Product-Led Growth. What it is, How it Works, Examples.

Also called: Product-Driven Growth, Product-Centric Growth, Product-Led Expansion, Product-Led Monetization, Product-Led Revenue, Product-Led Strategy, and Retention Rate

Relevant metrics: Customer Acquisition Rate, Customer Retention Rate, Average Revenue Per User, Customer Lifetime Value, and Net Promoter Score

In this article

What is Product-Led Growth?

Product-Led Growth (PLG) is a business strategy that focuses on the product as the primary driver of customer acquisition, engagement, and retention. It is a customer-centric approach to growth that puts the product at the center of the customer experience. PLG is based on the idea that a product should be designed and developed with the customer in mind, and that the product should be the primary source of customer acquisition, engagement, and retention.

PLG comes with a holistic approach to product strategy that takes the entire customer journey into account. It involves understanding the customer’s needs and wants, designing a product that meets those needs, and then developing and launching the product in a way that is engaging and easy to use. PLG also involves ongoing optimization of the product to ensure that it continues to meet the customer’s needs and wants.

PLG refers to a business’s ability to grow without significant investments in paid advertising or sales team efforts.
PLG companies are identified by their freemium model, focus on user experience, and a strong community of product advocates.
PLG, sales-led, and marketing-led are three different growth strategies with their unique advantages and disadvantages.
PLG focuses on putting the product and the customer at the center of the business, and it involves rapid experimentation and data-driven decision-making.
PLG signifies growth without dependencies, non-committal pricing, and independent product adoption.
PLG focuses on building habits, so that growth and retention is self-sustainable.
PLG solve a real need in a lower-friction way than competitors
PLG seeks to create a product that is easy to scale

Where did Product-Led Growth originate from?

The concept of product-led growth (PLG) emerged as a response to changes in the way that software products are sold and marketed. Traditionally, enterprise software companies would focus on building highly customized products for large clients, which would require extensive sales and support efforts. However, with the rise of cloud computing and the freemium business model, companies began to shift their focus towards building products that could be quickly and easily adopted by individuals and small teams, and then scaled up within organizations.

One of the early pioneers of the PLG approach was Dropbox, which launched in 2007. Rather than trying to sell its cloud storage product to large enterprises, Dropbox offered a free version of its product that could be easily downloaded and used by individuals. As users found the product helpful, they would often share it with their colleagues and friends, leading to rapid organic growth. Once enough users within an organization were using the free version of the product, Dropbox would then offer paid upgrades for additional storage and features.

Over time, other software companies began to adopt similar PLG strategies, including Slack, Zoom, and HubSpot. These companies focused on building highly intuitive products that could be easily adopted by individuals and teams, and then leveraged the viral nature of their products to drive organic growth.

Who coined the term “Product-Led growth”?

Although the principles of product-led growth had existed prior, the term itself was reportedly first coined by Blake Bartlett of OpenView in 2016. What triggered the rise of product-led growth was the experimentation by companies with different approaches such as the “freemium” product models and self-guided tours, which enabled simultaneous growth and profitability. Traditional growth models typically saw growth and profitability as being in conflict with each other. However, product-led growth was able to reconcile these two objectives by implementing tactics and strategies that led to unprecedented success for companies adopting this approach.

One early adopter of the product-led approach was Nir Eyal, who wrote the book “Hooked: How to Build Habit-Forming Products” in 2014. Eyal’s book focused on the principles of building products that are highly engaging and habit-forming, which is a key component of the PLG approach.

Another key figure in the development of the PLG concept was Wes Bush, who wrote the book “Product-Led Growth: How to Build a Product That Sells Itself” in 2019. Bush’s book provided a comprehensive overview of the PLG approach, and helped to popularize the concept among entrepreneurs and product managers.

As more and more companies began to adopt PLG strategies, the concept began to gain recognition as a distinct approach to building and scaling software products. Today, the PLG approach is widely recognized as a powerful and effective way to drive rapid growth and customer acquisition, particularly for SaaS companies.

Why is Product-Led Growth unique to other strategies?

Product-led growth tactics often involve allowing users to experience the product for free, with the aim of demonstrating its value to encourage them to upgrade to the paid version. For companies with freemium products, the product itself becomes a powerful sales and marketing tool, attracting new users without having to invest in ad campaigns or hiring additional sales personnel.

