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Product-Led vs. Sales-Led SaaS Growth - or both?
Is product-led growth the holy grail for B2B SaaS startups? What about the traditional sales-led approach?
Product-Led vs. Sales-Led SaaS Growth - or both?
In the early days of (B2B) SaaS, most companies followed a traditional sales-led growth approach. Nowadays in 2022 product-led growth seems to be the holy grail for most startups.
But both strategies - product-led vs. sales-led - are valuable and don’t exclude each other, most successful companies rely on both at the same time. Implemented the right way it can accelerate your SaaS growth.
The decision if you should follow a product-led growth vs. sales-led growth vs. hybrid model (combination of both) is based on:
how your customers actually want to buy your product (not what you personally prefer)
the complexity of your product // how easy can you deliver the value
the complexity and length of the buying process
the price point of your product
The more complex the product, the longer the sales cycle, and the more expensive your product, the better is a sales-led strategy for you (and vice-versa).
What is product-led growth?
Product-led growth means that your company's growth relies solely on product usage (how your customers experience and interact with your product, including acquisition, activation & retention). This means no sales touch is involved and in-product features/experiences (e.g. share, invite, collaborate...) are the main drivers for growth.
The user is led to the aha moment (meaningful experience with your product) in a self-service way (no interaction with sales).
Product-led growth is ideal (and therefore also mostly used) for products that are not too complex and have an easy buying process. Product-led is also rather rare for products in the enterprise market. Most product-led products are self-service products in the SMB and mid-market.
Examples of product-led growth products:
designing a new website (and then pay to publish the website to your domain) - Webflow
sending chat messages to friends/colleagues (and then pay for unlimited messages & storage) - Slack
creating first notes and databases (and pay for team workspaces) - Notion
sending your first email campaign/ newsletter (and pay for more contacts) - Mailchimp
hosting a first online meeting (and pay for longer meetings) - Zoom
What is sales-led growth?
Sales-led is rather the traditional way to sell software, but it’s still alive and very much valuable for longer sales cycles, complex products, or when your target audience wants it.
While product-led means that potential customers don’t need any interaction with sales to get started with your product, sales-led growth puts human interaction at the center. This means that your potential customers can only purchase your product and use it after human interaction with your company (mostly with the sales team).
While in product-led ventures ‘free trial’ or ‘get started’ are the dominant call-to-actions, in sales-driven organizations ‘request a demo’ or ‘talk to sales’ are dominant. The objective is to have a conversation with the potential customer, and show them the value of the product in sales meetings/demos with a value-based selling approach (not selling features).
The users can mostly (only) interact with the (full) product after they had one (or more) sales meetings and signed the contract. And then a dedicated account manager or customer success manager helps you with the implementation and go-live.
What is a hybrid model?
To launch and grow your business it’s recommended to focus on one of the strategies (product-led or sales-led). But over time it makes sense to invest in both strategies and run a hybrid model.
The hybrid model means that both strategies are used in parallel. As said above, product-led and sales-led do not exclude each other, they can work well together.
Running a hybrid model makes sense if you start to expand your business upmarket (begin to hunt bigger accounts) or downmarket (expand to hunt smaller accounts).
Here is how most (successful) startups use both strategies in parallel:
They offer different experiences based on the customer profile (e.g. sales-led for enterprise customers vs. product-led for SMB customers). This means:
having 2 types of call to actions buttons on the website for specific customer profiles
asking segmentation questions in the product onboarding and offer based on that specific onboarding journeys
offering different levels of support & guidance
They use both strategies at different stages in the customer journey. Mostly, if new users show a specific activity in the product, they become qualified and get approached by sales (sales-qualified leads SQLs or product-qualified leads PQL).
In those cases product-led and sales-led work hand in hand. But make sure that you define the customer journey well in advance.
What’s important for both strategies
In the following, I will share with you what’s vital for both strategies (especially for product-led growth).
In case you want some more detailed information on one or more of them, please let me know and send me a message.
