What is PLG (product-led growth) and how SaaS companies use it

Today, product-led growth companies are valued at over 30% higher than the public-market SaaS Index Fund.

In this article, we'll explore the ins and outs of PLG SaaS and how businesses can leverage this strategy to drive sustainable growth. We'll break down the core components of a solid PLG strategy, discuss why it works so well for SaaS, and highlight key metrics to track your progress.

You'll also learn:

• How to implement best practices for PLG
• The benefits of usage-based billing for PLG SaaS companies
• How Orb can help you streamline your billing and support your PLG strategy

Let’s begin by explaining what PLG is.

What is product-led growth (PLG)?

Product-led growth (PLG) is a go-to-market strategy where the product is the primary driver of customer acquisition.

Instead of relying on sales teams or marketing campaigns, PLG SaaS companies make their products do the heavy lifting. They design their products to be so intuitive and valuable that users can easily discover and experience the benefits independently.

But how exactly does PLG differ from the old ways of doing things? Let's take a closer look:

PLG vs. Traditional growth strategies

Product-led growth stands in stark contrast to the traditional sales-led and marketing-led approaches. Here's a breakdown:

• Sales-Led Growth (SLG): In the SLG model, the sales team is responsible for liaising and interfacing with leads, guiding them through a sales process. The sales team is also responsible for qualifying prospects, conducting demos, and closing deals. Dealing with those responsibilities often involves a high-touch approach. Salespeople will usually be guiding customers through the entire sales process.
  
  However, going with this approach can be a costly and time-consuming process. It can create friction for users who prefer to explore a product at their own pace.

• Marketing-Led Growth (MLG): MLG relies on marketing campaigns to generate awareness and interest in a product. Think content marketing, social media marketing, paid advertising, and other tactics to reach a broad audience.
  
  While MLG can effectively create a buzz, it often focuses on top-of-funnel activities. Also, it may not always translate into tangible product adoption or long-term customer loyalty.

• Product-Led Growth (PLG): Unlike SLG and MLG, PLG puts the product in the driver's seat. The focus is on creating a product that is so compelling and user-friendly that it attracts and retains customers organically.

Doing so involves a deep understanding of user needs and preferences. It also requires a commitment to delivering a frictionless and valuable product experience. We’ll put a pin in that last part, as we’ll share some actionable tips later.

What is PLG in marketing?

It's a shift from pushing a product onto customers to pulling them in with a captivating product experience.

Instead of bombarding prospects with sales pitches or ads, PLG focuses on creating a product that is so good that it practically “sells itself.” Getting to that point often means offering a freemium version, sandbox environment, or free trial. The goal is to let users experience the value firsthand before committing to a purchase.

The self-service model is a key component of PLG. It removes the friction of lengthy sales cycles and lets users explore the product at their own pace. By enabling users to discover value for themselves, PLG SaaS companies create a more engaging customer journey.

Core components of a successful PLG SaaS strategy

Building a product-led growth SaaS company requires a blend of strategy, execution, and a deep understanding of user needs. Here are the core components that contribute to PLG's success:

1. Frictionless onboarding

Frictionless onboarding is the cornerstone of any successful PLG strategy. Users should be able to easily get started with your product with minimal barriers. Simplify the sign-up process, provide clear instructions, and offer intuitive in-app guidance.

Think of it like this: You want to roll out the red carpet for your users. The goal is to make their first interaction with your product as seamless and pleasant as possible. The easier it is for them to get started, the faster they can experience value and become engaged with your product.

2. Product-driven user experience

In a PLG SaaS model, the product itself takes on the salesperson's role in some ways. It needs to be designed to deliver a compelling user experience that showcases value right away. Focus on intuitive design, clear navigation, and features that address pain points effectively.

The goal is to create an "aha!" moment where users quickly grasp the benefits of your product and how it can solve their problems. This hands-on product experience is crucial for driving early engagement. Most importantly, it's key for encouraging users to explore further.

3. Freemium or free trial models

A no-cost entry point is a key characteristic of PLG. Whether it's a freemium model with limited features or a free trial with full access for a limited time, this approach allows users to experience the core value of your product without any financial upfront payment.

This "try before you buy" technique helps build trust and reduces barriers to entry. Users can become familiar with your product and recognize its value before making a purchasing decision.

4. Viral and organic growth loops

Product-led growth SaaS companies often rely on viral and organic growth loops to expand their user base. The aim is to create a product that users love to talk about and share with others. Consider incentivizing referrals, social sharing, and cultivating a community around your SaaS product.

You want your product to become its own best marketing tool. The goal is achieving sustainable growth without relying solely on paid advertising or sales tactics.

5. Customer success built into the product

Customer success in a product-led growth SaaS model goes beyond a dedicated department. It's an integral part of the product itself. Provide in-product guidance, tutorials, and support. You want to empower users to reach their goals and continue using your product effectively.

Address user needs and questions within the product. By following that strategy, you can create a better experience that fosters long-term customer loyalty.

