Since the mid-2010s, product-led growth (PLG) has been slowly taking over the world of enterprise software. These days, it’s one of the most talked (and tweeted) about topics in SaaS.
PLG is sometimes talked about as though it’s the only way for a software company to grow, but this is far from the case, as many companies continue to grow with traditional go-to-market strategies.
For the companies that do opt for a product-led approach, it’s helpful to group them into two categories:
- PLG Natives who began and grew using PLG, and
- PLG Transformers who started with a more traditional marketing-led or sales-led growth strategy and then began applying PLG principles to accelerate their growth.
In this guide, we’ll discuss both.
While we’re talking about terminology, another quick note: Strategies that pre-date PLG have only recently come to be called “marketing-led” or “sales-led” to help contrast them from the near-ubiquitous “product-led growth” moniker.
But what’s the difference between product-led, marketing-led, and sales-led growth? What makes a PLG company different from others?
Finally, where does sales fit in a PLG-dominated world? We’re diving in.
What is a product-led growth strategy?
Companies that deploy a product-led growth strategy rely on the product and its virality to gain and grow customers efficiently. PLG companies often offer a self-service, free tier where users can not only try the product but also gain meaningful value from the get-go.
While it may sound obvious today, granting users access to the product before paying (or at least submitting to a lengthy sales process) was relatively rare in B2B software until recently.
Many users may continue to use the product on a self-service basis. Others, based on their activity within the product, may be passed to a sales team as product-qualified leads (PQLs). For example, if someone invites a certain number of team members to the platform, then a product-led sales team member may try to convert them to a paid tier.
A PLG strategy aims to acquire, activate, and retain customers as efficiently as possible. More of the traditional B2B customer journey happens without human interaction and at the user's pace.
Can every SaaS company be product-led? (No.)
The popularity of PLG in 2023 and beyond is partly because it can be a powerful strategy. When it works, revenue grows much faster than acquisition costs.
However, what many misunderstand about PLG is that it is exclusively a strategy for go-to-market teams.
For a product-led approach to work, the product needs to have demonstrated some degree of product-market fit. If users are ultimately not seeing value from using the product, no amount of in-product optimization or removing friction for users will help.
For companies with product-market fit, even those currently operating within a traditional marketing or sales-led growth model, product-led growth should be top of mind.
PLG as a strategy is a continuum, not a binary question of “are you product-led or not?” PLG Natives implement a product-led strategy incrementally, the same way sales-led companies typically scale their go-to-market efforts as the business grows and matures. This also means that PLG Transformers can implement a product-led approach gradually, ultimately resulting in a hybrid go-to-market model.
When is product-led growth a fit?
Beyond product-market fit, there are a few scenarios where PLG can be particularly powerful and others where a product-led approach might be less successful. For example, products that require a more complex or high-risk implementation process aren’t usually a good fit for PLG, as prospects need to work hand-in-hand with account managers and customer success specialists to secure approval and technical buy-in.
By contrast, here are some characteristics of companies that benefit most from a PLG approach:
Products are self-service & transactional
A primary characteristic of a successful PLG company is that a single person within a prospective customer account can sign up for the product and begin to use it without ever interacting with a team member.
This doesn’t mean only single-user products can be product-led (in fact, virality and network effects are a significant element of PLG). However, it does mean that the most successful product-led motions reduce barriers to entry so that a single user can experience value from a product without assistance.
The volume of user engagement is connected to revenue
Teams at PLG companies construct their pricing models to correlate with how much value a user receives. In short, a customer can get some value from the free model, but if they upgrade, they’ll be able to get even more value. This pricing model allows you to educate users on the product (via the product itself), then serve them with the right incentive to not only keep using it but also want to upgrade.
For example, the product analytics tool, Mixpanel combines usage-based pricing with a tiered feature-based model. How much the product cost depends primarily on the number of events customers collect using their software. As usage deepens, Mixpanel offers more advanced features to help incentivize customers to move to higher tiers.
PLG and usage-based pricing can be a bit of a chicken-and-egg problem. The former can be an effective way to drive the adoption and usage of a product, which can support the latter. However, many of the prerequisites for usage-based pricing (creating a product that is easy to use and provides value to the customer) are also consistent with product-led growth.
In either case, companies focus on encouraging more usage, which can then be monetized through a usage-based pricing model.
