Why is PLG Becoming so Popular?
Special thanks to PLG expert and Growth advisor, Hila Qu, for her collaboration in creating this resource.
About Hila
Hila Qu is a PLG expert, renowned for her experience as a growth advisor, angel investor, and best-selling published author.
Hila was the Director of Growth at GitLab, spearheading the implementation and scaling of their PLG motion. She has also served as VP of Growth at Acorns, where she helped the team scale their mobile app from 1 million to 6 million users. Recognized as a proven growth expert, Hila also has extensive experience in data analytics and paid and CRM marketing. Hila is an Executive In Residence at Reforge.
If you'd like to learn more about partnering with Hila Qu, please contact the Lighthouse team at lighthouse@lsvp.com.
While PLG is not entirely new in the B2C world, it's a relatively fresh concept in the B2B and SaaS sectors. This article explores the intricacies of PLG, how to decide whether it's the right strategy for your business, and the first steps to implementing a PLG strategy and growth engine.
The Evolution of PLG
At its core, PLG is about leveraging your product to acquire, activate, convert, retain, and monetize your user base. In PLG, your product is not only the set of features that solve customer pain points but also your go-to-market (GTM) motion and your distribution and engagement channel.
In B2B and SaaS, the typical approach has been sales-centric. Companies have historically relied on a sales team to lead prospects through a sales funnel, with demos, sales conversations, contract negotiations, and configuration. It's a push-heavy strategy where companies actively sell their solutions to potential clients.
However, in recent years, PLG has disrupted this strategy with a pull approach — where users discover, try, and set up the product themselves. They explore knowledge bases and community forums for assistance and set up and use the product on their terms.
A notable PLG example is Atlassian. The company built a billion-dollar ARR business without a formal sales team, relying heavily on PLG. At the time of Atlassian's IPO, their sales and marketing costs amounted to only 19% of their revenue, a stark contrast to many other successful B2B companies.
Beyond the Obvious Benefits
While the cost savings associated with PLG are compelling, there are more subtle advantages to consider.
PLG allows B2B products to be grown and marketed like B2C products. This is exciting because B2C products tend to have enhanced user experiences and creative distribution channels due to fierce competition. With PLG, B2B products can leverage these customer-centric methods to reach a larger user base more quickly, accumulate data faster, and run experiments more efficiently.
PLG also provides a unique opportunity to disrupt established players who rely on traditional sales channels. By approaching the market differently and leveraging the network effect, new entrants can quickly gain brand recognition and achieve faster growth.
The Driving Force Behind PLG's Popularity
The rising popularity of PLG can be attributed to several factors.
The increasing costs of traditional sales and marketing methods are a significant driver. As marketing channels become saturated and competition intensifies, the expense of acquiring customers through these channels continues to rise. Offering a free product can be one of the most effective marketing strategies to eliminate barriers and potentially lead to rapid user expansion.
Software's relatively low margin and operational costs also incentivize businesses to adopt PLG. Once a product is developed, leveraging it for growth is a cost-effective approach, making it even more appealing.
Furthermore, the buying process in the B2B landscape is evolving. Traditionally, high-level decision-makers like CTOs and CFOs played a dominant role in the purchasing process. However, end-users now wield more influence. Their firsthand experience with a product can significantly impact a company's buying decision, playing to the strengths of PLG, which focuses on user-driven adoption.
Starting Your PLG Motion
PLG isn't a one-size-fits-all strategy. When deciding if PLG is right for your business, you'll need to consider your product complexity, target audience, and the essential components that define a successful PLG approach. PLG and sales-led growth are also not mutually exclusive and you can combine these strategies to adapt to customer preferences.
Is PLG a fit for my company?
To determine if it's suitable for your business, consider 2 key dimensions: product complexity and target audience.
Low complexity and a broad target audience make PLG a great fit, particularly for prosumer and SMB-focused companies. High complexity and enterprise-specific products may require a more traditional sales approach.
PLG is also a natural fit for companies within these 4 segments:
Balancing Act: PLG vs. Sales-led Growth
It's important to recognize that PLG and SLG are not mutually exclusive. In fact, many successful companies eventually incorporate both approaches to cater to different segments.
Startups often start with a strong PLG foundation before transitioning to a sales-led approach as they grow and expand into the enterprise market. Likewise, established enterprises are increasingly exploring PLG strategies to adapt to evolving customer preferences and market dynamics.
Many companies can benefit from a hybrid approach that leverages PLG for user acquisition and engagement, while still having a sales team for closing larger enterprise deals.
PLG Essential Components
PLG is more than introducing a free version. Here are 6 essential components of PLG:
- PLG Vehicle: Determine if you will have a free version or a free trial.
- Pricing Transparency: Make sure your pricing is easy to understand, ensuring potential customers know what they're getting into.
- Self-Service Purchase Funnel: Create a seamless, self-service purchasing experience that empowers users to make quick decisions.
- Efficient Onboarding: Streamline onboarding processes to get users acquainted with your product rapidly.
- Data Collection: Collect user data to analyze behaviors and experiment effectively.
- Addressing Pain Points: Your product should address a genuine pain point for users to maximize its adoption.
- (Optional) Upgrade Paths: Planning for upgrade paths may also be a key consideration.
Maximizing Your PLG Funnel
You might have all the essential components in place, but that's no guarantee of success. To maximize your PLG funnel, you'll need to continuously analyze, experiment, and adapt.
