Defining what success looks like

Before we measure anything, let’s define what success looks like. PLG can mean different things to different people, therefore it’s imperative to define what you want to achieve before you start adding product-led principles to your Go To market. This definition will depend heavily on the PLG strategy you’ve chosen to implement. 

For example, if you have decided to leverage product-led principles for customer acquisition, you might need to invest significant resources to make your product’s onboarding more intuitive and to get a good ratio of users who invite others. You would therefore expect quite a significant increase in the number of new customers and/or revenue before calling this a success.

On the other hand if you are testing in-app notifications to better identify upsell potential, the effort is much lower. This would typically not require much change to your existing process and you could even use a 3^rd party application to start testing this. Therefore a much lower impact could still be deemed a success in this scenario.

It’s important to have a good understanding of your Go To Market numbers before you start adding PLG. You need to know what you’re comparing your results to in order to make the right decisions. Make sure you know your conversion rates, the different customer segments, and how different tactics contribute to your results. That way when you start making changes, you can better assess the results you are seeing.

End to end funnel comparison

When you have a growing business, it can be hard to assess the effectiveness of PLG. In many cases you cannot run a product-led process in parallel to your existing process, as the mere existing of a different model will distort the effectiveness of your existing Go To Market (often referred to as cannibalization). You can only run it in parallel if you are trying to address new market segments or other new opportunities that you are not capturing today.

A good approach to get around this is to not officially announce your product-led approach but to make it available in the product to smaller segments first and get an impression of some of the conversion metrics and how they compare to your existing approach.

When you want to compare the revenue value of your current model to a new product-led approach, these are the numbers to look at:

• The number of new customers that are coming through each motion.

• Multiplied by Lifetime Value (LTV) of customers in that scenario. The LTV is calculated by taking the Annual Contract Value (ACV) times the average contract length (in years).

• Plus the Average Expansion Value over the customer lifetime. 

The challenge with comparing GTM models is that it can take one or two years until the LTV of a land and expand motion is known, because you don’t yet know how much you can expand and how long you will retain these customers.

To get an impression though, we can make assumptions, run experiments to validate them, and then keep updating the model as we learn more. Let’s discuss how that could be done for each of the metrics in this formula:

# New Customers

The number of new customers is typically the first metric you’ll get a better handle on. When you make changes in the first part of the customer journey from the first website visit up until the initial contract a customer signs, you will start collecting data on the conversion of the new approach immediately.

For example, if you introduce Product-Led Onboarding by adding a free trial option on your website, you will immediately start seeing how many website visitors are engaging with this option, so even if they haven’t signed a contract yet, this is already important input for your model.

Having good analytics is key to make good decision. Make sure you track every step of the customer journey, from page visits to button clicks and form submissions. And where possible, run experiments with low effort to assess the impact of intended changes before developing anything.

You could for example add a button to sign up for a trial, but still require the customer to set up a call for to get this trial on the next page. If you run this experiment, you will learn how much interest there is amongst your audience to engage with a free trial option, before you develop the entire self-service approach. 

Through experiments like this you can get a good sense of how many new customers you can expect from your PLG approach. Of course if you’re only applying PLG for Retention and Expansion then this number will remain unchanged.

Annual Contract Value

As you’ll start closing deals from your product-led approach, you’ll get a better sense of the average contract value customers are buying. Given that PLG is typically part of a higher velocity Go To Market motion, you would expect first ACV values will to become known within the first 2-3 months of launching a new approach.

That doesn’t mean however that you have to wait for that period to pass. Keep an eye on leading indicators of contract value, like usage within the product, the number of seats a company is using, or anything else that drives your pricing. 

While you can often see some first impact of changes in your pricing model by looking at the customers who are already engaged with your company, I’ve learned to look at customers who have gone through the entire new experience from the beginning to understand the real impact.

We saw this when we updated our pricing model at Dealfront in 2023. The new pricing introduced simpler and more affordable options to customers, and even though we publicly released the model in July and shared it on our website, it took another 2 months before we truly started to see the impact on the conversions.

The expectations someone has when they engage with your company have a big impact on the eventual outcome of that process, and it’s hard to change these expectations later on.

Especially if you’ve introduced a new pricing option as part of your product-led strategy, then understanding the new ACV is key. In addition, it’s important to keep an eye on the original deals your company was closing and if those are still coming in. You’ll want to understand if what you are implementing is additive to your existing revenue, or if it replaces (or “cannibalizes”) that revenue.

When looking at this, keep an eye on the different customer segments. If your product-led implementation is bringing in customers with a lower ACV than before but from a new customer segment, this is likely a positive outcome. However if you are seeing a lower ACV from the same segment, then you’ll want to see a higher numbers of customers or some other value for the business to make up for that.

Contract Length

If you haven’t made significant changes to your pricing model, then a fair working assumption is that retention will remain the same as before until you learn otherwise.

A good proxy to assess if you should expect changes on this dimension is to compare the product behavior of previous customers with the product behavior your new customers are showing. If they are similar, then there’s a good chance that retention behavior will be similar. If you are seeing different usage either like lower activity or a lower number of active users, then this could be an indicator that this metric looks different in your new approach.

Obviously if you have introduced a new contract term, like a monthly plan for self-service users when you previously only sold annually, then you can expect the average contract length on this new segment to be lower. For the model to still work, this would for example have to be offset by a larger number of deals or being able to sell to a segment that wasn’t buying before.

Expansion Revenue

Expansion revenue is the hardest metric to get an handle on, yet it’s crucial to understand in a land and expand strategy. When your company offers a lower priced contract, it’s not uncommon for a larger customer to first adopt your solution for just a few users before deciding to onboard the entire company.

Some companies even have it as their deliberate strategy to sell a $10k to $20k contracts at scale with high velocity, and then sell $200k expansion deals to a subgroup of this customer base after they’ve been onboarded.  

Therefore not including expansion revenue in your assessment could completely skew the perceived value of a product-led motion. It’s not a realistic expectation though, to have to wait for a year or longer to understand this metric. Luckily there are some things you can do to gain more confidence on expansion earlier on.

The simplest way to get a baseline value is by looking at the contracted revenue you are getting in your existing model. As long as you are capturing the same segment, then even when the PLG model starts you at a lower ACV, you would know from experience that you can grow at least some of these customers to that value.

In that case is you would take your current ACV after expansion and deduct the product-led new business ACV from this amount. The result is the upside you know you can expand the contract with, even if the starting point is lower. Let’s say you can grow your current customers to a $70k annual contract and you are now closing customers at $15k initial contracts on average. If this is the same customer segment, then you would know that there is $55k upsell potential based on past experiences.

Keep in mind that these are just estimates. Customers can behave differently in a product-led approach, but historic numbers will be more relevant to your business then using industry averages or something similar.

If you are considering introducing product-led principles throughout your entire Go To Market model and you have a customer base today, then another good option to get more familiar with the expansion number is to implement Product-Led Expansion first.