By making every team in your business focus on the product, product-led growth fosters a culture built around enduring customer value.

Your marketing team will ask how to generate a demand flywheel through the product
Your sales team will ask how to use the product to qualify your prospects for you
Your customer success team will ask how to create a product that helps customers achieve success beyond their expectations.

You cannot request a demo or to talk to a sales-person at the typical product-led copmany. You can simply try the product for free and see for yourself. Unlike sales-led companies that focus on taking a buyer from point A to point B in a sales cycle, product-led companies flip the traditional sales model on its head. They give customers a way to experience the product for free, either through a freemium product or a free trial. If the customer experiences a meaningful outcome while using the product, upgrading to a paid plan becomes an obvious choice.

Leading with the product throughout an organization, product-led companies often benefit from

Shorter sales cycles
Better user experiences
Lower customer acquisition costs
Higher revenue per employee.

By letting users onboard themselves, you can significantly reduce your prospect’s time-to-value and sales cycle. People can experience meaningful value in your product without any hand-holding, resulting in a better user experience. Additionally, a self-serve model lowers your cost of acquiring customers by letting users upgrade on their own without interacting with the sales team. With a product-led approach, you are able to do more with fewer people on your team, leading to higher revenue per employee.

A Paradigm Shift in Business Model

The transition towards a product-led business model entails more than just a shift in pricing methodology. It entails a comprehensive revamping of various aspects of the organization. Product-led growth is evident in many areas of business, including product trials, product onboarding, marketing and sales messaging, pricing models, and targeting niche markets.

Free trials and Friction Free Onboarding

Product-led companies offer free trials to allow potential customers to test the product before purchasing it. Additionally, product onboarding journeys are streamlined to reduce the time it takes for customers to experience the product’s value. Product-based businesses invest significantly in research to differentiate their product from the competition by discovering new customer pain points and creating new value propositions for their customers. Product-Led companies, therefore, target niche markets and the unique problems they present to deliver even greater value to specific customers.

Value Proposition and pricing are structured around the customer experience

Marketing and sales teams tailor their messaging to focus on the unique value proposition, and pricing models are structured around customer experience and flexibility. The thread that runs through all of these is “value.” If customers do not perceive the product to be valuable, they will quickly move on to a competitor’s offering, resulting in churn.

A Paradigm Shift in Operating Model

Traditionally, companies have operated under a sales-led or marketing-led model, where the primary focus was on driving sales or creating brand awareness through marketing. PLG is characterized by a focus on product design, customer experience, and data-driven decision making. This shift in focus requires a significant paradigm shift in operating model.

At the heart of the product-led growth model is the customer

The customer is not just a buyer but an active user of the product. Therefore, companies must put the customer at the center of their product design and development process. They must invest in understanding the customer’s needs, wants, and behaviors and incorporate that into the product design. This requires cross-functional collaboration across departments such as product, design, engineering, and customer success.

It also entails that understanding the customer through interviews, observations, and data, is not just for the product organization, but a duty for the entire organization. Witnessing how customers use your product, what problems they want solved, and what friction they experience unities teams across disciplines if they experience it together.

This is why Rapid experimentation and data-driven decision making is central to Product-Led Growth (PLG). In a PLG model, companies prioritize experimentation and iterate quickly based on customer feedback. They use data to inform decisions on product features, pricing, marketing, customer success, and the user experience of both the product and entire experience.

A product that sells itself

In a product-led growth model, companies focus on creating a product that sells itself – and rely on it. A favored strategy for this is imposing a non-committal pricing model, where customers can try the product before committing to a purchase. The purpose is to get users to experience the value that your product has to offer, before you ask for a conversion to being a paid customer.

Creating a product where users can experience your product unguided and discover the value you have to offer, themselves, sets a high bar in terms of the quality of user experience that is needed. It entails creating an intuitive and user-friendly onboarding process that helps customers find value quickly with the goal of creating an experience that is so compelling that customers become product advocates and help promote the product to others.

A product that services itself

Product-led companies are characterized by their focus on self-service and reducing customer acquisition costs. They invest in creating a product that can be easily adopted without the need for a sales team to guide customers through the process. This requires companies to create a product that is intuitive and self-explanatory, reducing the need for customer support.