You can start to maximize your funnel by identifying the area with the most significant bottleneck in your PLG strategy. Four common funnel areas include acquisition, activation, conversion, and retention/expansion.
If you’re unsure of where to start, activation and conversion are great starting places because they offer a host of low-hanging fruits. Acquisition is also a reasonable starting place for products that have a viral network effect component, collaboration software, and/or if you need to grow the top of your funnel.
Acquisition: The Dynamics of Growth Loops
Linear acquisition channels, like paid marketing, undoubtedly have their place in the marketing toolkit. However, they lack the compounding and self-reinforcing power of growth loops. Let's explore these 2 approaches in more detail.
Consider the case of a typical search engine marketing campaign. When you search for a free poster, you might notice a sponsored spot from Adobe, a clear example of paid marketing. This approach, while effective, is akin to a linear channel, where money is spent to secure a prominent position in search results.
Now, think about Canva, a company that has harnessed the power of growth loops. Instead of merely paying for a top spot, Canva entices users with a wide array of templates. When users explore these templates and create their designs, they are drawn into the Canva ecosystem. As they create and share more templates, they become a driving force for the Canva growth loop. More users lead to more templates, which, in turn, attract even more users. This self-reinforcing mechanism creates a sustainable and long-term growth strategy.
The lesson here is clear: don't solely rely on conventional acquisition channels. Explore growth loops – viral loops, content-driven loops, integration-based loops – to tap into their potential.
Activation: The Heart of PLG
User activation is the moment when users discover the true value of your product, and it can make or break your growth efforts. For example, consider Facebook's 'aha' moment – when users engage for 7 consecutive days.
But, for B2B products, such moments are more nuanced. In B2B, the activation process extends to teams, buyers, and paid customers. Team activation occurs when a group of users collaboratively uses key features, while buyer activation involves convincing the decision-makers of your product's worth. This continuous onboarding journey is critical, and each group has its own 'aha' moment.
Conversion: From User to Customer
Conversion is where users transition into paying customers. In PLG, there are two common paths: Self-service conversion and Product-Qualified Leads (PQL) conversion.
Self-service conversion is straightforward, with in-product checkouts for users to make purchases. The PQL Conversion path is a bit more complex. It involves tracking user actions and usage data to identify potential leads.
For example, Dropbox tracks user activities to identify organizations that might be interested in an upgrade. If the usage reaches a certain threshold, say, two gigabytes or a specific number of actions, it flags the company as a potential PQL. These usage-based PQLs tend to convert 3 to 5 times more effectively than traditional Marketing-Qualified Leads (MQLs). The logic behind this is – in a world of freemium and free trials, active product users provide a more solid basis for predicting conversions.
There's another category, known as Triggered PQLs. Take Slack, for instance. If you reach a certain usage limit, say, 10,000 messages, they prompt you to consider an upgrade. The timing and messaging of such triggers are thoughtfully designed to maximize conversion rates.
Leverage the entire toolkit at your disposal – email, in-app messages, sales teams – to encourage conversions based on user potential and lifetime value.
Retention: Creating More User Touchpoints
Retention is the cornerstone of growth in the B2B SaaS world, and it's a vital indicator in PLG. User retention, team retention, and buyer retention are crucial. But, remember that user retention is the leading indicator. Ensuring that users actively use the product is the foundation for long-term growth.
Increasing product utility and expanding use cases are key to retention. Encourage users to explore and engage with different features and workflows, creating more touchpoints.
Data analysis is also essential. Utilize churn cohort analysis to identify leading indicators of churn and intervene proactively.
Building Your Growth Engine
For those embracing PLG, the path to success comes with its own set of unique measures, processes, and tools.
Measuring Success: Common PLG Metrics and Benchmarks
One common Northstar metric in PLG is Self-service ARR. This metric signifies your success in having customers who convert without the need for direct sales engagement. It's all about making your product so user-friendly that it practically sells itself.
Other common metrics include # of Activated Teams and PQLs.
The Tools of the Trade: Setting up for PLG Success
There are 2 critical components to consider when setting up your PLG system: infrastructure and specialized tools.
Infrastructure is the backbone, requiring a robust data warehouse and product analytics. Tools like Amplitude, Mixpanel, and Pendo help you make data-driven decisions. Experimentation platforms such as Optimizely and A/B testing tools are also essential, as is a lifecycle marketing tool.
Specialized tools cater to PLG-specific needs. These top 3 categories include:
- Onboarding: like Appcues and Userflow to simplify user guidance.
- Lead enrichment: like Clearbit, that provides crucial insights into your user base.
- Payment solutions and routing: like Stripe and Paddle, to enhance your revenue generation potential.
Building Your Growth Team
In the B2B context, a growth team is still a relatively new concept. The first growth team hire is typically a Head of Growth; for early-stage startups, it’s common for the CEO to start as the first Head of Growth.
As your PLG team expands, consider how it aligns with other departments. The most common setup sees the growth product team reporting to the Chief Product Officer (CPO). This setup fosters close collaboration and alignment with the product team. You'll also need counterparts in the marketing and sales organizations to form a cohesive PLG organization.
Getting Started: Focus on Low-Hanging Fruits
PLG teams often take their first steps by identifying the low-hanging fruit within the 4 common areas (acquisition, activation, conversion, retention/expansion) and fostering cross-team collaboration with Marketing, Sales, Customer Success, and Data Analytics for effective experimentation.
