If you’re working in tech, you’ve likely heard the phrase or been a part of a company adopting product-led growth. And with good reason. Who doesn’t want their engineering sprints also to grow revenue? It’s strategically satisfying.
At the same time, “PLG” has become a bit of a buzzword. We’re sure many teams empathize with the frustration from PLG strategies that don’t solve current challenges and can be hand-wavey in implementation.
In this post, we want to break down what PLG is and how to custom-fit it for your business. And we’re doing all of this with PLG expert Ben Williams, who walks us through his experience as VP of Products at Snyk and companies he’s advised, sharing the exact thinking and metrics he uses when working on product-led growth.
What is product-led growth?
“In its purest form, a company that is product-led or implements product-led growth means that the product itself acquires, activates, engages, monetizes, and retains users, funneling them through a payment flow, most commonly without human touch,” according to Reforge.
This breaks from marketing-led or sales-led organizations that rely on top-of-funnel content and sales efforts to qualify new users before interacting with the product. Instead, new users signup for your product, and in engaging, they become more qualified and invite others to join.
Think: Teachable vs Slack.
Teachable is a learning management system for online courses and while teachers who are successful with the product can certainly refer other online teachers, they’re focused on reaching an audience that’s separate from the product’s buyer.
This means that Teachable needs to rely on marketing and sales efforts to grow. Now, with a company like Slack, when new users enter the product, it becomes essential to invite other users. Through this, the product itself is acquiring more customers.
Taking a step back, most software companies have some kind of product-led growth component, be it inviting additional users, creating collaboration tools, or activating loyalists. And with good reason.
In Ben’s words:
“I’ve talked about every company needing to be product-led, at least in the dimension of retention. And what I mean by that is that they need to start paying very strong attention to the user instead of just catering for the buyer.
PLG native companies build serving the user into their DNA. Think: How can we identify the problems that users have? How can we elegantly solve them in ways that they love, that they want to use the product to solve those problems, that they want to evangelize the product that's kind of at its heart. There are some sales-led companies, and not all of them,...that have terrible experiences for the end user, but they tick all the right boxes for the buyer.
It's my strong belief that eventually other companies will come along that tick all those boxes, but also deliver an amazing user experience. And it's then just a matter of time before those companies effectively eat the lunch of the incumbents.”
Have a montage of clunky B2B apps whizzing through your head? Us too.
But let’s not overcomplicate something all smart entrepreneurs and builders know. Your product needs to be good. And it should incentivize people to share it with others with the same pain point. When you make that magic moment easy to share, that’s when you see the beauty of PLG.
Gotta run? Listen to Ben Williams and Enzo Avigo talk about PLG on The June Podcast:
How to identify areas for PLG
Alright, so if you’re a business owner, product manager, or growth expert, where do you start looking to identify areas for product-led growth?
Ben outlined a few key considerations based on your product and pricing model.
First, consider if you might be a sales-led company:
If you’re not, or looking to go deep into PLG, you’ll want to identify areas for growth. You may start by leveraging product usage data from your existing customer base and looking for expansion opportunities. You can also look on the inverse side of that and detect and intervene in churn risk accounts.
IDENTIFY AREAS FOR EXPANSION REVENUE
Expansion revenue is revenue that comes when someone upgrades (either from free to paid or from a lower-paid plan to a higher-tiered plan). Typically you'd want to look at:
1. How many free accounts you have
2. How many paid accounts you have
3. How many of your customers are on each plan
Then, you’ll strategically weigh where you think you most easily move people from one stage of their lifecycle to the next. Consider how much marketing, engineering, and product time it takes to implement those changes, and the shift in revenue to calculate your projections.
IDENTIFY AREAS TO INTERVENE IN CHURN RISK
Churn occurs when someone is paying, and they either downgrade or cancel their plans. To understand your churn, you want to understand if there are correlating product actions that lead to churn and potentially interview churned customers and look at how their feedback compares to active and engaged people. We like running ah-ha user interviews with both of these segments.
- In the immediate term, you can rely on product marketing to reach these segments.
- Overtime, you’ll want to adapt your product to change why people churn.
“Whether you’re looking for expansion revenue or decreasing churn, you're going to need a product with reasonably strong retention characteristics and you'll probably be working on monetization awareness within the product to help make users and teams aware of the different ways your product can solve additional use cases.”
If you want to build a product-led acquisition and start using product-led sales to drive new business, you need to provide some value before a paywall.
This isn’t new. The software industry has long talked about the ah-ha moment (and from Ben: “even better, the habit moment”), and it’s critical that your visitors get there before they’re asked to signup and pay. If you’re seeing softness in your conversion to signup and paid, figure out why people don’t see the value of your product, why they’re not convinced to pay.
There are many ways to tackle this problem, a few can look like:
- An interactive demo on your site, like those made with Walnut or Novatic.
- A sandbox environment that visitors can try.
- A free time limited or usage limited trial, or you might decide that going all in with a freemium strategy is the right thing.
- Or maybe combine the free plan and a trial with a reverse trial.
Sometimes your existing core product isn't a perfect fit for some of those motions. Maybe there's just too much complexity in the use cases that you're serving, or your product isn’t technically there yet. Startup problems!