#1 Add sales if you’re product-led
If you currently purely focus on product-led growth, start to slowly add sales activities to your growth strategy (especially if you want to expand upmarket). This could involve the following steps:
start to upsell your existing customers:
upselling to a higher tier
upselling to an annual contract
upselling or expansion to a new product
add first sales activities in your funnel:
offer demos to SQLs
outreach to A-leads and offer them extra support
offer new sign-ups a premium onboarding
call promising leads and follow up with them
add outbound sales activities to your growth strategy
#2 Add product-led if you’re sales-led
Think of ways how your potential customers can explore your product and experience value already early in the customer journey without any human interaction. Depending on your product, this could mean:
offering more free available product information (e.g. demo videos, product webinars, test environments...)
offering free trials of your product
offering a semi-automated self-service onboarding
offering a no-touch self-service onboarding experience (for specific customer segments)
For tip #1 and tip #2: Always master one strategy first before you add the other one.
#3 Focus on a smooth and value-focused activation
When you follow a product-led self-service growth, your goal needs to be to get new signups to the desired behavior (aha-moment) as fast as possible. This means first of all that you need to know what’s the aha-moment of your product (that’s when new users experience the value of your product).
When you know the aha-moment, you can start to design a powerful onboarding experience around it. The onboarding needs to be:
easy to understand (e.g. use product tours, academy videos, in-product messages, checklists & triggered emails...)
focused on delivering value to the user fast
divided into smaller actions to ensure fast achievements (e.g. progress bars, checklists...)
#4 Know your value metric & implement a value-based pricing
Once new sign-ups experience the value of your product, they are ready to purchase. Connect the value of your product with your pricing model. It’s best if you align the customers’ interest (receiving value from your product) with your own interest (increasing revenue). Always remember: customers pay for value, not for features.
So what you need to know is the right value-metric of your product (e.g. #bookings; messages sent...) and design your pricing model based on it. This means you are scaling your revenue with your value metric (e.g. more bookings for your clients means paying more for your software = interests are aligned).
#5 Measure your conversions
You should have a close eye on the conversions of your SaaS funnel.
For product-led growth, you should track:
traffic to sign-ups
sign-ups to active users (PQLs)
active users (PQLs) to paying customers
Learn more about product-qualified leads in Beginner's Guide to Product Qualified Leads (PQL).
For sales-led growth, you should track:
traffic to sign-up
sign-up to demo booked
demo to closed-won
It’s important to clearly define the different stages in your funnel (especially what is an active user and what does paying customer mean). Everyone in the company should have a similar understanding of your funnel and its definitions.
#6 Reduce the information you ask potential customers to get started
Long sign-up forms and complicated steps to get started with your product are conversion killers.
What’s the downside of just asking for the email address? So limit the information asked in the sign-up process to a minimum and get rid of long sign-up forms.
Try to collect more information about your potential customer later in the customer journey or as part of the product usage.
#7 Offer step-by-step product tours, checklists, and progress bars
Make the discovery of the product engaging and nudge users to do the desired actions. Great methods to do so are product tours, checklists of specific to-dos, and progress bars. Customers love to see their progress in the product.
#8 Offer enough support and answers if questions arise
If users don’t understand specific features or just don’t know how to use or implement the product, you should offer users an easy way to find answers to their questions (e.g. chatbot, support chat, help center, academy...).
#9 Trigger the right messages at the right time
Don’t try to overload new users with information. It’s key to give them the right amount of information and the right time (contextual messaging). Define the key actions users take in the customer journey (e.g. sign up, the first activity in the product, aha moment reached, email opened...) and use them to trigger valuable communication - always with a clear goal in mind (e.g. test this specific feature, purchase the product, proceed with the checklist...).
Let me know about your experiences with both strategies? What are your hacks for growth?
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References: This article is inspired by Anna Talerico (Product-Led vs Sales-Led: An Introduction to Product-Led Sales), Aggelos Mouzakitis (Product-led, sales-led, or marketing-led growth: Which is best?), TK Kader (2 Types of SaaS Sales Models (How to Choose Between Product-Led Growth vs Sales-Led Growth) & Alex Morris (Product-led VS sales-led VS marketing-led VS customer-led: What’s the difference?)
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