Scalability vs Time to Market

Choosing between PLG and Sales - Part 1/3

Understanding the differences between the customer journey PLG and traditional sales is one thing, but how do you decide which is the best approach?

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!