This allows you to get a more reliable metric of how you could upsell to customers within the product, and it’s relatively straightforward to implement and usually easy to combine with your existing approach. 

This would allow you to learn from this experience and get actual values for what product-led expansion could look like in your business model before applying PLG further in your Go To Market.

Follow the data

PLG is only the right choice if the results are actually better. Don’t introduce a cheaper plan if it cannibalizes your existing revenue unintentionally. And don’t introduce a free trial if it results in less customers engaging with your business. Run tests and look at the data before making big decisions.

An expectation could for example be that you will close more deals of a lower value with PLG, but that’s not always the case. The specifics of  your business and market matter. In some cases it can actually be better to sell the full contract upfront.

For example if every buying decision has to go through a complex decision making process. Then you wouldn’t want to repeat this within months after closing the first contract. In that case, a traditional sales approach that maximizes initial contract value might be a better fit than a land and expand approach.

You may also be aiming for an increase in the efficiency of your existing Go To Market with PLG. This could mean that a good result would actually not see you close more deals, but the closing rates of your sales team would go up.

Again though, it is not a given that this will happen. If the product doesn’t guide the user to the next step in their buying consideration properly, then sales will still have to do most of the work. What’s important therefore, is to run these experiments and look at numbers, before you make any big decisions.

The first 3 months in numbers

I hadn’t been very active on Linkedin before this. My goal was to post there 3 times per week and to use that engagement to drive people to the Product Pepper blog. 

I officially started on September 20th and here are some of the key metrics in 3 months of posting since then:

• Linkedin output: I posted 46 times in 15 weeks → target achieved ✅

• Linkedin followers: Around 500 new people decided to follow me → +11% 🙏

• Blog output: I posted an article every week for 13 weeks → target achieved ✅

• Blog visitors: On average my posts are read by about 100 people → this seems low compared to the impressions and engagements the same content gets on Linkedin 🫤

• Blog subscribers: 1,300 total blog views converted to 40 new subscribers → while this seems low, it’s in line with conversion rates I’ve seen shared by others. Thank you if you decided to subscribe 🙏

• Personal connections: I called with 17 new people due to my increased engagement, which was unexpected and definitely the highest value outcome in the short term ⭐

Considering that these were the first 3 months, there is a lot to be happy about. The personal connections have been enriching and are keeping me motivated, and the LinkedIn engagements are working well and helping me grow an audience there. 

The blog posts have been getting good feedback but I need to learn how to reach more people with them. Now that I have my supporting systems in place, I should have more time for that. Below are my 3 key learnings which I’ll be applying in 2024.

1. Developing my own voice

To GPT or not to GPT, that is the question… A key principle I started the blog with is that the content of the articles I post needs to represent my unique view and style. Therefore I decided not to use ChatGPT at all and to write the articles myself. 

My assumption is that because everybody has access to the same tools and data, developing a unique voice will be more important than ever. So while this is costing me more time, it is the right thing to spend time on.

By writing the articles myself, I also got to understand better how my views differ from other views in the market. This is key knowledge, because it’s the opinionated content that tends to get people’s attention.

Now that I’m starting to get more clarity around my voice, I’m considering experimenting with ChatGPT to improve the writing style of the articles, as I’ve heard good things about that. But the content will definitely remain my own work.

2. Balancing consistency and quality

My research told me that one of the main things to get right when building an online audience is consistency. So when I started, I committed to 1 blog post and 3 Linkedin posts per week. On Linkedin I would cover:

1. A blog post, presenting my latest PLG blog article from that week

2. A knowledge post only on Linkedin about other PLG concepts or principles

3. A funny post, typically a meme with a hint of the article that would come next week

Even though I had prepared some articles before launching, I quickly found myself under constant deadline stress to prepare the next post. After all, I do also have a full time role at Dealfront and a private life. More importantly, the quality of the posts started to suffer because I didn’t have enough time to prepare. So I realized something needed to change.

I looked at the metrics and realized that the knowledge posts were getting the lowest engagement of the 3 types, whereas they required quite some work to prepare. So I decided to cut these posts entirely and switch to 2 planned posts per week.

The time that this freed up I used to think more strategically about topics to cover and create better articles. This resulted in new types of content for Q1 2024 which I will share towards the end of this article.

Around the time that I was working through this, Matt Lerner shared this post about how 70% of his 50k new followers on Linkedin in 2024 came from just 5 posts. It further emphasizes that while consistency is important, it’s quality that drives results.

3. Creating a proper management system

Then I also reminded myself that if you want to do something well, you need to have a proper system in place for it. Initially I had my content ideas and future posts in random notes and Google Docs, so I leveled up and created a proper system and content calendar to manage this.

My tool of choice has been Airtable, because I know I can automate many of my workflows with it. This has moved my approach from being ad hoc to more planned and strategic. Below is a screenshot of the ContentCalendar I created, where I make sure I have the right mix of types of content across Linkedin and the blog.

Another system that’s important to have in place is one to track content ideas. Throughout the week I encounter situations at work, in conversations, or even while watching tv, that can be used to provide unique content. So I created another table to keep track of that.

As I was getting my systems in place and started to look at the world differently to find interesting things to write about, the preparation of content like funny posts also got much more efficient. This efficiency is important, because it allows me to use most of my time to create good articles.

Things I still need to figure out

As you can imagine, there are plenty of things that I still need to figure out. One of the bigger challenges so far has been to have good images. Especially in the beginning it was more of an afterthought, whereas actually images are important.

I have experimented a bit with Generative A.I. to create images but haven’t been satisfied with any of it. In addition, to explain frameworks or concepts Gen A.I. is not a good solution.

My plan is to define “my style” in terms of visuals and have a more unified look and feel, plus better capabilities to show visuals in the articles. But this is still a work in progress.

Also, as highlighted in the initial section, I’m not getting enough people from Linkedin to the actual blog. One of the reasons is that when I share a blog post on Linkedin, I add the key learnings there. So I get good engagement, but then many people don’t click through.

The challenge is that if I don’t put that content, then I won’t even get people’s attention in the first place. So I need to experiment more with the balance between providing value on Linkedin and getting people to my preferred platform which is the blog.

The next time I’ll reflect on my blogging efforts, I hope to have solved both these topics.

What to expect in 2024

With better systems in place and more content prepared, I will be spending more time on quality in 2024 and I intend to give the stage to other people who want to share their views and experiences. 

I’ll also be trying new formats:

• Podcast - I have been interviewing some amazing thought leaders and operators in the space and will be announcing the first podcast season this month. It’s a great way to share knowledge with the audience without having to come up with everything yourself. And since I don’t presume to know everything anyway, it feels healthy to have other people share their views as well.

• Guest posts - I’ve been speaking with a few other people in the space who are interested in writing but don’t think they can commit to the consistency. By providing Product Pepper as a platform for them, I can bring in diversity in content and enable these people to get their voice heard. (If that’s you, please reach out to me. There’s still room for this)

• Something big… - I’ve been working on something big for anybody who is thinking about combining Product-Led Growth with Sales. I will be announcing it soon, stay tuned! 

