editor's introduction: PLG is very effective in reducing customer acquisition costs, and can bring higher revenue and valuation to enterprises. The author of this article shared his observations and specific practices in the field of PLG, told about the advantages of doing PLG and some important points to pay attention to, as well as methods to measure whether PLG is done well, etc. Let's learn together.
Since the explosive growth of Zoom and Slack, PLG (Product Led Growth) has become popular.
Many people think that providing a free trial model is PLG, but in fact this is far from enough.
AfterShip had no marketing team or paid advertising before 2019. We relied on PLG to have 100,000 customers around the world.
So today I will share with you some of our observations and practices in the field of PLG.
1. Why to do PLG
1. PLG can greatly reduce the cost of customer acquisition
The cost of customer acquisition through various channels has increased a lot in recent years, and it is currently not seen that it will decline over time.
(Data source: https://productled.com/blog/product-led-growth-definition)
And if we can do a good job in PLG, then in the long run, we can reduce the customer acquisition cost to close to zero.
Even for large customers who need follow-up by sales personnel, if they take the initiative to come to us because they recognize the value of the product, the transaction cycle is much shorter than if our sales staff proactively go to the customer, and the customer's loyalty to the product is also much higher. .
2. Starting from small and medium-sized customers, you can get faster customer growth and higher NDR
Many people may think that all PLG can acquire are small and medium-sized customers, so there may be problems in growth and renewal.
But in reality, SaaS companies that adopt a PLG strategy do very well, both in terms of customer numbers and NDRs. In terms of the number of customers of
, as the number of customers continues to increase, the product's reputation and marketing content will continue to accumulate. Old customers of the product can continue to bring you new customers, especially products such as Zoom and Slack.
And PLG may bring not only small and medium-sized customers, but also a certain department of a Fortune 500 company.
If one department uses it, then it will be promoted to other departments. If other departments also think it is good, it will be applied to the entire company.
Therefore, in terms of NDR, even if the unit price of PLG products is relatively low, as long as the product can bring enough value to customers and increase their business, they are very willing to renew and purchase more.
Therefore, the NDR of many SaaS companies that adopt the PLG strategy is greater than 100%, and can even reach 130% (Datadog), 139% (Twilio), and 158% (Snowflake) [1].
3. PLG can bring faster revenue growth and higher valuation
PLG can bring lower customer acquisition costs, higher customer growth and NDR. These indicators will naturally affect the revenue growth and valuation of SaaS companies. value.
According to research by Openview Venture Partner, the revenue growth rate of PLG-led SaaS companies will be significantly higher than that of other SaaS companies, and the valuation the market is willing to give is also significantly higher [2].
(Picture source: https://openviewpartners.com/expansion-saas-benchmarks)
There are many different techniques for doing PLG, and there are many benefits after doing it well. I just shared a few obvious benefits above.
But in my opinion, the greatest value of PLG is that it can force the team to make a good product.
Many people actually don't realize:
If you want to do PLG well, there is essentially a major premise, that is, your product must be good enough, so good that it can convert customers into salespeople for your products.
This is like opening a restaurant. Although you can use many operational skills to grow, the most important thing is to prepare the food first.
Because only if you cook the food well, customers will consider recommending it to their friends after eating it.
And if you don't even cook the dishes well, no matter how many operational skills you use, those customers will not recommend their friends to your restaurant.
Even once your operations stop, those customers themselves will not come back again.
So if we make it clear that we need to use PLG to acquire customers when making products, then we must make sure when we first form a team and build cultural values:
The production and research team must be responsible for the product, rather than just making a product. , and then count on the sales team to sell the product.
2. What should be paid attention to when making PLG
Although there are many benefits of making PLG, not all products can be made into PLG. They must meet the following characteristics:
. The product must naturally help customers in the process of using the product. You spread the product instead of promoting it through commission discounts and the like.If your product is positioned to facilitate connections and interactions between people, such as communication and collaboration, social tools, etc., then it is very suitable to be a PLG. , such as Zoom and Slack:
If a company is accustomed to using Zoom to hold video conferences, then when they want to communicate with candidates/partners via video, they will naturally send a Zoom link, and the other party will naturally download Zoom.
