The future of SaaS isn’t sales-led growth, but rather product-led. Most SaaS companies have already started their adaption, and the most successful ones are already mastering it, which is shown in their valuations that are double that of the industry average.
Software companies must change their mindset and build an organization where product usage drives customer acquisition, retention, and expansion. Kyle Poyar, Operating Partner at OpenView, is an expert on the topic and has shared his playbook on how to win in the era of PLG with the SaaSiest community, which we’ll cover in this article.
Why PLG Is So Popular
PLG has been around for about six years. Today, PLG adoption is higher than ever, and three of five software companies have adopted PLG as a core of their customer acquisition strategies. According to Gainsight, 91% of SaaS companies plan to increase their PLG efforts. When looking at the world’s leading PLG companies, some interesting data is found:
- PLG leaders are growing 50% year-over-year, which is far faster than traditional SaaS companies with an average growth of 21%.
- PLG leaders see best-in-class net retention (128%) and have highly efficient growth engines (63%, dramatically exceeding the rule of 40).
- As a result, these companies are valued at 82% higher revenue multiples – even in today’s harsher economy.
But how do you differentiate yourself as a PLG company when essentially everyone offers a free trial, etc.? The 11 principles of PLG are characteristics that the best companies share, which you can look at to gain inspiration. When implementing them, start with the first ones and work your way up to the more advanced ones.
- Build for the end user
- Build to be discovered
- Built to meet your users where they work
- Build for openness
- Build for flexibility
- Build community as a competitive advantage
- Deliver instant product value
- Deliver instant customer experience
- Monetize after you deliver value
- Monetize based on usage
- Monetize beyond software
Kyle Poyar has summarized these 11 principles by creating his own 5-step path to winning: build to be discovered by users, the community is the new moat, deliver instant value and CX, monetize after you deliver value, and monetize based on usage. Now, we’ll dive deep into these steps.
Build to Be Discovered by Users
The traditional B2B sales funnel typically looks like this: Prospect => Lead => Opportunity => Proof of Concept => Closed. The product interaction rarely starts before the PoC part, which is months after the prospect starts talking to sales. This is risky for potential customers since they spend so much time and effort without seeing the product.
In the new PLG user journey, the focus has shifted from focusing on the executive buyer to the user. The journey now starts with the user discovering your product by wanting to solve a pain point. After that, they land on your website and get started. On your website, the prospect should take some straightforward steps until they experience an “aha” moment.
When they’re now very interested in your solution, they should be able to convert without the need to commit to an expensive pay plan. Instead, that’s done when they get value and know that the product is right for them. So the critical thing to pulling this off is the discovering phase. You need to make your product discoverable.
This is best done by starting with organic search, since 40% of PLG customer acquisitions tend to come from SEO. A great way to optimize your content is by focusing on the user’s pain instead of the buyer’s pain. Grammarly can be used as an example, where users aren’t searching for “grammar correction software.”
Instead, they search for things like whether no one or noone is correct. Grammarly has planned its SEO around this, which is why they have reached over 30M users. In other words, having “how to” landing pages and educational content is great for product-led SEO.
Community Is the New Moat
In PLG, your users are your brand. At Webflow – a very successful company – they “accidentally” created a community right before their beta release by simply providing an open-source forum. Today, that community is a critical part of their growth. Webflow’s audience is freelancers who work for themselves, making them desire an online community where the users can hang out, provide support, and perhaps most importantly show off their work.
There are now over one million designers in Webflow’s showcase section, which has produced over one hundred thousand assets. This provides a substantial long-tail SEO. However, it’s crucial to remember that a proper community is more than just another slack group, a forum nobody asked for, or a webinar. Instead, communities need to be designed with and for users. Here are the most common approaches that software companies take to building a community:
- Amplify Community Creators
Partner with power users to showcase and amplify creations. Examples of this are Notion’s template gallery, Miro’s miroverse template gallery, and Unity’s asset store.
- Connect Users with Their Peers
Play the role of a connector for a specific function or industry, like Productboard’s product makers community, Procore’s construction network, and Pocus’ product-led sales community.
- Be Active within Existing Communities
Become a trusted voice within existing communities where your users hang out. Shopify does this with its marketplace, and other examples include Slack’s app directory and Google’s chrome extension web store.
- Build a Content Community
Produce high-value content, tutorials, and educational materials for target users. Examples of this are DigitalOcean’s community, Twilio’s documentation, and HashiCorp Learn.