Why PLG works well for SaaS companies  

Product-led growth has become very popular among SaaS businesses. It aligns with the inherent characteristics of SaaS products and the evolving needs of modern customers. Let's explore the reasons behind PLG's success in the SaaS industry:

Easy deployment = easy adoption

SaaS products are inherently designed for accessibility. Users can simply sign up and start experiencing the product almost immediately. This ease of use makes SaaS products a natural fit for self-service models, which are fundamental to product-led growth.

Consider this: Research from Gartner shows that by 2025, 80% of B2B sales interactions will happen through digital channels. This data highlights the growing preference for self-service among SaaS customers.

Lower customer acquisition costs

PLG offers a more cost-effective alternative to traditional sales-led models. By letting users experience value on their own, PLG SaaS companies reduce their reliance on big sales teams.

The consequence is lower customer acquisition costs (CAC), a key factor for sustainable growth in the SaaS market. Instead of putting all resources into sales, companies can redirect funds towards development.

Quicker sales cycles

With a PLG strategy, users can experience the product's value firsthand. It's a better alternative to enduring lengthy sales demos or wading through marketing materials. A hands-on approach speeds up the sales cycle, leading to faster conversions and a quicker time-to-value.

When users experience that "aha!" moment early on, they are more likely to become paying customers. Research from ProductLed shows that free trials, a common PLG tactic, have a free-to-paid conversion rate that is double that of freemium models.

Less churn and more retention

Recurring revenue is the lifeblood of SaaS companies, making customer retention more than vital. PLG positions the product as the core driver of customer retention and expansion.

By focusing on delivering a valuable and engaging product experience, companies can foster long-term customer loyalty and reduce churn. When users find continuous value in a product, they tend to stick around and may even upgrade to premium plans.

A study by ProfitWell found that SaaS companies investing in customer research, a key aspect of understanding user needs in PLG, grew 2-3 times faster than those that didn't. This insight underlines the importance of prioritizing user experience and customer success in a PLG model.

Key metrics to measure in a PLG strategy

In SaaS, data is king. You need to track the right metrics to grasp how your product-led strategy is performing and identify areas for improvement. Here are the key metrics that every PLG SaaS company should be monitoring:

Product adoption rate

Product adoption rate measures how quickly users sign up and start using the core features of your product. It's a vital indicator of how effectively your product attracts and engages new users. A high adoption rate suggests that your product is intuitive, valuable, and easy to get started with.

Here’s how to measure it: Track the number of new users who sign up for your product and the percentage who actively engage with key features within a specific timeframe.

You can calculate it like this:

Product adoption rate = (number of new users who use key features / total number of new users) x 100

Why it's relevant: In a PLG model, quick adoption is crucial for showing value and encouraging users to continue exploring your product.

Customer activation

Customer activation is the moment when a user experiences the core value of your product. It's that "aha!" moment when they realize how your product can solve their problems and improve their lives.

How to measure it: Define specific actions that show a user has experienced the product's value. Think completing a key workflow or using a certain feature. Track the percentage of users who reach these milestones during the onboarding phase.

Why it's relevant: Activation is a critical step in the user journey. It signifies that a user has moved beyond initial exploration and has recognized the potential benefits of your product.

Conversion rate

Conversion rate is the percentage of free or trial users who convert into paying customers. It's a crucial indicator of your product's ability to demonstrate value and drive monetization.

How to measure it: Divide the number of users who convert to a paid plan by the total number of free or trial users.

Here's the formula:

Conversion rate = (number of free/trial users who convert to paid / total number of free/trial users) x 100

Why it's relevant: A high conversion rate signifies that your product effectively showcases its value and encourages users to invest in its continued use.

Expansion revenue

Expansion revenue focuses on the increase in revenue generated from your existing customer base. This revenue can come from upselling, cross-selling, or offering extra features to your current users.

How to measure it: Track the revenue generated from upgrades and add-ons within your existing customer base.

Why it's relevant: In a PLG SaaS model, expansion revenue is a key driver of sustainable growth. It shows that your product continues to provide value and meet the evolving needs of your customers.

Customer Lifetime Value (CLTV)

CLTV measures the total revenue you expect to generate from a user throughout their relationship with your company. It's a crucial metric for understanding the long-term profitability of your PLG model.

How to measure it: A simple approach is to divide the average revenue per user (ARPU) by the customer churn rate. Remember, this is just one approach, and there are various ways to calculate CLTV.

This formula can be represented as:

CLTV = ARPU / customer churn rate

Why it's relevant: CLTV helps you assess the overall health and sustainability of your PLG strategy. A high CLTV indicates that your product is not only attracting customers but also retaining them and driving long-term value.

Best practices for implementing a PLG strategy

Successfully implementing a product-led growth strategy demands a thoughtful and proactive approach to product development, user experience, and ongoing engagement. Here are some best practices to guide your PLG journey:

Tip 1: Simplify product onboarding

As we discussed earlier, frictionless onboarding is essential. It's equally important to ensure new users experience quick wins during those initial interactions. Guide them towards actions that deliver immediate value and demonstrate the core benefits of your product.

For example, instead of overwhelming new users with a long list of features, guide them toward a specific workflow that solves a common problem.