In conclusion, product-led growth is a paradigm shift in operating model that puts the customer and the product at the center of the business. It requires cross-functional collaboration, rapid experimentation, and data-driven decision making. Companies must invest in creating a product that is intuitive, self-explanatory, and provides value to customers quickly. By doing so, companies can achieve sustainable growth without the need for massive investments in sales or marketing.

A product that scales easily

To design a product that can be self-served and self-managed by customers, it needs also to be easy to scale. The main strategy to achieve this is simplifying the product and making it easy to understand and use, creating a user-friendly interface, and providing easy access to support and documentation.

Friction-free scalability is the foundation for rapid and sustainable growth. When customers can easily sign up, try the product, and upgrade on their own, the need for a large sales team is eliminated and customer acquisition costs are reduced. Additionally, when customers have a positive experience with the product and can easily upgrade to premium features, it typically leads to higher retention rates and increased revenue for the company.

An organization that collaborates across organizational boundaries

Rather than being driven by sales or marketing, the product becomes the key driver of acquisition, monetization, and retention. This means that teams across the organization must work together to develop and optimize the product, as well as the customer journey and pricing strategy.

Product teams must collaborate closely with marketing and sales teams to craft tailored messaging centered around the unique value proposition of the product. They must also work with customer success teams to ensure that customers are getting the most value out of the product and to identify opportunities for improvement.

Rapid experimentation and data-driven decision making signifies a product-led company. Teams must be willing to test and iterate on the product and the customer journey, using product analytics and in-app experiments to gather feedback and measure success. This requires a culture of collaboration, agility, and continuous improvement, where teams are empowered to make decisions and take risks.

A Product-Led growth strategy has its focus on putting the product and the customer at the center of the business. It requires collaboration across all teams and a willingness to experiment and iterate based on data and feedback. By embracing this approach, companies can unlock new opportunities for growth and build stronger, more sustainable businesses.

A Paradigm Shift in User Experience

For the PLG strategy to work, creating a product that customers love and use regularly is vital. It involves creating a product that is easy to use, intuitive, and provides value to the customer. It also involves creating a product that is easy to market and promote, as well as one that can be easily scaled.

As the product experience is the main driver of growth, product teams must focus on building habits and tapping into the customer journey, even when users are not actively using the product. This focus on the user experience represents a significant paradigm shift from traditional ways of building products.

From reducing friction to increasing motivation

In more task-focused product development, the focus is often on reducing friction and making tasks easier to complete. The goal is to make the user’s interaction with the product as smooth as possible. PLG companies goes beyond this by focusing on creating a product that users are motivated to use, even when they don’t necessarily need to.

For example, social media platforms like Facebook and Instagram have built highly addictive products by tapping into users’ desire for social validation and connection. These products have become so ingrained in users’ lives that they have become habitual, with users checking their feeds multiple times a day without even thinking about it.

To achieve this level of habit-forming product design, PLG companies use data-driven approaches to understand user behavior and identify opportunities to create user habits. They also collaborate closely with cross-functional teams, such as marketing and sales, to ensure that the product experience is aligned with the company’s overall growth strategy.

Key metrics that support Product-Led Growth

Product-led companies typically use a range of metrics to track their performance and evaluate their success. Some common metrics include:

Product Qualified Leads (PQLs). A PQL is a lead that has used the product enough to indicate they are likely to convert to a paying customer.
Monthly Recurring Revenue (MRR). This is the amount of revenue the company generates each month from recurring subscriptions.
Customer Acquisition Cost (CAC). This metric measures the cost of acquiring a new customer, including marketing and sales expenses.
Customer Lifetime Value (CLTV). This metric measures the total value a customer brings to the company over the course of their relationship.
Churn rate. The percentage of customers who stop using the product over a given time period.
Net Promoter Score (NPS). This is a customer satisfaction metric that measures how likely customers are to recommend the product to others.
Activation rate. The percentage of new users who take a specific action within the product that indicates they are likely to continue using it.
Retention rate. The percentage of customers who continue to use the product over time.

These metrics can help product-led companies understand how their product is performing and identify areas for improvement.

Key frameworks that support Product-Led Growth

To achieve Product-Led Growth, several key frameworks have emerged as essential tools for companies pursuing a PLG strategy, including growth loops, the hook model, and the BJ Fogg behavior model.