For example, if a certain department is accustomed to using Slack to communicate, then when it comes to communicating and collaborating with other departments, they will naturally recommend each other to use Slack.
An example of our AfterShip product is:
Because the customers of our AfterShip product are e-commerce sellers, and an e-commerce seller will push logistics information to consumers in daily business scenarios and provide logistics inquiry pages for consumers/cooperation partner.
So we will add "Powered by AfterShip" in the lower left corner of the message push/query window.
Once someone clicks, a page will pop up to jump to our product official website, guiding him to become our customer.
There are two advantages to doing this:
- First, we can continue to strengthen our brand with other people in the business scenarios of existing customers and attract more people to become our customers.
- Second, as links to our product official website are embedded in more and more websites, the ranking of our product official website in search engines will also increase, thereby gaining more keyword search traffic.
2. The product needs to be simple enough and allow customers to feel the value immediately.
For example, for the express query function, we provide a simple and easy-to-use query page:
(Image source: https://www.aftership.com /track)
Customers do not need to register or log in to use this page, nor do they need to choose any logistics provider (we will automatically detect it).
They only need to enter the order number to see the results, and the query results are even better than those of logistics providers (we support 1,000+ logistics providers around the world and also support multiple languages).
. Free is just a means. We need to use restrictions to guide customers to pay, and the charging model should be simple and transparent.We can attract a group of potential customers through the free model, but we need to pay more attention to how to convert free customers into paying customers.
In this process, we can guide customers to pay by making it free for a limited time, free for a limited time, or free for basic functions and charged for advanced functions. There are many articles of this type on the market, so I won’t elaborate more here.
What I really want to emphasize is:
Our payment process must be as simple as possible, so simple that as soon as the customer opens the payment page, they can know what the charging rules are and how they need to pay.
(Picture source: https://www.aftership.com/pricing)
The payment steps should be as simple as possible. It is best to only need two steps:
3. How to measure whether PLG is doing well
We can pass NRG (Natural Rate of Growth, natural growth rate) to measure whether your company's PLG is doing well or not.The calculation formula of
NRG is:
NRG = ARR growth rate * proportion of natural registered customers * ARR proportion from natural registration
"ARR growth rate" refers to: (current ARR - ARR of the previous year) / ARR of the previous year .
"Natural registered customer ratio" refers to: in the previous quarter, the number of registered customers that you did not have to pay to acquire accounted for the total number of registered customers."
"The proportion of ARR from natural registrations" refers to: how much of your new ARR comes from customers who naturally register to use the product, recognize the value of the product, and then pay.
ARR SaaS companies at different stages have different NRG standards:
(data source: https://openviewpartners.com/blog/new-saas-metric)
IV. Summary
PLG is a method that can significantly reduce customer acquisition costs and improve customer acquisition costs. The speed of acquiring customers while maintaining good NDR will bring the company faster revenue growth and a higher valuation market strategy.
A major premise for doing PLG is that your product must be good enough to automatically convert customers into sales of your product.
At the same time, not every product can be used as PLG. We also need to pay attention to the following points when making PLG:
- The product must allow customers to naturally help you spread the product when using the product;
- The product needs to be simple enough , and let customers feel the value immediately;
- free is just a means, we need to guide customers to pay through restrictions, and the charging model must be simple and transparent.
Finally, we can use NRG to judge the PLG level of our company at the current stage and continuously optimize it.
Reference link:
- [1] https://www.getcorrelated.com/blog/what-is-product-led-growth
- [2] https://openviewpartners.com/expansion-saas-benchmarks
Author: Teddy Chan; WeChat public account: SaaS_102;
This article was originally published by @Teddy Chan on Everyone is a product manager. Reprinting without permission is prohibited. The
title image comes from Unsplash and is based on the CC0 license.