I intend to share my learnings again later this year once I’ve collected more data and experiences. If there’s anything you’d like to understand better, drop it in the comments or send me a message and I’ll share what I can.

Onwards 🚀

Next, we need to assess if the way your company develops products is well prepared for a product-led operation. The questions in this section will help you assess if you have the right people and processes in place to effectively run a PLG motion.

Becoming product-led increases the required level of professionalization for many processes, from product strategy, to product delivery and the role of analytics in decision making.

It’s important to understand where your company is today so you can identify where you might need to change existing ways of operating. And if you feel you are too far off, you can even make the decision to initially have new product experiences developed by an external team to de-risk the delivery.

Roadmap

As in the series mentioned above, we’ll have a number of questions to go through which will give an indication if there are any challenges to implementing PLG in the organization.

The first part focuses on the process around the product roadmap. Let’s start with the questions:

Q1 – Do you use product metrics to assess if a customer gets value from their contract?

For example, usage metrics, number of users, and value events, which could be part of a health score Customer Success uses

• Yes

• No

Q2 – Do you have a matured feature request process?

Is there a process to request and track features requests from customers and colleagues?

• Yes

• No

Q3 – Would you say your roadmap prioritization is typically more short-term or long-term?

Short-term would be a roadmap driven by C-level input or requirements for open opportunities, long-term would be to serve groups of customers better or engage on new market opportunities.

• Short-term

• Long-term

In essence the above questions assess how much information the company collects from customers to drive the product roadmap.

On one end of the spectrum is the ultimate quantitative approach, that tracks product usage, collects customer feedback at scale, and prioritizes based on this information. On the other side is the more top down approach where for example a CEO sets direction for the company and the only measure for success is revenue growth.

An organization that prioritizes the product roadmap based on open opportunities with customers will struggle more with product-led principles than a company that’s used to prioritize based on aggregated customer input and usage metrics.

That’s because to become product-led, you’ll need to standardize the experience for the customer. The goal is to find the commonalities between what all (or certain groups of) customers need and building an intuitive experience to provide this value. Developing one-off functionality for a single customer is therefore quite uncommon in PLG.

Product delivery

After the roadmap we’ll assess how new product functionality gets delivered.

As we’ve learned, one of the keys to the success of a PLG motion is to keep iterating on the experience to optimize the user journey towards the desired result.

Therefore, understanding the current practices in terms of delivery helps us understand if the existing process will be ready to facilitate this.

Q4 – Do you follow an iterative release process today?

For example, if you use Agile or work with Continuous Delivery, but really any process that delivers a product step by step and measures results would count.

• Yes

• No

Q5 – Do you have user quality gates when releasing new features to customers?

Do you for example have a process to get live feedback from customers before releasing broader, or do you release to smaller segments first and monitor adoption?

• Yes

• No

Q6 – Do you track the effectiveness of new features?

Do you for example monitor usage metrics and/or recordings after release of the feature or A/B test most important changes and decide based on the data.

• Yes

• No

The spectrum on which we are measuring your company in these questions is comparable to the previous section on Roadmap.

On the one end of the spectrum we have a company that only releases a new module after it’s been developed in full and doesn’t have use quality gates in place. Basically, the main driver for release to customers is approval from a key stakeholder.

On the other end, we have a company that first releases an MVP and then iterates on this by rolling it out to specific customer segments and assessing the customer feedback and usage data to understand if it is having the desired outcome.

The closer your company is to the latter, the readier you are to adopt PLG. This doesn’t mean that your company cannot do PLG if you don’t have the processes in place to support it.

In that case it would be advisable to have this team operate separately from the regular engineering processes, or even have an external team do the development, so you can create the first wins for your PLG efforts and gain momentum to drive change in these processes.

Technology and Scale

Beyond the delivery process we also want to assess if the existing state of the technology and organization is well-suited to support a new initiative like PLG. Two questions will help us explore this:

Q7 – Does your company stay up to date with modern technology?

This doesn’t have to mean that you use the latest technologies and frameworks but it should be modern. If your company uses outdated technology that should be replaced but still works, answer No.

• Yes

• No

Q8 – How many engineers does your company have?

• Less than 15 people

• More than 15 people

We already touched on the release process in the previous part. Another dimension that’s an important indicator for the ability of the organization to adopt something new like PLG is the modernity of the existing technology.

A company that has more modern technology, generally tends to also use more modern development practices and can be expected to be more open to further iterations of that in the context of PLG. A company that uses date technology and potentially more traditional development practices will struggle more with this.

The size of the engineering org gives an indication of the capacity to dedicate resources to PLG efforts. Teams of less than 5 people would potentially need the company to fully dedicate to PLG to be able to execute, whereas larger organizations could assign a team of a few developers while keeping the usual operation unaffected.

Data analytics

The last two questions give us a sense of how common data-driven work is within your company:

Q9 - Is your company data-driven?

Are important decisions supported by a thorough data analysis? Answer no if management of key stakeholders typically make the decisions without data as a part of the consideration.

• Yes

• No

Q10 – Do you have an analytics function?

At the very least this means you have analysts employed in the company who look at the data. Ideally this means having an analytics function and specialized analysts per function.

• Yes

• No

In this case, on one side of the spectrum of possibilities we have companies that are top down and where no analysts are available. These types of companies will face bigger challenges when operating a PLG model as the data-driven approach is a core part of this.

On the other end of the spectrum we have companies with a matured analytics function and where teams are encouraged to analyze data and adapt their approach based on this.

Even if this department doesn’t include a product analytics team yet, it will be easier for the company to adopt the data driven foundation of the PLG approach, because many of the foundational principles and infrastructure will already be there.

What’s next

You can use the assessment above as well as the PLG Compass to shape your view on how PLG can add value in your business and what would be the best approach to implement it. Let me know in the comments how this works out for you!

Building on the result from the last article, I will add further questions to the survey we started. There is no need to manually track your answers to these questions, as you can use the automated survey on this link.

Go To Market maturity

An important factor when deciding how to go about your PLG efforts is understanding how the company has grown to date and understanding the role the sales team has had within the organization in recent years.

If you are a brand new startup then that’s easy, because there is no history. But most companies have been in business for a while already and we cannot ignore that reality or put existing growth at risk before having proven that the PLG motion performs as expected.

The same goes for the role of customer success or any other customer supportive function. If your existing model heavily relies on these personal interactions then this cannot just be discarded.

At the same time though, if there is a high reliance on sales and/or customer success, this also gives an indication of where gains can be achieved using product-led principles.

If the same sales rep or CSM can close twice as many deals by leveraging the product more in the customer journey, this will significantly improve the economics of your growth motion. It could even allow you to serve customer segments or contract sizes that were previously not economically viable to serve.