- Acquire an Established Community
Acquire an independent entity that has already built an established community, like Pendo & Mind the Product, HubSpot & The Hustle, and Stripe & Indie Hackers.
Deliver Instant Value and CX
Users are consumers at work. They’re used to the great and intuitive apps they use on their phone, so they’ll expect the same instantly rewarding and high-quality experience for your solution. That’s why you need to make it easy to get started since users demand self-service today. To exemplify, end users, hate the following:
- Request Demo.
- Talk to Sales.
- Contract.
- Order Form.
- Configuration.
- Implementation.
- Training.
- Support Tickets.
Instead, end users love this:
- Sign Up.
- SSO.
- Ts and Cs.
- Automated Onboarding.
- Documentation.
- Knowledge Base.
- Bots.
- Community.
You can look at activation to know if you’re on the right track to delivering instant value and CX. Activation metrics will be different at every company, but some things are universally preferred:
- Activation should be fast, ideally within one week of signing up for the product.
- Activation rates of 20-40% are normal, even at standout PLG companies. However, if you’re under 20%, you need to get to work.
- Aim to be on the higher end if you have a single-player product and the lower end for multi-player products.
Improving your activation can be done by using the 3D framework. The first part is about discoverability – is it obvious what a new user should do first? Once that’s solved, think about the desirability – do they understand why they should be motivated to do something? Finally, nail your do-ability – do they have the tools to quickly and easily do the thing?
Monetize After You Deliver Value
Monetizing based on usage often requires a mindset shift: If you want to deliver instant value, you have to open up access before asking prospects to pay. Make sure your users experience initial value, as that’s one of the most effective ways of increasing your conversion rates.
But is a freemium or free trial program best for PLG? They both have their strengths and weaknesses, and the best solution will differ from company to company. Nevertheless, freemium plans tend to create more engagement, while free trials create more urgency in becoming a paying customer.
You can also do both, and many companies have started using a reverse free trial, where a free trial is offered, and after it expires the user is forced to decide between becoming a paying customer or downgrading to a free-forever plan.
This creates urgency but also allows you to monetize uncertain buyers. The free trial lets users try the best features you offer, which generates more sign-ups, and the downgrade option gives the prospect more time to see the value. Inside the downgrade option, you can apply conversion tactics like a Hit CTA, feature gates, and a usage limit.
Monetize Based on Usage
Asking people to commit to an expensive contract before using the product increases friction, slows the sales process, and creates lower conversion rates. Monetizing based on usage is optional for a PLG motion but can be very helpful. Usage-based pricing allows your user to:
- Start at a low cost while still experiencing the solution, which minimizes friction.
- Directly link the price paid with the value received.
- Access the product easier while uncapping the potential upside, expanding your addressable market.
But what’s the right usage metric for your business? The correct answer will differ vastly between companies. However, your usage metrics should generally align with experienced value, be flexible for customers, be scalable over time, and be easily metered. Here are some examples of usage metrics from leading software companies:
- HubSpot – Marketing contacts.
- Zapier – Tasks automated.
- Snowflake – Compute resources / Data volume.
- Attentive – SMS messages.
- Algolia – API requests.
To increase the usage and, as a result, scale your organization, you need every team at work. All parts of a company play a role in customer success, so once you nail your usage metric, here’s what your different teams need to be doing to systematically drive usage:
- Product
Treat product investments as revenue-generating expenses. Spend more on PLG and user experience
- Marketing
Connect marketing efforts with the product and user community. Educate customers on use cases and new ways of finding value.
- Sales
Stop treating committed bookings as the holy grail. Instead, compensate accordingly. Start with a trial or proof of concept.
- Customer Success
Be proactive, looking for leading indicators of future success. Drive adoption of sticky features.
- Finance
Reinvent the traditional SaaS metrics playbook. Help customers predict their usage.
- Pricing
Keep pricing simple, even if that means leaving some money on the table.
Key Takeaways
- PLG has gained much popularity thanks to efficient growth, higher NRR, and more.
- PLG requires you to be easily discovered by users, meaning that you need to optimize your SEO around pain points.
- Building a community is one of the best ways to improve your brand and acquire more customers, and it can be done in many different ways.
- You should strive to deliver instant value and a great CX, since that’s what your users expect. Look at activation to see how well you’re doing this.
- Monetizing after you deliver value lets your users see if the product is right for them, increasing conversion rates.
- Monetizing based on usage reduces friction, leads to shorter sales cycles, and increases your amount of conversions.
