Understanding Product-Led vs Sales-Led Growth

This is an excerpt of a masterclass presented by Wesley Bush, CEO at ProductLed. Connect with Wesley on LinkedIn, Twitter and Facebook.

Product-led growth seems to be the new industry buzzword amongst SaaS companies. But what is product-led growth and why is it becoming so popular? We are going to look closely at these questions to see why your organization might want to switch from sales-led to product-led growth and how you can go about doing it.

What does it mean to be “product-led”?

Whatever product you are using on a regular basis, think about how you start your interaction with it. Whether that’s Netflix, Dropbox, or Zoom; what are the initial steps you take that get you to the point where it has solved your problem?

Product-led growth is all about thinking about how your product solves the user’s problem from the moment they start interacting with it.

Although product-led growth is talked about mainly in the SaaS space, it is a concept that you are already familiar with. Think about how you buy each of the common consumer products in the image below.

Before buying any of these products, you would want to try them: You would always smell a cologne before buying it, try on shoes or test drive a car.

You should apply the same concept to your product, because how you sell is just as important as what you sell.

Nowadays, customers trust brands less. They have heard all the marketing messages and are more sceptical about the promises brands make. Even if you hire a world-class sales team to tell people what your product can do, consumers will still doubt what they say.

Show vs Tell

The key to product-led sales is to “show” rather than “tell” what your product can do. In this way, the consumer can decide for themself. This speaks to the modern consumer and is the way more and more companies are finding success.

Think about how you are likely to sign up to a new app. Do you attend a webinar to find out about the different plans and how they can help your business, or sign up for the free version and find out yourself how it works?

Most consumers prefer the self-education option or, even better, they will take advice from someone they trust.

Why is product-led growth becoming more important?

There are three big tidal waves on the horizon that are all pointing to a future of product-led growth:

Technology is deflationary in nature

If you’re selling a tech product, you need to be aware that technology is advancing at such a rate that it is becoming less valuable all the time. In his book The Price of Tomorrow, Jeff Booth talks about how people want to pay less for their products. In just the last 5 years, what consumers are willing to pay for tech products is down by 50%.

Startups are more expensive to grow

Because startups are relatively cheap to set up and start, the competition in the marketplace is huge, making it difficult to grow and be successful.

Because of all this competition, this also means that marketing costs have gone up. Across marketing platforms such as Facebook, Twitter and LinkedIn, CPM has gone up between 20% to 171%.

In addition to that, ProfitWell calculates that customer acquisition costs have gone up 55% in the last 5 years.

As costs continue to rise and your ability to get customers to pay what you want them to pay for your product goes down, many businesses will be headed for bankruptcy if they cannot maintain profitability.

Your buyer has changed

B2B companies who are used to selling to enterprise buyers are increasingly looking at buyer profiles that are more and more similar to B2C buyers.

In B2B sales, product experiences have become an essential part of the buying process.

Why are organizations opting to be product-led?

We are seeing more and more companies changing their marketing strategy to be more product led. Even a company like Hubspot, who made their name as a successful in-bound marketing company, has doubled-down on product-led growth.

Other success stories with product-led sales include Zoom, who went from 10M to 200M daily active users in just three months, and MixMax, who managed to get to a $0 CAC (customer acquisition cost).

So, how did they do it … and why? Some of the advantages offered by using product-led growth over other more traditional methods are as follows:

  1. Dominant Growth Engine
  2. Wider Top-of-Funnel
  3. Rapid Global Scale
  4. Compound vs Linear Growth
  5. Lower Customer Acquisition Costs
  6. Faster Sales Cycle
  7. High Revenue Per Employe (RPE)
  8. Better User Experience

Dominant Growth Engine / Wider Top-of-Funnel

If you switch your landing page CTA from “Sign up to our free webinar” to “Try our product for free” you are widening your top-of-funnel and can look at increasing your sign-ups by around 20-30%.

Because you are de-risking the sign-up process for customers, you are going to get customers trying your product who are really just at a curiosity stage. If you then provide them with a great onboarding experience, many of those customers are going to end up signing up.

Rapid Global Scale

If you want to launch an ad campaign on the other side of the world, that’s easy to do with this model because you don’t need to physically meet with anyone or try to coordinate time zones. This allows you to enter markets which are less competitive or more lucrative for your business.

We saw previously that Zoom managed to increase daily active users from 10M to 200M in just three months. Now, although they were helped by the pandemic, they would have missed this opportunity if it hadn’t been for their focus on product-led growth.

To achieve that kind of growth with a classic sales model, they would need 131.944 sales reps doing 16 30-minute demos every week – that’s a total of 2M demos per day (including weekends) – and with a 100% close rate! Think how much that would have cost them!

The more expensive it is to sell something, the more expensive it is to buy.

Exponential vs Linear Growth

Another advantage of product-led growth is that it provides exponential rather than linear growth. When you are using a sales team, each new hire gives you an increase in sales and you can continue to grow in line with your sales team. With product-led sales, your business growth compounds over time because your costs stay the same.

These are just some of the advantages of product-led growth; to find out more about all the ways that a product-led mindset could benefit your company sign up to our Insiders program.

How do you build a successful product-led business?

This isn’t about just replacing the sales team and investing in your product team. It takes an entire organization to make product-led growth work, and every team needs to start looking at things in a product-led way.

Your users’ success will eventually become your success.

You won’t need to push customers to upgrade to a paid model because they’ll do it by themselves.

No matter how big or small your company is, this model can work for you. Product-led growth is actually much more accessible for small businesses than classic sales-led growth because you don’t have to invest in costly sales and marketing activities which often don’t give you results. By focusing on your product and your users, you are investing wisely in your future.

In addition, small businesses are often closer to their customer base, and so you intuitively already know what your customers want.

For more information on product-led sales, you can sign up to Wesley’s Product-Led Growth Certification Program

Leave a Comment

Your email address will not be published. Required fields are marked *

Show Buttons
Hide Buttons
Scroll to Top