Keep in mind that there is no “good vs bad” here. PLG is not by definition better than sales. Follow the numbers.

How customers buy today

Then let’s get started with the first questions about the existing process through which new customers engage with your software:

Q11 – Can potential customers sign up for your product by themselves?

This refers only to signing up and first use, not the conversion to paid.

• Yes

• No

Q12 – Do new users typically get familiar with the product functionality by themselves?

This could be through in-app onboarding, a help center, or other training materials.

• Yes

• No

Q13 – Do new customers typically get a dedicated Customer Success Manager?

A dedicated CSM proactively engages with the customer to help them succeed.

• Yes

• No

If your process is currently heavily people-driven, meaning for example that a conversation with sales is required first and a CSM guides new customers through their onboarding, then regardless of what the outcome was in the section on customer journey, then onboarding could be a good area to focus your first PLG efforts.

This is because it is very hard to acquire customers in a product-led manner if users cannot start using your product without speaking with someone.

Even if you implement product-led onboarding, you can still decide to assign a CSM to high-value customers. What’s important though is that the self-service onboarding exists, is a good experience, and is used by some segment of new customers. This will help with organizational efficiency as well as lay the groundwork for further product-led initiatives.

This can also still mean that new customers speak with sales first but then the rest of the onboarding is product-led. Or it can be a free trial that engages the user in the product before speaking with sales. Any combination is possible if it drives results.

Company tendency

Next let’s look at the decision-making culture in a company.

Q14 – Are your companies’ decisions primarily driven by sales or by product and engineering?

Even if both participate, which is the dominant voice in the company? Look at your CEO if you’re not sure.

• Sales

• Product or Engineering

Some companies are heavily driven by the sales stakeholders. This is often (but not always) the case when the company has high deal values or when the CEO is more wired as a sales person, but can also happen in other businesses.

If this is the case, then alignment of the initial goals for PLG with the sales organization is important, and you’ll want to start with small wins that have a meaningful impact on the bottom line of the company.

Now of course this is generally a good approach, but in a sales dominant environment it will likely be more challenging to apply PLG so it’s important to be aware of.

Level of success

Finally let’s also look at how effective the go to market process has been so far:

Q15 - How much annual revenue does your company currently make?

• More than $1 Million

• Less than $1 Million

Q16 – Is your company currently growing?

This measures if the current growth model is working, as opposed to growth being stagnant or in decline.

• Yes

• No

If a company is just starting or hasn’t made a significant amount of revenue yet, then the growth model could be considered unproven. In that case the risk associated the transition to a product-led approach is much lower.

On the contrary, if the company has over 1000 customers and is growing fast, then you’d want to be mindful not to break the existing motion. Any mistakes or unexpected outcomes could come at a high price to the company.

A setback like that would also put a significant damper, if not kill, the organizational momentum for any product-led initiatives.

As a guiding principle, if something seems to be working, then don’t throw out a working system until you’ve proven that the new system is better or complementary.

What’s next

Based on the above questions about the growth state of the company, we should be able to further fine tune our starting point for PLG and the approach we take to get to first results.

But there is one more thing to consider, which is if your company has the right people and processes in place to execute on a product-led strategy. More on that next week.

To get a first understanding, I’ve created a test to assess some of the most important factors. The goal is to provide some direction towards what could be a good starting point for your first PLG wins.

While other starting points might be deemed more challenging by this test, that does not mean they are not worth exploring. It will typically just cost more time and effort to get them going, but depending on your goals and strategy, you could still decide to pursue them.

There is no need to keep track of your answers while reading through. An interactive version of this survey is available on this link and will provide you with a summarized result.

A survey for PLG-fit assessment

The biggest question for most companies when thinking about how to apply PLG, is if there is potential to do product-led customer acquisition or marketing to increase visibility in the market and gain new customers. So we’ll cover that but we’ll also look at some of the other possible tactics.

Disclaimer:

The guidelines below are meant as guidance based on what has commonly worked in the market. Every year there are companies that figure out something new and find ways to engage customers that haven’t been seen before.

This is how markets are disrupted. And if you think you can be that company, then don’t give up on that thought just because the questions below suggest a different approach.

This test is meant for the companies who are not sure where to begin with PLG. It aims to increase their chances of success as they start their journey, based on what has worked for other companies.

Now let’s start with the first questions:

Q1 – Does your product facilitate any kind of collaboration?

For example messaging, conferencing, task management, or design reviews.

• Yes

• No

Q2 – Does your product facilitate any kind of transaction of information or value?

For example sharing a survey, collecting payments, or signing a document.

• Yes

• No

Q3 – Does your product allow users to share or broadcast content?

For example sending email campaigns, sharing to social media, or sharing an internal report.

• Yes

• No

If you’ve answered Yes to any of these first 3 questions, then that’s an indication that you might be able to use PLG to drive user acquisition of marketing.

This doesn’t mean that you should jump straight there, but it is definitely an opportunity worth investigating as it can be a powerful driver of new customers and revenue for the business.

But even if your product doesn’t have all these characteristics, all hope for top of the funnel impact is not lost. Let’s explore another angle:

Q4 – How many potential users (i.e. people who would get an account on your product) are in your target audience?

For example if you on average serve 10 people per company and you total market is 2 Million companies, then that’s 20 Million users.

• More than 10 Million

• Less than 10 Million

Q5 – Do you have a secondary audience that is 10 Million people or more?

For example if you offer software for doctors to book appointments, then the patients who book them would be a secondary audience.

• Yes

• No

If you’ve answered Yes to one of the above two questions, then that means you have a large audience to work with and then there can be some angle for customer acquisition or marketing through the product experience.

Even if there is no natural way to get users to drive that, you could for example still consider releasing a new free product specifically aimed at driving this.

An example would be the free Logo API that Clearbit released, which got many companies to include and attribute Clearbit in their applications even though it is not one of their revenue drivers.

With a secondary audience the angle is slightly different. You would want to create a product-led motion that attracts more people from that audience, like patients leaving reviews for doctors.

By increasing the number of patients, your relevance for your main audience the doctors will grow. You can then introduce further features to connect patients with doctors to close the growth loop.

When there is no form of collaboration or sharing in your product, and there is no large audience to target in any way, then it might be hard to apply as a successful PLG motion at the top of the funnel.

Your options then are to either change those conditions (which would imply a change of strategy) or to start looking at the potential of product-led onboarding and expansion.

Next we’ll look at the actual price of your offering, which can say a lot about the potential of PLG in the customer journey.

Q6 – What is your typical first year contract value?

• Below $10,000

• Between $10,001 and $30,000

• Above $30,000

Q7 - Do you sell any other separate products for the same audience that are below $30,000?

• Yes

• No

If your typical contract value is above $30,000 then that usually means you’ll need some form of sales involved. This can still be a product-led motion with sales support however it most likely will not be product-only.