PLG = a bigger top of funnel
Because PLG companies often offer a free or low-priced version, they typically capture more potential customers. That is, they capture a higher volume of leads than their sales-led counterparts.
So, this means that product-led growth works best when a product is valuable to a large population. That’s why some of the earliest PLG successes were among productivity and developer tooling that can be applied by millions of users across company sizes, industries, and use cases.
By contrast, specialized or niche products with a smaller audience of potential customers may struggle to create the large top-of-funnel required for a product-led strategy to be effective.
Benefits of a PLG strategy
Lower customer acquisition costs
As discussed earlier, one of the main benefits of PLG is that companies typically benefit from lower customer acquisition costs than their sales-led counterparts. Removing the requirement for 1:1 interactions during the customer journey means expensive sales and technical resources are scaled further.
However, PLG companies also must invest significantly in marketing to drive the large number of signups needed to make a self-service funnel profitable.
Alignment with end-user value
In sales-led organizations, each part of the go-to-market organization operates relatively independently, with different metrics, systems, and goals. This means marketing, sales, support, and success teams spend a lot of time negotiating with each other and reconciling how they measure success.
In a product-led organization, teams can be more aligned around user acquisition, activation, monetization, and retention targets.
A healthy product-led motion generates a flywheel effect where the marginal user acquisition costs shrink relative to the marginal revenue of each new customer. Because programs and initiatives are deployed across large swathes of users rather than customer-by-customer, product-led organizations typically require less permanent overhead to achieve the same objectives. For example, a
Improved user experience
With a focus on customer value, PLG companies must put user experience front and center. If the user experience is less than stellar, then a PLG motion just won’t work. By embracing PLG, your company has to build a product that provides value and one that users love to use.
What is a sales-led approach?
Sales-led growth refers to a business model primarily focusing on acquiring new customers through sales and marketing efforts.
Here’s how a sales-led approach typically works:
- A marketing team will generate interest, often through gated content, industry events, and advertising channels. Additionally, sales reps may also prospect into companies in an “outbound” fashion through LinkedIn, automated emails, and cold calling.
- From there, a Sales Development Rep (SDR) will qualify the lead and connect the best leads with the sales team.
- The sales team will then convert the lead into a customer.
This method works and is also one of the fastest models to get going, which is why many continue to embrace it. But it relegates the product experience as secondary to the buying process. Potential users are prevented from getting their hands on the product and, instead, may receive a demo or have the option to do a limited pilot.
When comparing the two strategies, sales-led growth is often discussed disparagingly as an outdated relic from the pre-internet era. However, it’s very much still a viable way to grow a business. Moreover, we believe sales still has a major role even in an increasingly product-led world.
Transitioning from sales-led to product-led growth
Nonetheless, many sales and marketing-led companies see the efficiency gains of PLG and are eager to make the switch.
Transitioning from a sales-led to a product-led growth model ultimately requires a deep reinvestment in building a valuable product. This often means revenue is delayed, so the seeds for long-term, sustainable growth can be planted.
If your company is in the midst of a transition to PLG, it may be helpful to consider the following steps:
- Focus on building a high-quality product that meets the needs of your target audience and addresses a specific pain point or problem.
- Make sure your product is easy to use and delivers value to customers within a few minutes of signing up.
- Offer a freemium model or a free trial to allow potential customers to try out your product before making a purchase. This can help build trust and increase the likelihood of conversions.
- Encourage organic adoption and word-of-mouth referrals by providing excellent customer support and regularly seeking user feedback.
- Invest in inbound marketing efforts such as content marketing, search engine optimization, and social media marketing to help drive traffic and awareness of your product.
- Continuously iterate and improve your product based on customer feedback to ensure that it continues to meet the evolving needs of your target audience.
The challenge isn’t just completing these steps. Let’s face it; every company wants to build a valuable product. The real challenge is prioritizing these areas over all other competing initiatives at an established software company.
However, by investing. in these recommendations and focusing on building a product that customers love, you can transition from a sales-led to a product-led growth model and drive sustainable, long-term growth for your business.
Where does sales fit in a PLG world?
Although PLG companies focus on driving sales via the product, a sales team is still a necessary arm, especially when selling into enterprises. When users complete specific actions within the product (including by becoming PQLs), the sales team can intervene to ensure those users become even more valuable customers.