Growth Loops

Growth loops are a model for understanding how a product can drive sustainable, scalable growth by creating a self-reinforcing cycle of acquisition, retention, and referral. The key elements of a growth loop are:

Acquisition. Attracting new users through various channels, such as organic search, social media, or referrals.
Activation. Helping users experience the product’s core value proposition quickly and easily.
Retention. Encouraging users to return to the product and engage with it regularly, typically through notifications or other forms of engagement.
Referral. Creating a viral loop by encouraging satisfied users to refer others to the product.

The Hook Model

The Hook Model is a behavioral design framework created by Nir Eyal, a Stanford University lecturer and author of the book “Hooked: How to Build Habit-Forming Products.” The model is based on the premise that successful products create habits or behaviors in users that bring them back to the product repeatedly.

The Hook Model consists of four phases:

Trigger. The trigger is the first step in the Hook Model. It prompts the user to take an action, such as opening an app or clicking a link. Triggers can be external, like an email or notification, or internal, such as a thought or emotion.
Action. The action is the behavior the user takes in response to the trigger. It should be easy to complete and provide a reward.
Reward. The reward is what the user gets for completing the action. It should be valuable and satisfying enough to reinforce the behavior and motivate the user to return.
Investment. The investment is what the user puts into the product, such as time, money, or data. The investment increases the likelihood of the user returning and repeating the Hook Model cycle.

The Hook Model is used by product designers and marketers to create habit-forming products that retain users and generate growth. By understanding the psychological factors that drive behavior and using them to design effective triggers, actions, rewards, and investments, companies can create products that become an integral part of users’ lives.

The BJ Fogg Behavior Model

The BJ Fogg Behavior Model is a framework used to understand how behavior change happens. The model is based on three elements: motivation, ability, and prompts. According to Fogg, behavior change occurs when these three elements converge at the same time.

Motivation. The user’s motivation to complete a desired behavior, such as a desire for social validation or a sense of accomplishment. The more motivated a person is, the more likely they are to engage in the behavior.
Ability. The user’s ability to complete the behavior, such as ease of use or understanding. The easier a behavior is to perform, the more likely a person is to engage in it.
Prompt. The external prompt (trigger) that prompts the user to complete the behavior, such as a notification or a call to action. They can be external, such as a notification, or internal, such as a thought or feeling.

The BJ Fogg model for behavior change is summarized in this formula:

Behavior = Motivation x Ability x Prompt

Fogg suggests that behavior change is most likely to occur when motivation, ability, and triggers are high. For example, if a person is highly motivated to exercise, has the ability to exercise easily, and receives a reminder or trigger to exercise, they are more likely to follow through with the behavior.

The model is useful for product designers and marketers as it provides a framework for understanding how to design products that encourage behavior change. To apply the BJ Fogg Behavior Model to product design, designers can focus on increasing motivation, making the behavior easier to perform, and providing clear triggers to initiate the behavior.

By understanding what motivates users, what their abilities are, and what triggers prompt them to engage with a product, designers can create experiences that lead to sustained engagement and behavior change.

How the frameworks works together for Product-Led Growth

Together, these frameworks provide a powerful toolkit for companies pursuing a PLG strategy. By leveraging growth loops, companies can create a self-sustaining cycle of acquisition, retention, and referral. By designing products that are habit-forming and behaviorally persuasive using the Hook Model and the BJ Fogg Behavior Model, companies can create products that users love and return to regularly.

For example, consider the success of Slack, a company that has become a poster child for PLG. Slack’s growth loop is powered by the product’s core value proposition: making communication easier and more efficient. The Hook Model is evident in Slack’s use of notifications to prompt users to engage with the product regularly. And the BJ Fogg Behavior Model is reflected in Slack’s emphasis on making the product easy to use, with a simple interface and intuitive features.

The journey towards PLG commences with executive alignment that product-led growth is the right strategy. Once this buy-in has been secured, the key steps of PLG implementation can proceed. These steps include setting PLG as a goal, defining roles and responsibilities, implementing product analytics, running in-app experiments for improvement, and measuring, learning, and repeating.