This is because at this deal size there are often different factors at play, like multiple decision makers to manage, drafting up implementation plans, and/or simply the desire of the customer to speak with someone.

All of these are topics are well-suited for a sales rep to help with and at this contract value the economics of that setup typically work out.

When we look at deal sizes between $10,001 and $30,000 then it can become harder to make the economics work with a sales-only approach, especially with the increased competition we see nowadays.

Therefore some form of product-led onboarding can be beneficial in this case, to provide the sales team with Product Qualified Leads that will have higher conversion rates than regular demo requests.

This is where free trials or a freemium model can be worth considering, to create a setup in which the product can filter out good-fit customers from your audience.

For deal sizes below $10,000, a product-led or product-supported growth motion is pretty much a must have. Even if you have a sales team in place, they will need to have conversion rates far above the usual inbound or outbound metrics and this is exactly what PQLs can deliver.

Lastly, even if your ACV is normally above $30,000, companies in this segment are seeing success with offering a lower priced product-led offering to then sell the bigger contract at a later point in time.

As a last step in this assessment, we’ll look at the structure of your pricing model.

Q8 – Do you have a standardized pricing model?

Do you use a price list for your offers as opposed to providing custom pricing to every customer.

• Yes

• No

Q9 – Does your pricing model support any type of scalable metric?

For example pricing by number of users / seats of by usage (credits, visitors, contacts, etc)

• Yes

• No

Q10 – Does your pricing model include add-ons or multiple products?

• Yes

• No

If you do not have a list price or always heavily discount your prices during sales conversations then it will be hard to build this part of the customer journey into your product.

If this is your situation then you could still look at product-led onboarding and have the product experience provide Product Qualified Leads (PQLs) for new business or for expansion.

But automating the actual buying journey in the product without having a customer facing team involved will be hard in this scenario.

If you do have standardize pricing but you typically only sell one product at a custom price, it will be hard to sell this through an automated motion or to expand the contract of an existing customer.

On the other hand, if your pricing can scale based on the number of users or usage and/or you have multiple products or add ons that people can buy in addition to their initial contract, then this provides a strong potential for product-led expansion.

This could for example enable a typical land-and-expand motion where the goal is to close the initial deal as fast as possible and then upsell. Even if the “land” part of this journey is not yet product-led, you could already become product-led on the “expand” part. This can often be done with much less effort.

So what now?

To summarize, the above questions should give you some guidance for which part of the customer journey you are well-positioned to introduce product-led principles.

That doesn’t mean the organization is ready to engage on these opportunities though. Another important thing to consider for that is the maturity of the current Go To Market motion of the company. We’ll cover this next week in the second part of this mini series.

Driving the right behavior

In essence the main goal of the sales assist role is to make sure the customer gets as much value as possible during the initial setup phase of the product.

Depending on your business this can for example mean that the sales assist rep helps with the initial onboarding to get the account set up the right way. Especially if the setup is complex by nature, like due to regulation, then having this option can make a difference.

It could however also mean that the rep shares best practices on how to get value from the product. For example by explaining how customers typically set it up, or by getting the right notifications or integrations activated to make sure the product integrates well into the customer’s day to day.

Or sales assist can mean to help in getting the rest of the team onboarded or get the information to the finance team for payment, if these are important predictors for a conversion to paid.

But as you see from these examples, the sales assist role helps in using the product and drives metrics like activation, engagement and adoption.

The aim of a sales assist motion, like with any PLG motion, is to do a high velocity sale. That means the rep typically does not introduce different offers, as it would confuse the customer with. The focus is on converting the customer on the use-case at hand.

Determining the right time to assist

Once you’ve decided which customer segment you want your sales team to reach out to, the next question is how to pick a trigger.

This can for example be certain progress in the account setup. At FunnelFox, a sales tech company I used to run, we focused sales assist on those customers that have gone through the effort of connecting their CRM and email account.

This tells us that they have reached a certain level of commitment in trying out our solution and in addition it means we are now collecting live data for this customer, so we can show actual value when engaging in a conversation.

Setting up these integrations was the first step people needed to take when setting up their account and it could be done within minutes. But it’s at the same time a relatively big step that requires trust, so it proved to be a good segmentation event.

We did investigate if it was worthwhile reaching out sooner, to help people to get connected. But the numbers didn’t add up because those users who didn’t trust us enough to connect their CRM, also weren’t convinced enough to get on a call. So conversion of those outreaches was much lower and did not provide a positive Return on Investment.

So when you pick your trigger event, it’s important to look at the conversion rate of the sales engagement at that stage of the funnel.

If the conversion at the trigger moment you picked is not high enough, there are two things you can do to influence this:

1)   Choose a moment further down the customer journey where you have hopefully filtered out more of the uncommitted customers

2)   Invest in the product experience leading from the previous trigger moment to the newly defined moment, to maximize the number of people that make it to this point.

Be on the lookout for changes

As with everything in your go-to-market funnel, you’ll need to keep looking at how the numbers hold up over time. Sales assist is a catalyst for the product-led journey but it will not replace the product journey.

With one of the companies I’ve been involved in, we went through a period where many product changes were made at the same time. Through all this change we unintentionally broke the product-led onboarding experience.

For a brief period of time, we suddenly weren’t able to get people on calls anymore. Even while we were still getting the same leads in and had the same sales assist team in place.

This is a testament to the unique state of mind a user who signed up for a free trial is in. If the product doesn’t deliver to the expectation, then there is not enough trust or interest to take the call with a sales person or an onboarding specialist. They will disengage and look for another solution.

When you are deploying sales assist in your customer journey, also make sure to look at the metrics per customer segment. Different regions or different customer segments might respond differently to the sales assist role and these numbers can develop in different directions.

While your average conversion might look ok, it could be that your conversion in the USA went up whereas the one in Europe went down. Make sure you have enough detail in your reporting to identify this.

Evaluate Return on Investment

Most importantly though is to keep an eye on the Return on Investment of sales assist. It can be an expensive endeavor if not done right.

If you know the conversion rate of the product-led experience without sales assist, then the formula to calculate the ROI is rather straightforward:

You take the additional number of deals a sales assist repo brings in and multiply this by the ACV. Then compare this number with the cost of the required sales reps and your expected OTE multiple in revenue to see if this is a healthy motion for the business.

For example:

• If you unassisted conversion rate is 5% and with sales assist it’s 15%, then if you normally close 10 deals per month, then that becomes 30, so 20 additional deals per month or 240 per year.

• Let’s say your ACV is $3,000. That means you are making 240 x $3,000 = $720,000 in additional revenue per year.

• Now let’s say a sales assist rep in your company can close 5 deals per month. That means you’ll need 4 people as sales assist to close those 20 deals. And for easy calculation let’s say annually those reps are on $100,000 OTE (base compensation + variable). So in total the cost for the sales assist team is $400,000.

