Are you a product-led or sales-led kind of SaaS? Or perhaps you’ve managed to marry the two strategies and embraced product-led sales?
Let’s dive right in!
- Product-led growth (PLG) uses product usage as the main driver of customer acquisition and account expansion. In the sales-led model (SLG), it’s the sales reps who nurture leads and close deals.
- PLG is cost-efficient and promotes retention and long-term growth. However, it’s not ideal for complex products or enterprise clients where customers aren’t the end users.
- SLG is better for communicating the product value at the enterprise level and building the business case. However, it requires a lot of effort that wouldn’t be justified for smaller clients.
- Product-led sales (PLS) combines PLG and SLG tactics. Users get a chance to experience product value and you use the data on their interactions with the product to qualify them.
- Only when they reach the right level of engagement, the sales reps step in to ultimately close the deals.
- To score accounts, PLS uses usage, use cases, firmographics, and ecosystem data.
- The data is scored along multiple dimensions: volume, frequency, recency, rate, and location.
- Typical sales playbooks include unblocking, conversion, product expansion, plan expansion, and consolidation.
- The final stage in the process is review; when you reflect on how to improve the other stages and aspects of your PLS motion.
- To successfully implement PLS in your SaaS, you need a product that can sell itself, resources to support the necessary teams, solid data infrastructure, patience to let users explore the product themselves, and help, not sell mentality.
- Usage retention is a key metric to track for PLS companies. It’s made up of user activation, engagement, and resurrection.
- Userpilot is a product growth platform that allows you to collect user behavior data and feedback and drive user activation and engagement. Book the demo to see how!
What is product-led growth?
PLG is based on the ‘show, don’t tell’ mantra: experiencing value is better than being told about it.
Here’s how it works:
As users continue using the product and realizing its value, it gradually gets embedded in their workflows and becomes their go-to solution to their problems.
That’s when you can start thinking about monetizing your product. This can happen directly, for example, when users upgrade to a paid plan or buy add-ons.
When satisfied with the product, users start acting as its advocates. They promote it in their social and professional tribes and help you acquire new users — and potentially, new paid customers. That’s indirect monetization.
Where product-led growth shines — and where it doesn’t
Product-led growth has several advantages but also limitations.
It’s a brilliant way to communicate product value to its end users. However, it’s not so effective in the enterprise context where the customer isn’t usually the buyer.
What’s more, PLG is very cost-efficient because it requires less human effort to acquire and retain customers.
Talking of retention, it’s one of the cornerstones of PLG. To generate revenue and remain profitable, companies need to retain customers over the long term.
On the other hand, PLG has naturally lower ACV than the traditional sales-led approach and it’s difficult to scale to the same level.
The main downside of PLG, however, is that it’s not always suitable for higher complexity use cases. The value of complex products is more difficult to experience and users may not be able to do it without the help of the sales team.
What is sales-led growth?
Sales-led growth (SLG) is a traditional growth strategy that relies on sales teams to nurture customers and close deals.
In SLG, the sales teams identify potential customers, very often enterprise-level ones, and use traditional sales tactics like demos and live presentations to communicate the product value at the company level.
Advantages of sales-led growth
Sales-led growth has been the dominant go-to-market approach for enterprise software companies for several reasons.
First, it’s more suitable for complex products whose value isn’t easy to experience during a free trial.
And even if it was, the end users aren’t the decision-makers.
Take Snyk, where Ben Williams worked as a VP for Growth, for example.
The tool helps developers secure the code without slowing them down. This is very easy for them to experience. However, this fact alone is not enough to convince the leadership.
Senior leaders need to see a bigger value at the company level. In the case of Snyk, this was improved security preventing breaches that could lead to severe financial and reputational damage.
Traditional marketing and sales teams are excellent at building business cases and communicating enterprise value.
What about SLG’s downsides?
Sales-led growth requires a lot of effort and targets a relatively small percentage of the customer base. This makes it cost-prohibitive for smaller companies.
Moreover, the sales teams, whose effectiveness is measured by the ability to close deals, often prioritize short-term financial gains instead of sustainable long-term growth.
Product-Led Sales (PLS) — the beautiful synergy of PLG and SLG
There’s a misconception in the product space that PLG and SLG are mutually exclusive. However, this couldn’t be further from the truth.
Meet product-led sales, or PLS.
PLS is an approach that leverages product usage as the primary driver of the sales process.
The strategy capitalizes on the strengths of PLG and SLG.
The product does the heavy lifting in communicating value to users and their teams. This brings efficiency into the sales cycle and allows them to close deals at a higher rate because the sales team deals with better-qualified leads.
Closing deals takes less time because you can strengthen the business case with demonstrated usage and value, and you play on a field where trust and credibility are already established.
How product-led sales works
Let’s look at how exactly PLS works at each stage of the process.
PLS teams need inputs to score leads effectively.
This could be:
- Usage data — the most important kind of data on how users interact with the core app, the website, landing pages, blogs, support pages, etc. which are easy to obtain from behavioral analytics.
- Use case data — data on why users are engaging with the product and what problems are they trying to solve in what contexts. Comes from surveys during sign-up or onboarding.
- Firmographic data — data on where users and their teams work, critical for ideal-customer profile (ICP) matching. Comes from onboarding surveys and enrichment.
- Ecosystem data — comes from integrations and tells you what platform ecosystem the account is working in.
You can score usage data on multiple dimensions:
- Volume — how many times an account did something?
- Frequency — how often is an account doing something?
- Recency — how recently an account did something?
- Rate — have we seen any notable changes in the volume or frequency of an account doing something?
- Location — are there things happening in multiple distinct pockets?
