What should define success in a PLG model?
Product-led growth has emerged as more than just a viable go-to-market strategy, it has exploded across industries and is gaining even more traction in 2021.
The difference between a product-led approach and other strategies such as sales-led or marketing-led is that the product is the main focus and driver of user adoption.
Productboard summarizes the methodology as “make a great product, let people try it before paying, watch it go viral.”
By starting and ending with the product, those who adopt a PLG mindset and instill that vision across the organization are thriving, just look at the recent $27 billion acquisition of Slack.
But how did we get here? Focussing on the product is a great strategy, but what are the tactics that inform this process? And by tactics, I’m talking about metrics.
Metrics are a system, or standard, of measurements.
In this context, PLG metrics are the goals that an organization is trying to achieve and using to check its performance. They should be used as a cross-functional guiding light to galvanize all the different teams around.
Metrics go beyond the obvious and can get as granular as necessary, depending on the type of product you are selling. It’s not just about measuring how much or how many, they go deeper and can actually drive the success of the company.
By establishing the correct metrics for your product, you can catapult your growth.
Whilst the kind of metrics you track will vary depending on if your organization has a B2C subscription-based offering or you’re in the B2B SaaS space, we think we’ve got you covered for what to look for.
One of the primary tenets of a good product-led growth model is some kind of free offering. Whether this be a full-blown freemium account or a free trial period, the majority of product-led organizations will try and give something away for free.
Now fairly obviously, giving your product away for free isn’t going to make you money immediately, which is why the conversion rate is so important.
The conversion rate measures how many free trial users or freemium accounts upgrade to a paid account. The higher the conversion rate, the better.
You can use this to focus on where users are getting the most value from your free version, and which features in the premium offering are the ones triggering that conversion.
If the rate is low, you may need to look at the balance of features offered in your free trial and paid access. Is there not enough value in what your free trial offers, or is there too much that your premium features don’t seem a necessary purchase?
Time to value
A more granular metric that can help you better understand your conversion rate is time to value (TTV).
This is the time it takes for your product to deliver value to a user, and you should aim to make this as short as possible.
If a user has to jump through a lot of hoops, or the onboarding process is too drawn out, then that time period between them first using your product and them actually getting something from it is too long.
Getting to the activation event that makes someone realize this product is what they’ve needed should be quick and easy, aided by slick onboarding and easy-to-follow actions that can turn activation of your product into an adoption of the product.
Customer lifetime value
How much is a customer going to spend over the course of their relationship with you as a business?
Hubspot calculates this by taking average purchase value/average purchase frequency rate and multiplying that by average customer lifespan.
The answer to that question, in conjunction with your costs of acquisition, is known as customer lifetime value (CLV). This is not based on the first-time purchase of your product, but rather the cumulative total of their purchases across their time as a user.
This is crucial as it allows you to see your portfolio as an ecosystem, and can give you insights into where the upsell or cross-sell opportunities are, or should be. It also may justify slightly higher acquisition costs, if the average customer purchases more than one product or consistently upgrades their package.
You can’t please everyone. Your churn rate is the amount of users dropping out of your revenue stream by deactivating or unsubscribing from your product.
Some users will stop using your product due to factors way out of your control. However, looking at your churn rate can help you dig deeper into patterns and pain points.
Just knowing the number of users dropping off is helpful, but going further and setting up short exit surveys for these lost users will help you understand why, and allow you to do something about it.
Churn will happen, it doesn’t mean your product is bad, but if the rate is high then you need to look at which stage of the customer journey or user experience has caused someone to no longer require your product.
Daily, weekly, monthly active users
How many people are using your product every day, every week, or every month
For your business to be successful, people have to be using your product, and paying for it. If your active users aren’t getting value regularly from your product, they are potentially more likely to churn.
Of course, this will depend on the type of business and type of product you are selling, but as a rule of thumb, the greater volume of more active users you have, the healthier your organization is going to be.
You can look at ways to shift those users who are engaging with your product once a month, to once a week, by focussing on exactly where they are deriving value from and expanding those features.
Another key principle that makes up the PLG model, in particular the flywheel model, virality refers to the rate of adoption amongst new users who have been referred by, or have seen the product due to an existing user sharing it.
A simple, yet wildly successful tactic, by allowing users to easily share your product, you can measure the amount of users adopting your product due to the virality effect. Take Mailchimp as a prime example, as soon as you’ve finished a Mailchimp survey, it asks if you want to make one yourself.
Zoom has benefitted massively from this during the course of the pandemic, as each time you’re invited to a call, even without creating an account, you are deriving value from the product. Then, when it’s your turn to host the weekly lockdown family quiz, you remember just how easy and great Zoom was, and you go and create your account.
The virality metric can be viewed as the amalgamation of the other metrics being followed successfully. If the time to value is low, you will get a lot of users activating, you’ll get a lot more users period, and the virality effect is the fuse that when lit helps your product explode into the stratosphere.