• In this scenario a sales assist rep is returning 1.8x OTE. Most companies are aiming for at least 4, 5 or 6 times OTE when deploying traditional sales but the industry standard for Product-Led Sales hasn’t really been defined yet and there’s strong indicators that a lower OTE to revenue ratio would be acceptable.

The decision if your company would want to pursue sales assist in this case is subjective. It depends if 1.8x OTE is considered enough. But what’s most important is that this information is available and considered.

Sales assist can quickly get expensive, so again, keep segmentation in mind and keep your eye on the numbers.

Small changes to this formula can make a big difference. For example, if your ACV is $6,500 instead of $3,000 and leave everything else the same, then you are suddenly doing close to 4x OTE.

Or if a sales assist rep can close 10 deals per month, then you only need 2 reps and with that you are close to 4x OTE again.

The examples above are only a very rough calculation it’ll give you a good sense of if sales assist is worth pursuing and if so, for which customer segments it actually makes sense.

I’ve also created a Google Sheet where you can play around with these numbers for your specific situation.

What’s next…

Next week I’ll go into more detail on how to identify the best part of the customer journey to start doing PLG. I’ll cover the underlying principles and will provide you with a tool to find out the best place to start for your company specifically.

It is important to realize that this is by no means the same as someone who requests a demo and expects to have a call with a sales rep. That is not what these people are expecting. 

There is a large and growing segment of customers in the market who want to do their own research before they decide to talk with somebody. 

Since the rise of the internet, customers have been much more empowered to do their own research on anything they are considering buying. PLG enables the next step of this trend, where they can actually explore the product by themselves to make sure it meets their requirements. 

This changes the role of a sales person. If you go in hard with a sales pitch to a customer who’s going through this process, you have a good chance of being ignored or scaring them off. 

These new users are in the process of getting to know your product, so the best thing you can do is to offer them guidance and help them get to value as effectively as possible.  

The Sales Assist function

This is why many people who are in a Sales Assist role have a title like “onboarding specialist” or “success coaches”. 

The trigger for Sales Assist to come into action is typically when a new user (or account) becomes a Product Qualified Lead (PQL). At this point, they should have either shown enough commitment or received enough value from the product, that enough of this segment would be open to a conversation. 

There is no standard definition of PQLs – this is highly specific to your product and process. For example, for the Leadfeeder product we offer at Dealfront, this is when someone has integrated with their website. At a company like Calendly, it might be when a certain number of users of one company have an account. 

Once Sales Assist gets in touch with the customer, the entire conversation is focused around helping them to progress on the user journey. 

This could mean helping them to get things configured, showing them how value is created, explaining common use cases or helping them onboard further team members. 

It can also mean helping them navigate their own organization to get budget approval or to get an invoice paid. Sales assist reps can in some cases also make better offers than the default offer that the product displays, although this should not be seen as their primary goal. 

In some companies the self-service buying motion can be deactivated for an account once the user has engaged with the sales assist rep. This is to provide more control over the buying experience of the customer and to provide the possibility for custom offers.

Regardless of the tactics used, the general aim across all interactions is to help the customer progress in what they are trying to do, which is a very different experience from traditional sales.

Balancing between self-service and sales assist

The value of sales assist is in essence to increase the conversion rate of the available product experience. 

Long before PLG was the talk of town there was research out there on the topic of sales assisted conversion. For example, in 2019 Tomasz Tunguz presented the Redpoint Free Trial Survey touched on the potential impact of sales assist. 

Out of 600 companies who submitted their data in the survey, they found that companies with a free trial with unassisted conversion, the median conversion of lead to paying customer was 4%.

For companies that involved a sales person in their free trial process, the median conversion rate to paying customer was 15%. That’s almost a 4x increase in conversion rate.

While that’s a steep increase, that doesn’t mean that sales assist is the right approach for every company. If it makes sense and how to best go about it depends on the volume, the conversion rates, and the increased value of talking with the customer. 

If you are selling a scheduling product at $10/month per user then getting on a call with every single user will be too expensive, whereas if you are selling a $300/month solution then it might actually pay off.

Segmenting for value potential

This is where customer segmentation comes in. There might be subgroups of your customers where sales assist generates a good return on investment. 

The most common example of this is when companies set a user threshold at account level in their PQL definition. This happens a lot in cases where the price per user is low as the example mentioned above.

What this means in practice is that regardless of the firmographic characteristics of the company, like size, industry and revenue, they look at the engagement in the product, in this case the number of engaged users, to assess the potential value of a customer. 

This is common with bottom up models, where any user can start using the product on their own initiative. In these cases, initial activation of one user is not enough to engage the sales assist team. This might just be someone without decision-maker buy-in who is giving the product a go. 

Companies with this type of model want to make sure that there is proof of further momentum in the company before sales assist engages, else the conversion metrics won’t support a healthy operation.

There are also other ways of segmenting customers for sales assist. A company could for example apply their ICP definition and decide to only reach out pro-actively to companies that fit this profile. 

And there are also companies that for certain segments of customers won’t even look at the engagement in the solution, but will just reach out. If it’s a high value customer segment, then this could make sense.

We did this at FunnelFox for example, where a PQL was a company that connected their email and CRM. When companies with more than 1000 employees would sign up, we knew that they would typically have permission restrictions. But we’d reach out anyway. Because even if only a few converted, those contracts were higher value.

It should be noted that the above example only works if you know that you can close some of those deals. In the end it all depends on if you can make the numbers work for you.

One final thing that’s important to note is that in sales assist, even if the sales team doesn’t reach out to a customer, the product-led experience would enable them to buy by themselves anyway. 

The interaction is therefore optional, only if the customer wants to engage. A relevant portion of your audience will not and some of them will still buy.

What’s next

Next week in the second part on Sales Assist, I’ll go more into detail on finding the right timing to engage sales as well as some pointers on how to assess the ROI of such an approach. See you then!

In the third and final part the focus is on the initial deals you can close in either motion. The options are to close deals as fast as possible (Velocity) or to maximize the First Contact Value. Let’s explore what that means.

Different stages of the buying journey

As we know, a lead from a traditional sales motion is something different than a Product Qualified Lead (PQL) from a product-led motion.

For example, a user who only signs up to your product typically has lower buying intent than for example a demo request from an ICP customer (MQL). However, a PQL could be someone who signed up AND got first value out of your product.

Through their usage, this potential customer has shown a level of interest and fit with your product that they are much more likely to buy than someone who just requested a demo.

Understanding these differences is important, because they impact if and how you would deploy a sales team. While a PQL is more qualified than an MQL, they might still benefit from a little support by an onboarding specialist or some other guiding sales role.

But because the context is different, these roles are lower touch and aimed at helping the user take further action in the product up until the moment that they are ready to buy.

We’ll cover this role in more detail in the next chapter but for now it suffices to know that working with PQLs is a very different approach to sales than a classic discovery and demo approach.

These potential customers have gone through an experience which is centered around their intended use case. Therefore, they tend to be less open to a sales conversation. They just want to solve their specific problem.