The scores are dynamic. The go-to-market teams need to monitor them to identify the right time to engage an account.
Once you’ve identified your PQL/PQAs, it’s time to act.
Here are a few typical playbooks you can unleash on them:
- Unblocking — helping accounts to overcome friction, get to value, and form habits.
- Conversion — driving free-to-paid conversions in accounts signaling a specific use case.
- Product expansion — driving cross-sells based on the use case relevance.
- Plan expansion — driving upsells from one plan to another based on behavior or likelihood of exceeding usage threshold.
- Consolidation — consolidating multiple pockets of usage within a company.
The key is that all of the playbooks and the narratives are driven by relevant data about what’s happening within the accounts.
The last part of the four-step process is review.
The best teams treat the entire product-led sales process as an ongoing experiment that they are continually trying to improve.
What questions can help you refine your PLS processes?
Here are a few:
- Is all the data we’re collecting useful for the model?
- Can we improve the signal-to-noise ratio by removing data that isn’t meaningful?
- Is there data we should have in the model that we don’t have today?
- What would be the best way to get that data for scoring?
- Are we utilizing the data in the right way?
- Are the thresholds appropriate?
- Does the scoring effectively support the playbooks we have or that are emerging?
- What opportunities do we have to improve on how we act on a given PQA?
- Can some of the manual or semi-automated steps now be fully automated?
It’s good practice to conduct reviews regularly, at least quarterly, and ideally on an ongoing basis.
When is the time to spin up product-led sales
So how do we know when it’s the right time to spin up product-led sales?
Let’s look at a few common drivers as well as boxes that you need to tick.
If you’re starting from a top-down sales-led model, the primary drivers are that you want to:
- Extend your ability to serve the lower end of the market
- Improve rep productivity, and
- Shorten the sales cycle.
If you’re starting from a PLG motion, then your main drivers will be that you want to:
- Go up the market and scale to larger ACVs
- Better communicate enterprise value to enterprise clients
- Intervene to help larger ICP accounts that are getting stuck get to value faster
- Consolidate multiple pockets of usage, and
- Better intervene with churn risk accounts.
Regardless of where you’re starting, the product-led sales model needs the right conditions.
Here’s what you need:
- A product that can sell itself by letting users experience some value first. This doesn’t need to be a full-blown free plan or even a free trial but some taste of value before paywall is necessary.
- Resources to support multiple functions like product, marketing, and sales. Start small, though. Iterate and then scale.
- Willingness to be patient — sometimes a lot of time passes before it’s the right time to engage.
- Solid data infrastructure — to get the right inputs and to easily share the insights.
- Help mentality, not sell mentality — PLS is about getting accounts to value so that the product can make the case for itself.
Critical product data in product-led sales
Let’s take a deeper look now at some of the most critical product signals used in the PLS process.
For product-led companies, usage retention is the biggest leading indicator of revenue retention.
Let’s have a look at the product state model to visualize how users and teams move through our product during their lifetime:
- New users and teams come in.
- You activate them so they build habits around using the product.
- Next, you keep them engaged.
- At any point, they may stop using the product and go dormant. Some dormant users might later come back to using the product. That’s resurrection.
Retention is the function of our efforts to activate, engage, and resurrect users.
It’s a lagging indicator that you don’t try to move directly. Instead, you focus on those three levers: activation, engagement, and resurrection.
Typically, the highest point of leverage is in improving activation.
To activate users, first define the setup process. That’s the steps needed to experience core product value. That’s the Aha! moment.
For Snyk, the setup process consisted of:
- Connecting at least 1 integration
- Importing at least 1 project, like a GitHub repository
- Seeing a non-empty project list
The Aha! moment for Snyk users is viewing the details of at least 1 issue detected by the product.
Experiencing the Aha! moment isn’t enough for activation. Users also need to build the habit around it.
For Snyk this happened when the user fixed at least 1 issue within the first 30 days.
Engagement is another important signal in product-led sales.
Engagement isn’t binary; it’s a spectrum.
At one end of the spectrum, you can have very low-intensity usage, and at the other end, very high and everything in between.
To make it more actionable, you divide the spectrum into a small number of buckets or states and group your users or teams in those buckets according to their depth of engagement in any given period.
Here’s an example of what that looked like at Snyk for Free accounts.
Each bucket is grouped by how many unique days in the last 30 days an account fixed a vulnerability.
The percentages showed a correlation with long-term twelve-month retention. Only 5% of Dormant accounts were retained, and still fixing vulnerabilities using Snyk twelve months later.
Contrast that to accounts in the Progressive engagement state who had an 80% likelihood of still fixing using Snyk in twelve months.
Why product-led sales is the real deal for B2B SaaS
The main benefits of the product-led sales model can be summarized in two words.
At Snyk, users who had engaged with the product in a meaningful way accounted for 50% of the ARR. Moreover, such users showed considerably higher retention than customers acquired through different channels.
Userpilot for product-led sales
If you’re thinking of cranking up product-led sales at your SaaS, Userpilot is the tool for you.
How can you use it?
First, it allows you to collect all the input data necessary to score your leads.
Based on the data, you can create user segments and assign them to relevant teams.
Finally, Userpilot offers integrations with analytics tools for even more granular input data. And if you’re a HubSpot user, the 2-way integration allows you to use Userpilot data to score your leads inside the CRM.
The product-led sales approach brings together the best of two worlds.
It allows businesses to capitalize on the cost-efficiency of PLG motions and its ability to communicate product value to build robust business cases when going after big enterprise clients.
If you want to learn how Userpilot can help you implement PLS at your SaaS, book the demo!