Where is PLG heading?
It is obvious that the genie can’t be taken back into its bottle. End users must have access to today’s business and development tools. It is clear the business model works, as evidenced by the success of large PLG software companies like Zoom(ZM), MongoDB (MDB), and Datadog (DDOG).
These companies need to scale up their growth. What can PLG companies do to help drive this growth? Correlated is thrilled to be in the front row, and we can’t wait to share our discoveries with you!