Assessing customer lifetime value

Because of this, the aim in PLG is typically to convert the customer as fast as possible. That means optimizing for velocity of deal closing and trying to upsell further value later. Also known as a “land and expand” approach.

In a traditional sales motion, the aim is more often to maximize value on the first transaction. The sales rep is tasked with the goal to understand the full need of the customer and position a comprehensive offering for that. Commissions provided to sales reps typically also incentivize this behavior.

There is a trend though of companies who are updating their sales compensation plans to include rewards for expansion within the first year after closing the deal Basically prioritizing velocity over initial contract value.

Especially in a product-led approach this is a must-have. You don’t want the pursuit for maximum value to prevent you from closing the deal in the first place.

If you provide real value, it’ll be easier to upsell further products to an existing customer later on, and again PLG can play a big role in that.

However, to fully commit to a land and expand approach, the organization needs to get comfortable with the fact that the initial deal size is potentially smaller than the full potential of that customer.

Comparing customer value

So how do you then compare these two approaches with each other? The answer is to look at the full customer journey to say something useful about this.

Let’s say you start with the number of people visiting your website. You would compare how many of them would convert on a Demo Request button today, versus how many would convert on a Start Free Trial button.

With that you have the first audience defined and then you calculate the different conversion steps of the model. For PLG, this could look like a conversion from Signup to PQL to Paid to Expansion, and you’d add the revenue values where applicable.

Then do the same for the sales funnel and make sure to include expansion there as well. This will give you a comparable assessment of the lifetime value.

The assumption is often that you will close more deals of a lower value with PLG but the only way to know if that’s realistic is to actually run the numbers and do some experiments.

In some cases though you might aim for an increase in the efficiency of you Go To Market, which could mean that even the same volume is ok. The point here though is that you actually run the numbers, and don’t just assume that PLG will be better.

Even if the full model is not proven yet, a simulation like this will give you the targets you need to prove that this model is superior to what you are doing today.

Focusing on expansion

As became clear from the previous section, it’s not only the potentially higher volume of customers but especially also the expansion potential that needs to be proven for PLG to be considered the better option.

This is another reason why companies who have focused mainly on sales until today could be well off by starting to apply PLG for expansion.

The more standardized the expansion process becomes, the more a company has command over these metrics. It’s harder to evaluate the potential for expansion in PLG if this is currently brought up randomly by a CSM on their quarterly or monthly catchup with the customer.

If a company leverages PLG to present expansion offerings within the right context in the product then this can provide more confidence for one of the unknown metrics for the PLG funnel.

Adding product-led support for expansion is a low risk effort which has a direct impact on the bottom line and provides much more clarity on the potential of a broader PLG model in your business.

In the end the 4 most important conversions are:

·      visitor to signup

·      signup to PQL

·      PQL to paid

·      paid to expanded

The first 3 happen early in the customer journey, whereas expansion can happen after 6 or even 12 months. It’s important therefore to have a good understanding of how you expect expansion to behave, as it will often be an important part of achieving your ROI if you are moving away from a sales model.

It’s not an either / or decision

When deciding between PLG or traditional sales, it can be helpful to consider where on the spectrum of the discussed topics you would perform better.

To give some examples:

• If you need revenue today and don’t have a long runway for the business, then it makes most sense to go for direct sales or in some cases PLG for expansion if you have a good customer base.

• If you need to tailor the conversation and customize to offer for each customer, you are better off going with sales, whereas if you can standardize at least part of that process, PLG could be an interesting growth opportunity.

• If your models show that maximizing the first deal is better for the business than a land-and-expand approach, then you might choose sales over PLG.

What’s important to be aware of though is that you don’t always have to choose between using only traditional sales or only PLG.

The question in most cases will be how to best combine them. There are no fixed rules about what can be combined or even what should be the first step. The only things that matters is what works for your business. The data should always be guiding your decisions.

To illustrate, let’s just take a different tool from your go-to-market toolkit: marketing. Would you let anybody tell you that you can only use marketing as the first step of your customer journey?

Probably not. You will want to do marketing campaigns to nurture, reactivate, or expand the relationship with your audience, even if they have spoken with sales already.

And there’s no reason why it would be any different when using the product in growth. You use it where it makes sense.

So don’t interpret the term “product-led” too literally when coming up with your growth model. Just decide where you want to drive improvement, and then use some of the above considerations to decide the best way to achieve this goal, be it product-led or not.

Personalizing the experience

One of the big success drivers in sales is to make sure you personalize your message. People nowadays can smell a standard outreach template from a mile away so you need to show that you have done your homework when reaching out to a potential customer.

That means for example referring to any recent developments at their company that are worth mentioning, or relating to a recent post or piece of content that was shared by the person you are getting in touch with.

When doing PLG, personalization happens at different levels. Before the user has signed up it is quite hard to be company specific, so often a product-led experience “personalizes" around the use-case the customer is trying to do.

By solving a specific use-case the customer has, the customer feels addressed because that’s exactly what they were looking for. It is important in that case to have an efficient flow from signup into the specific use-case.

Look for example at Canva, where you can pick the type of design you’re interested in while still on the website. And as soon as you decide to get started and sign up, you land in the right type of project and can choose from templates for this specific type of design.

Once a user has signed up and more information is known, personalization in PLG can also be done based on the information and content provided or created by the user.

Especially when the customer integrates a third-party solution, like a CRM or other type of data source, the product receives a flood of new data through which personalized messages, dashboards, and other content can be created to show the user value, keep them engaged and make them come back into the product.

Nonetheless, most PLG motions don’t personalize towards the user in a way that a sales rep can. Creating a system that would be intelligent enough to mimic that kind of personal interaction would be incredibly complex. Although maybe with the increased adoption of technologies like LLMs (like ChatGPT) we’ll start seeing more of that in the future.

As of writing though, companies using PLG have a more standardized and focused approach to personalization which comes from the use case and the fact that people can work with their own data in the product.

Generating trust

For potential customers to take the leap of faith and try your product, you need to reach people at the right time, with a relevant value proposition, and create a certain level of trust that makes them willing to engage with your company.

A good sales person can go a long way in creating trust and report with the customer, even if they’ve never heard of your business. Because there is no person involved in a product-led experience, the way to achieve these things in can be quite different though from when you are interacting with a person through email or by phone.

The best way to create trust and relevance in PLG is through a true product-led user acquisition motion. This is when existing users invite people they know to collaborate or engage on something specific they want to share.

Because the invite is coming from someone they know, trust is high. After all, it would be fair to assume that someone is getting value out of a product if they think it’s worthwhile to invite us to it. After trust, relevance comes from the thing that’s being shared, be it a message, a call, a document, or anything else.

Even if your company is not well positioned to deploy product-led acquisition, there are many other ways to generate trust amongst your users.

Some of these tactics are the same as what you’d apply in sales, like showing customer testimonials or providing case studies. A good rating on customer review websites like G2 can also play a role here.