How to get started with Product-Led Growth

Adopting a PLG approach requires a shift in mindset, culture, and organizational structure. To get started with PLG, here are some key steps to follow:

Secure Executive Buy-In. The journey towards PLG commences with securing buy-in from key executives that product-led growth is the right strategy for the organization. This requires an understanding of what PLG entails and its potential benefits.
Set PLG as a Goal. Once executive buy-in has been secured, the organization must set PLG as a goal. This involves defining what success looks like, such as a specific percentage of growth from the product, an increase in the number of users, or a reduction in customer acquisition costs.
Define Roles and Responsibilities. Implementing a PLG approach requires clear roles and responsibilities. This includes identifying who will be responsible for product development, analytics, and customer success, among others.
Implement Product Analytics. Product analytics is essential for understanding user behavior and identifying areas for improvement. This involves collecting and analyzing data on product usage, engagement, and conversion rates.
Run In-App Experiments for Improvement. To continuously improve the product, organizations must run in-app experiments to test new features, pricing models, and user experiences. This requires a culture of experimentation and a willingness to learn from failures.
Measure, Learn, and Repeat. Finally, to succeed with PLG, organizations must measure their results, learn from their successes and failures, and repeat the process to continuously improve the product and the customer experience.

Getting started with PLG requires a commitment to a product-focused strategy, a culture of experimentation, and a willingness to learn and adapt based on customer feedback and data-driven insights. By following these key steps, organizations can begin their journey towards a product-led growth strategy that can lead to sustainable and scalable growth.

Organizational Implications of Choosing a Product-Led Growth Approach

The shift to a product-led growth approach has significant organizational implications, from the way companies structure their teams to how they recruit and engage with users.

Traditionally, companies might have relied on a top-down approach, with the leadership team making decisions and dictating the course of action. In contrast, a PLG approach is more data-driven and collaborative, with a focus on putting the customer and their needs first. Here are some more details on each of these implications and how they compare to the traditional way:

Data-driven decision-making

With a PLG approach, data plays a central role in decision-making. Teams rely on data analytics to track user behavior, identify trends, and make data-driven decisions to improve the product. Instead of relying on hunches or gut feelings, companies using a PLG approach can identify and act on the metrics that matter. In contrast, traditional methods may rely on assumptions, guesswork, and personal opinions, which may not always align with customer needs and preferences.

Traditional stakeholder-led decision making

In the traditional approach, companies rely on a small group of decision-makers who use their experience and intuition to make decisions. These decisions may be based on past successes or failures, personal biases, or gut feelings. This approach can lead to missed opportunities and costly mistakes.

Product-Led decision making

In contrast, a product-led growth approach involves collecting and analyzing data from a wide range of sources to make informed decisions. Data can come from user behavior, market research, customer feedback, and other sources. By analyzing this data, product teams can identify patterns and trends, make data-driven decisions, and measure the impact of their actions.

The benefits of a data-driven approach to decision-making in a PLG model include:

Improved accuracy. Data-driven decision-making is based on objective facts rather than subjective opinions or hunches, which reduces the risk of errors or incorrect assumptions.
Better insights. Analyzing data from various sources provides valuable insights into customer behavior, market trends, and other factors that can impact the success of the product.
Increased agility. PLG companies can quickly respond to changes in the market, customer needs, or product performance by using data to guide decision-making.
Measurable impact. By measuring the impact of their actions, PLG companies can assess the effectiveness of their strategies and make data-driven improvements.

By analyzing data from various sources, product teams can make informed decisions that improve accuracy, provide better insights, increase agility, and have measurable impact.

Recruiting Users for Product Discovery

Decentralized user recruiting for product discovery is one of the ways in which product-led growth differs from traditional approaches. By leveraging existing users and high-quality product analytics data, product teams can gain higher quality insights from the start, leading to more effective product development and ultimately, increased customer acquisition and retention.

Traditional User Recruiting

In the traditional approach to user recruiting, there is a centralized ownership of the end-to-end process. A single team or department is responsible for selecting participants, executing the research, documenting the findings, and making decisions based on the results.

Furthermore, the selection process relies solely on qualitative self-evaluation of participants with late insights about participant-research-fit. Recruiters use anonymous and outsourced panels to find participants, which can lead to slow, project-based research only used for “important” projects.