The most essential role sellers play is to connect customer pain with product functionality. In many cases, sellers can connect the dots for prospective customers and propose solutions that customers may not have thought of unassisted.
When discussing the role of sales at Stripe, Jeanne DeWitt Grosser says:
Sales is fundamentally about solving problems. People ultimately buy from you when they feel you’re going to help them solve a legitimate problem that they have. So often, I get to dive into someone’s go-to-market strategy, talk to them about it, and identify how Stripe can help grow their revenue along the way.
What I’m doing is almost like strategy consulting.
What is a marketing-led approach?
Again, to contrast with the more recent emergence of product-led growth, certain types of go-to-market strategies have been retroactively labeled “marketing-led.”
Marketing-led growth is often used to describe the now commonplace style of “inbound” marketing popularized by Hubspot in the first decade of the 2000s. Inbound marketing and “demand generation” focus more on driving interest and conversion through content such as blog articles, ebooks, and videos. This is in contrast to the older model, where marketing was synonymous with advertising and provided “air cover” for sales.
Today, marketing-led growth strategies emphasize rapidly producing high-quality content and distributing it through the channels where it is most likely to be discovered by potential customers (for example, through organic search and SEO, social media, and paid content syndication).
Differences between product-led and marketing-led growth
The line between product-led and marketing-led growth is often blurry, as both strategies can work together to drive interest. Marketing efforts can help drive awareness of the product, and the product can encourage users to spread the word. The two strategies have differences, though.
PLG companies focus on acquisition, activation, and retention
Many marketing-led companies prioritize lead and customer acquisition above all else. Additionally, the lack of a self-service experience means marketing teams are measured by their ability to generate revenue pipeline for sales.
This can create inconsistent funnels as different organizational functions are responsible for different parts of the customer journey.
In contrast, PLG companies take a more holistic view, focusing on acquisition, activation, and retention throughout the customer’s lifecycle. There is a consistent feedback loop between what marketing is doing to drive signups and how those new users engage with the product.
PQLs over MQLs
A PQL, or product-qualified lead, designates a user that has shown both a certain depth of usage within the product and who resembles the type of person or company who is likely to buy.
A marketing qualified lead (MQL), by contrast, also considers who the person is and where they work but exclusively considers how the prospect has engaged with marketing campaigns and properties. In each case, the objective is to get a human (salesperson) to engage and drive toward a specific commercial outcome (conversion, upsell, expansion, etc.).
However, the difference between these two “qualified leads” types isn’t always clear-cut. Many companies use a blended definition where both marketing and product engagement can signal that a prospect is ready for sales.
User experience vs. brand experience
Marketing-led companies may have fabulous products, but to drive awareness, they depend on content and other marketing efforts. In many cases, the experience created through marketing can differ significantly to the experience of actually using the product. Unfortunately, this can also be used to compensate for a less-than-stellar product.
Even though marketing is a major element of product-led growth, campaigns and collateral will often feature the product more prominently to fold the experience of using the product into every touchpoint with prospective customers.
In sales-led and marketing-led companies the buyer and user are often different people
In both sales-led and marketing-led companies, the end-users of the product often don’t have the authority to buy the software.
That decision-making authority lies with someone more senior who may never actually log into the product they sign off on. For example, a financial software company might target a CFO even though its product will be used by individual contributors on her team. This is now seen as an “older” way of going to market where the underlying assumption is that there is someone who “owns” the budget, and you need to talk to them to get a sale.
In a product-led environment, even junior employees are empowered to purchase software at small dollar amounts. However, larger deals still need approval. Even if ultimate authority still lies elsewhere, leaders would be more likely to rely on the guidance of their teams who are increasingly part of the evaluation process. Navigating this bottoms-up sales process is a hallmark of a hybrid go-to-market motion that pairs product-led growth with direct sales.
Summing up: Product-led growth isn’t an either/or decision
So when it comes to product-led vs. sales-led vs. marketing-led, which one wins?
The reality is sales, marketing, and product need to work together to drive sustainable growth. The best real-world go-to-market strategies take elements of older sales and marketing-driven models but incorporate newer user-focused tactics from PLG.
Increasingly, all companies will need to blend these strategies into a unified hybrid go-to-market motion.