Since there is no personal conversation in which trust can be created, it’s important to have these materials available and integrated throughout the product experience to remind your users why they should continue on their journey.

Replicating success

While the level of personalization in a product-led experience cannot be as high as in a personal conversation, it does come with another benefit: repeatability.

In essence, being product-led means automating things, so that once you’ve iterated towards a process that works, you can replicate this success with every new customer that comes in.

To improve a product-led experience you need to iterate through different hypothesis on what a customer is trying to do and how to best progress them to the next phase of the customer journey.

By doing this, you also gain a much more detailed and common understanding of the intention of the user and how you can get them to value. This has further benefits when customer-facing teams are looped into this knowledge.

Imagine for example that a customer needs to connect their marketing system. There can be a clear path to this in the customer journey, however this can also be highlighted by onboarding specialists or a Customer Success Manager when they speak with the customer.

This level of repeatability is one of the things where traditional sales often still struggles. A company might have a few top performing sales reps but for some reason the rest of the team cannot achieve their level of performance. Their success is not repeatable.

This can be a major inhibitor for further growth of a company after they’ve seen first success. And while there are approaches in sales that can help you become more data driven and make that success more repeatable, those benefits are included by default when working on PLG.

In a product-led approach the entire process becomes aimed at getting the customer to take the right steps in the product, increasing their likelihood to buy every step of the way. It makes the process more targeted and makes it easier for the company to replicate their success across a wider customer base.

Sounds good, right? However this doesn’t work for all products and buying journeys. And sometimes the business doesn’t have time to figure this out. In those cases, a good sales rep can make up for a lot of this missing knowledge, at least in the short term.

Most content on PLG that’s out today suggests a product-led approach as primary growth motion, potentially supported by a sales motion. But that doesn’t always get you the desired results. So, we need to understand in which cases to pick one over the other.

In the coming three articles we’ll cover 3 of the biggest considerations when choosing between the PLG and sales:

•   Scalability vs Time to Market

•   Repeatability vs Personalization

•   Velocity vs Maximized Value

As the title will have made you suspect, this article will cover Scalability vs Time to Market. Let’s get started.

Starting and growing a sales motion

One of the things we need to understand well before engaging on any strategy is the required effort and investment to get that strategy in place.

When looking at a sales strategy, you can start this quite lightly. Even a startup without a sales rep can do sales if the founders are out in the market and selling to customers.

As you scale the volume of your sales strategy, you will need to ramp up your marketing efforts to make sure there are enough leads for your sales reps to work on. But you usually have a pretty good understanding of how costs develop as you grow.

The main challenge in a sales model is to make sure new hires perform at the expected closing rate to earn back the investment, before you invest any further.

Getting first results with PLG

With PLG it’s not that simple to add or remove resources as you build out the model. For a product-led motion to work, the product experience needs to be designed and developed, and until that’s done, there is no real benefit.

To get a sense early on about if you are going in the right direction, you can use validation experiments. But usually at best these will only validate if you will be able to get an audience for the things you intend to develop. That’s important information, but doesn’t drive growth yet.

There are different numbers out there on the expected timeline to first success, but most people agree that it will take at least 12 months before you start seeing results from a proper PLG strategy.

That’s because you need to get so many things right before this truly works. It’s important though to have checkpoints along the way. Don’t develop something in a vacuum for 12 months and then expect sudden revenue growth.

You’ll want to validate and iterate as you progress, potentially first without charging customers and as the value increases you can start asking for payment. Still this is very different from a traditional sales model, where a $10k or $20k ACV deal can sometimes be originated and closed within the same quarter.

What this means in terms of considerations is that if you need short-term results this or next quarter, PLG is often not the right solution for you. I say often because for example in expansion motions on an existing product, PLG can also drive results faster.

But generally, you would tend towards the sales model if you need short term results. However, if you can build for the future, then PLG is worth considering, because as we’ll see below, once it gets up and running, it comes with a ton of benefits.

Expected revenue growth

Once you go live with a PLG motion, the  revenue growth over time also behaves differently than what’s common in sales. It typically takes a good number of iterations to get from the first version to something that actually generates revenue.

Because all customers in PLG go through a similar journey, it’s all about optimizing the conversions of each step of the buying journey. Only once this entire process works, will the PLG engine start working.

That’s quite different to how it works in sales. As we’ll cover in more detail in the next article, there is a much higher level of personalization and flexibility in sales where the sales rep can at any point in the buying journey adapt the approach based on the information the customer has shared.

This means results are expected sooner and can initially grow faster. However, this also comes with a downside: Many sales teams struggle with having a few top performers who close most of the deals, but not being able to replicate this success to their other reps.

Inhibitors for growth

This then becomes an inhibitor for further growth, unless the company gets more methodical about its sales approach so others on the team can also become successful.

In PLG it pretty much works the other way around. It takes longer to get the process up and running, but once it is working, the same system that can handle 30 new users per month should also be able to handle 3,000 new users (assuming it has been built the right way).

This is why PLG is often presented as a cost-effective growth motion. But hopefully it is becoming clear that this only applies once the product-led process is working well, and that it requires investment in resources and time to get the process into that state.

Controlling costs when scaling

As you scale a growth motion, it’s important to understand how costs increase with it. Costs in sales often grow somewhat linear with the amount of additional revenue. If a sales rep closes an average of 5 deals per month, then all things equal if I want to close 50 more deals per month, I will need 10 more sales reps.

In PLG this works differently, as the main thing to scale in this case is the infrastructure that the product is built on. This is usually a fraction of what you’d pay a sales rep as a salary, so you can see why PLG has attracted interest especially in recent times of economic downturn.

But I’ll repeat, the development and maintenance cost of a strong PLG motion should not be underestimated. To remain competitive and to stay in touch with the market, you will need to continuously iterate on your product journeys. Also, the bar for the quality of your product is raised significantly so development of the same functionality might start costing more time.

Nonetheless for many companies the product and engineering costs are already part of their P&L so it becomes more a question of what these teams work on, therefore these costs are usually not attributed to PLG, but it’s important to be aware that there is at least the opportunity cost, the cost of not doing other things these teams could have worked on.

Indirect benefits

Another benefit of PLG that brings the cost down as it scales is that a product-led motion by design reaches many more people than you would typically engage with in a sales motion.

If you for example offer a free product then for every paying customer you might have between 10 and 20 non-paying customers engaging with your product. This means that a company that grows through PLG and is at the same revenue as a company that grows through sales, will have 10 to 20 times more people using its software.

This generates word of mouth and general exposure to the market which as you scale can become a significant growth driver and can make it easier to hire people, get PR, and raise funding.

What’s next

That concludes the article for this week. Next week in the second article in this series I’ll go into more detail on how repeatability and personalization are affected by PLG. In the third article there will also be a wrap up to help you make your own decisions on if PLG or sales is the better approach. And there’s a twist, because you might actually be able to have both… See you there!