Product-Led User Recruiting

In the product-led approach, user recruiting for product discovery is decentralized. Instead of a single team or department owning the entire process, product teams are responsible for selecting participants, executing the research, documenting the findings, and making decisions based on the results.

Moreover, product teams also use high-quality product analytics data to screen potential participants. They leverage existing users for higher quality insights from the start and give product teams more chances to improve their research practices.

Collaboration with cross-functional teams

In the traditional approach, teams worked in silos, and communication between them was often limited, leading to a lack of alignment and slower decision-making.

The PLG approach emphasizes collaboration across different functions of the organization. Product teams collaborate with marketing, sales, and customer success teams to ensure that the product meets the needs of customers and aligns with the company’s overall business goals.

This collaboration leads to faster decision-making and a more holistic approach to product development. Consider these two examples:

In the traditional approach, the product team may have developed a product without input from the sales team, leading to a product that does not meet the needs of potential customers. In contrast, in the PLG approach, the product team works closely with the sales team to understand customer pain points (do research together) and develop features that address them (co-create).
The marketing team may provide insights into which customer segments are most likely to convert, while the product team may analyze user data to understand which features are most popular. By collaborating and sharing insights, teams can make informed decisions about the product roadmap and prioritize features that will have the most significant impact on the business.

The goal is to form a more aligned organization that can act faster to changing (or newly discovered) customer problems, faster. With an equal weight to top-down decision-making than bottom-up, PLG works to ensure that everyone is working towards a common goal and that the product meets the needs of customers and the business.

Is Prooduct-Led Growth a utopian dream?

Product-Led Growth (PLG) is not a utopian dream, but it is also not easy to accomplish.

PLG may not be a good fit for companies that have a long sales cycle or high-touch sales process and by definition doesn’t work well with complex products that require extensive onboarding or training.

PLG requires a considerable investment (and trust that it will pay off) in the self-service and user experience of the product. Transforming a product that was built for another mindset can sometimes be close to impossible.

Examples

Dropbox

Dropbox offered a free version of their product, which allowed users to store and share files easily. This freemium model helped the company acquire millions of users without spending a lot of money on marketing. Once users became accustomed to the product and reached the storage limit, they were more likely to upgrade to a paid subscription.

Slack

Slack’s messaging app was designed to be intuitive and easy to use. The company offered a freemium model, which allowed users to try the product before they bought it. Slack focused on making sure users could collaborate effectively with their teams, and the app quickly became an essential tool for many organizations.

HubSpot

HubSpot provides a suite of tools for inbound marketing and sales. The company offers a free CRM, which allows businesses to manage their contacts and sales pipeline. This free product helped the company acquire a large user base, which then led to more customers purchasing additional products and services.

Canva

Canva is a graphic design platform that allows users to create professional-looking graphics without any design experience. The company offers a freemium model, which allows users to try the product before they purchase. This helped Canva acquire a large user base, which then led to more customers upgrading to paid versions of the software.

Relevant questions to ask

What are our goals for product-led growth?
Hint Our goals for product-led growth may include increasing user engagement, increasing customer satisfaction, and increasing revenue.
What are the key features of our product that will drive growth?
Hint The key features of our product that will drive growth may include user-friendly design, intuitive navigation, and features that add value to the user experience.
How will we measure success?
Hint We can measure success by tracking user engagement, customer satisfaction, and revenue.
What resources do we have to support product-led growth?
Hint Resources to support product-led growth may include a dedicated team of product managers, developers, and designers, as well as marketing and customer service teams.
What strategies can we use to increase user engagement?
Hint Strategies to increase user engagement may include providing incentives, offering rewards, and creating content that is relevant to the user.
How will we ensure our product remains competitive?
Hint To ensure our product remains competitive, we should stay up-to-date on industry trends and customer feedback, and continuously improve our product.
What changes do we need to make to our product to support product-led growth?
Hint Changes to our product to support product-led growth may include adding new features, improving existing features, and optimizing the user experience.
What customer feedback do we need to consider?
Hint Customer feedback should be considered to ensure our product meets customer needs and expectations.
How will we ensure our product-led growth strategy is sustainable?
Hint To ensure our product-led growth strategy is sustainable, we should focus on customer retention, continuously improve our product, and measure our progress.

Product-Led Growth

A business strategy that focuses on using a product's features and capabilities to drive customer acquisition and retention.