This guidance could involve creating a tutorial, highlighting a key feature, or offering a template. By helping users achieve early success, you increase their engagement and encourage them to explore further.

Tip 2: Iterate based on user feedback

A successful PLG SaaS strategy is built on a foundation of continuous improvement. Regularly collect and act on user feedback to refine your product and enhance the user experience.

Actively solicit feedback through in-app surveys, feedback forms, or user interviews. Analyze the data to identify pain points, areas of confusion, or unmet needs.

Use these insights to inform product development decisions. Then, you can focus on improvements that address user concerns. By showing that you value user input, you foster a sense of community and build trust with your customers.

Tip 3: Offer clear upgrade paths

Users need to understand the value proposition of your premium features or higher tiers. A freemium or free trial model is crucial for attracting users. Keep in mind it's equally important to provide clear and compelling upgrade paths.

Communicate the benefits of upgrading, highlighting the extra features users can unlock. Consider offering personalized recommendations based on user behavior. By highlighting the value of premium offerings, you can drive monetization and increase revenue.

Tip 4: Optimize for viral growth

Viral growth can be a powerful engine for PLG SaaS companies. Design your product with features that encourage sharing and collaboration.

Optimizing for virtual growth could involve letting users easily invite colleagues or friends. It can also mean incorporating social sharing buttons or creating a forum where users can interact and support each other.

By making it easy for users to spread the word, you can amplify your product's reach and speed up growth.

Tip 5: Leverage data to refine your PLG strategy

Data is the lifeblood of a successful PLG strategy. Track in-app behavior, analyze user flows, and monitor key metrics to identify friction points and opportunities for improvement.

Remember: Use product analytics tools to gain insights into how users interact with your product, where they drop off, and what actions lead to conversions.

These insights can help you optimize onboarding flows, refine feature sets, and tailor the user experience. Following this tip means you can make sure your PLG strategy is constantly evolving and improving by making decisions based on cold hard data.

How usage-based billing platforms support PLG strategies

Usage-based billing is the ideal sidekick for product-led growth. It's a pricing model where customers pay only for what they consume, aligning perfectly with PLG's focus on user-driven adoption and value realization. Let's explore how these two work together in harmony:

Reason 1: Aligning pricing with product usage

Traditional SaaS pricing models often involve fixed monthly or annual subscriptions, regardless of how much a customer actually uses the product.

Usage-based billing flips this strategy on its head. Customers pay only for the resources they consume, whether it's the number of API calls, storage space used, or features accessed.

Users have control over their costs and only pay for the value they receive. The barrier of upfront commitment is gone, encouraging users to try the product and experience its value without feeling locked into a fixed contract.

Reason 2: Scalable growth with usage-based models

Usage-based billing models ensure the product scales with users' needs as they adopt more features or increase their usage. A natural path for both customer retention and expansion revenue is established.

Users are more likely to increase their consumption when they see a clear correlation between their usage and their costs. They do this knowing they have full control over their spending. Organic growth drives revenue expansion without the need for aggressive sales tactics.

Reason 3: Incentivizing product usage

PLG SaaS strategies can encourage customers to use the solution more often  with usage-based billing. Customers are incentivized to explore the product's full capabilities and derive maximum value from it since they only pay for what they use.

You’re forging a more natural path to upselling and account growth. As users become more engaged and reliant on the product, they are more likely to upgrade to higher tiers or access premium features to meet their growing needs.

Next steps: Why and how Orb’s usage-based billing can help

We've just explored the ins and outs of PLG SaaS strategies. Successfully implementing a PLG strategy requires more than just building a great product. You need a billing infrastructure to support your growth and empower your users.

That's where Orb comes in.

Orb is a done-for-you billing platform that excels at managing real-time usage data with flexible pricing options. We help you fully implement usage-based billing as part of your PLG strategy.

We also handle everything from pricing and invoicing to reporting and analytics. The goal? Helping you focus on building an exceptional product and delighting your customers. Perplexity and Vercel trust Orb to power their billing engines and support their rapid growth.

How Orb simplifies your SaaS billing for PLG:

• Usage tracking: Orb's metering infrastructure provides a single source of truth for your usage data. We connect product usage with billing in one platform. Our platform eliminates the need for different analytics tools and gives you visibility into user behavior.
• Flexible pricing models: Orb allows you to implement a variety of pricing models, from volume discounts to prepaid credits. You can easily try out different pricing strategies and tailor your billing to your customer's specific needs.
• Accurate invoicing: Orb generates clear and accurate invoices, providing transparency for both you and your customers. Automated invoicing and payment processing streamline your billing operations and reduce manual effort.
• Powerful reporting: Gain deep insights into your billing performance with Orb's complete reporting and analytics. Track key metrics, identify trends, and make data-driven decisions to boost your revenue and reduce churn.
• Seamless integrations: Orb integrates with popular payment gateways. We help you set up a billing engine that lets you accept payments from customers worldwide. We also connect with other essential business tools like QuickBooks and Segment.

Give Orb a try and explore our 30-day free trial to experience the benefits firsthand. Check out our flexible pricing options and find a plan that fits your SaaS company's needs and budget.