If so, you could consider building something that's adjacent, that might act as a beachhead for a product they'd land and later expand into your core offering and you could implement. Just be careful that you don’t spread your resources too thin.
PRODUCT-LED GROWTH & YOUR METRICS
For PLG companies, it’s best to use North Star metrics and align your growth strategies around them. And we’re not just talking about your default, like daily or weekly active users. (Although those come auto populated in June.)
Here’s how Ben thinks about it: an engagement based metric, should be about the core value.
The core value for Snyk was teams fixing security issues. It wasn't the fact that we could find vulnerabilities or show them, it was whether the team was fixing those vulnerabilities. So fixing was the core value.
Snyk cared about security being a team sport, so it wasn't users, it was teams, or organizations so they used a phrase like “team fixing” to incorporate both of these ideas.
And then they thought about natural usage frequency. For Snyk that was around teams paying down their security debt on a weekly basis.
From this, their North Star became Weekly Fixing Organizations. Everything else waterfalls from here. You start to derive initiatives not just in the growth and product teams, but across multiple teams around the company.
So if you’re trying to do this for your team, here’s a quick guide:
- What’s your core product value or the action where you users see and experience value?
- Who needs to experience that value? One person or a team?
- How often do they need to experience it to stay engaged?
An easy way to answer this question is to look into dive into a cohort of users with a great retention. Check what they did in their first days using your product, and find any pattern.
Once you understand what your core North Star metric is you start to understand engagement.
With Snyk their engagement states weren’t volume based but based on frequency of fixing. They defined three core buckets of engagement states plus the dormant state with help from a data scientist standpoint.
- Dormant: Snyk defined dormant as someone who had “fixed” for zero unique days in the last 30 days.
- Casual: If they had fixed between one and three unique days, regardless of how many fixes, they were in the casual bucket
- Core: If they’d fixed between four and seven unique days in 30 days they were in the core bucket.
- Progressive: If they’d fixed eight plus unique days in the last 30.
Core was called Core not because most users were in this category but because this was the natural usage frequency. The boundaries of those buckets were actually at key inflection points whereby Snyk knew that if someone was in that bucket and they moved from this bucket to the next, that would have a significant change in their likelihood to be retained.
This is how you can start to create your buckets of users/accounts too. Using June and audience filters:
You can look at how many users/accounts are first engaging and then create buckets (we call them "audiences") where a certain level of engagement is correlated with payment behavior.
You can then get an overview of your buckets, like this:
A note for early-stage companies
If your growth strategy is similar to Snyk’s and you’re aiming to acquire thousands of free users before you introduce any monetization, then you're going to be more focused on product metrics in your early days than anything else. Usage based retention will be important–working on activation and engagement to improve retention, resurrecting churned or dormant users (another input to improving retention, but it's not something actually recommend teams focus on unless activation and engagement are already well optimized and that's pretty unlikely with early stage companies.)
You're likely tracking the cost and efficiency of user acquisition channels to try and optimize the mix as you grow.
But early stage, of course, you've also got to be thinking about your monetization model and what that will look like. You've probably got a bunch of hypotheses that you want to validate. So if you're taking that bottom up approach and you're building in public with a free to use product, you're engaging in continuous discovery, then I think monetization opportunities will eventually, eventually and inevitably start to bubble to the surface.
It might be signals like a number of folks commenting how they can't believe that XYZ is free or telling you that they'd pay you if you could only do this one thing or that. Implementing feature A would enable them to use your product across their department or implementing feature B would mean they could drop the use of this other tool that they're currently paying for.
So pre revenue, I think tracking those commercial intent signals as well as core product metrics, I think it's important.
If you're already monetizing, maybe still early stage but you're already monetizing, then obviously a bunch of other metrics start to become important:
- Tracking paid conversion rates whether that's self serve or with sales
- Tracking things like CAC payback period, which is really important to optimize your acquisition channels and try to get to a position where growth is being funded by customers instead of investment dollars.
- Your runway
- Net dollar retention
- For PLG companies in particular, you can also look at product influenced revenue, which is the revenue that originates where any meaningful activity was experienced in the product before there was any sales outreach. So that's a really nice one for tracking kind of product led efficiency as your company scales.
Ben Williams' PLG metrics template
We asked Ben what kind of dashboard’s he’d recommend for start ups so you can create these in June if you’d like.
Here is Ben's PLG metrics template
Needs no further explanation.
Like in aggregate, as well as kind of more funnel-based views that are a little more actionable.
Charts that show engagement
State mix and the change in engagement states from period to period. You want to know how many accounts are moving from each state to other states because your efforts really 2s are going to be directed at doing that movement upwards and preventing downwards movement as well.
Charts covering new user growth
Charts for active users
I definitely suggest having a growth accounting chart in there, but as we touched on earlier, in B2B, I'd also want all of this at the account level, not only the user level.
Of course, when you use June, we auto-generate key product reports and metrics out of the box. So when you get started with June, you’ll see insights from day one. From there, it’s easy to add reports and create what Ben suggests in this post.
Listen to The June Podcast with Ben Williams:
Ben Williams is an advisor to founders and product/growth leaders of growth stage B2B startups, and a self-confessed geek around all things PLG, product management and leadership, building and scaling product and growth teams, and loop-based growth strategy and execution.