In today’s market, B2B SaaS companies are expanding through product-led growth. But how do they retain their new customers and get them using their product consistently? The answer lies in product-led customer success.
Buyers want to self-educate—nearly 75% of B2B buyers now say they’d rather buy through an app or website, rather than a salesperson. And personalization is expected—not only are 80% of people more likely to do business with a company that offers personalization. On top of all that, people now want immediate gratification and quickly give up on products that don’t provide it—for instance, 21% of folks open up a mobile app once and then abandon it completely; by the 90-day benchmark, 71% of app users will have churned completely.
The fact is, an outstanding customer experience has always been key to success. Once that experience was owned by sales. If you wanted to buy a new product, you talked to a salesperson. If you were lucky, they were knowledgeable and empathetic and helped you buy the best product for your needs. With the internet came a growing ability for early digital marketers to measure results and to own growth metrics like engagement and acquisition.
But people don’t want to interact with salespeople or marketing campaigns anymore—not at the expense of actually getting to experience the product they’re buying. To keep up with the market and get ahead of the curve, businesses must reshape their marketing, sales, and service strategies and fundamentally rethink the roles of their customer-facing teams.
Startups are more expensive to grow.
In one sense, this is counterintuitive: It has never been cheaper to build a SaaS company.
However, because of this low barrier to entry, there’s no shortage of competition. As a result, argues Andrew Chen, it’s becoming more expensive to acquire customers. Just take a look at these three channels:
- Facebook: 171% Increase in Cost per Thousand Impressions, or CPM (2017);
- Twitter: 20% Increase in CPM (Q4 2017);
- LinkedIn: 44% Increase in CPM (Q2 2017).
There are other channels, of course, but these numbers hint that, well, marketing isn’t getting any cheaper. CACs have increased by over 55% in the last five years. During that same period, customer willingness to pay for features has dropped by 30%.
So, on one hand, we have rising costs; on the other, we have a lower willingness to pay. You don’t have to be a financial whiz to understand that this means your expenses go up while your profitability goes down.
If you have high churn in your business, this period might be lethal. Wouldn’t you agree?
Buyers now prefer to self-educate.
This isn’t limited to the Business to Consumer (B2C) space. Three out of every four Business to Business (B2B) buyers would rather self-educate than learn about a product from a sales representative.
Let me ask you two questions:
- Would you like to see and use a software product before buying it?
- Or would you prefer to go through a lengthy sales process to see if it’s a good fit?
If you’re like most people, you’ll opt for trying out the product on your own. This doesn’t apply just to small and mid-size businesses. Enterprise buyers also expect to try and evaluate software in an easy, frictionless way.
Trying out a product through a free-trial or freemium model is less hassle and can help you decide quickly on a product.
Product experiences have become an essential part of the buying process.
If you’ve used Netflix, you’ve witnessed this first-hand—you didn’t need to reach out to a sales rep or book a demo before you were able to watch and eventually buy the service. The entire onboarding and upgrade experience was handled by the product.
No need for human intervention. Now, that’s not to say that product-led companies don’t need sales reps. But your product needs to do the heavy lifting when it comes to getting new users up to speed.
These waves aren’t stopping anytime soon. They’re here to stay. Consumers (like us) demand it. Your SaaS business might be able to weather one of these waves, but do you really want to take a chance on surviving all three?
To put your SaaS business in the best position to win, you need to pick a go-to-market strategy that will place your business on high ground.
The business benefits of PLG
An end-user focused growth model isn’t just good for end users; it’s also good for business.
Today, there are 21 large public companies with a PLG model—including all of the top IPOs in 2020. That number continues to rise as more PLG companies IPO each year.
What’s more, PLG companies perform better than their peers post-IPO. That’s because product-led businesses grow faster at scale.
While growth may be comparatively slow in the early days, we suggest that once PLG companies hit the $10M ARR mark, they tend to scale faster than their peers. Why? Product-led growth companies aren’t artificially constrained by labor-intensive lead generation, sales, and customer success processes—meaning they can stay in hyper-growth mode at scale. They can grow more efficiently as well, maintain a lower-than-average CAC payback.
No wonder, then, that the median enterprise value (EV) of PLG companies is 2X higher than the public SaaS index as a whole.
To date, PLG has created more than $208B of market value—and we’re still seeing exponential growth.
A few product-led growth metrics
What are you really measuring in a product-led growth model?
Trial-to-paid conversion rate
The percent of users that go from a free trial to a paying customer. This also applies to freemium.
Conversion rate is an important KPI for any business.
How many people go from X activity to being a paying customer?
No business is a stranger to that question. Trial-to-paid conversion rate puts a product-led growth spin on it. By focusing on the number of trial and/or freemium customers that are converting to paid, you have a much better sense of:
- Whether or not your Marketing and Sales outreach efforts are targeting the right people
- Whether or not your onboarding is pushing users to first value
- The overall value users are getting from your product
In short, if your trial-to-paid conversion rate is high, you’re doing great. Keep it going, but consider making some tweaks if you want to optimize. If it’s not so high, you might need to look at places you can make substantial changes so users find enough value during their trial period.
A measurement of how far along a user or account is in their journey toward “first value” or the “aha” moment where they realize how great your product is.
Start with a list of actions a user would need to take to get set up and get value out of your product. It’ll vary based on your product. You should try to stick to 5-10. This is your Activation checklist.
Activation rate is just the percent of those checklist steps that are completed. You can measure it by user, by account, or for your product as a whole.
Activation rate works in conjunction with other product-led growth metrics. When paired with trial-to-paid conversion rate it can tell you how well you know and understand what it means to find value in your product. When paired with engagement and leads, it can tell you who is and who is not a Product Qualified Lead for your product-led business.
The percentage of your customers who cancel or don’t renew their subscriptions during a given time period
Overall, these metrics measure how happy users are with your product in the long term. While hitting first value early is a great indicator of how likely customers are to stick around, nothing says staying power like a customer that actually stays.
The emphasis placed on churn and retention rates is just one more way in which product-led growth puts the product front and center. You have to work to win over your customers every term or they’ll go to the competitors. That means focusing on new features, bettering the features you already have, or increasing engagement with the product. Since customers aren’t signing long-term deals, their choice to stick around shows your product is still delivering value in the long term.
A measurement of how much a user or account is using your product
A unifying element among all product-led growth metrics, engagement score tells you how engaged users and accounts are with your product.
If you look at engagement score at the user-level, you can see which users on an account will be internal champions when the time comes. If you look at the account-level, you can see which accounts are at risk, ready for an upsell, or need to adopt a new feature. If you look at the product-level, you can use the engagement score trends to see how your business is doing overall.
the number of users that are active in the product for any given time period
If you follow the best practices of product-led growth, you’ve designed your product to benefit the end user. You’ve made it your primary growth channel. Understanding how many users are using the product actively for any given set of time is key to understanding if you’ve been successful in your mission to keep the focus in the right place and nail the user experience.
When Customers Succeed, Product-Led Growth Succeeds
The success of a product-led growth company is tied directly to the success of its customers. If customers succeed when using a product, they’ll continue using it—and they’ll spread the news. That’s what product-led growth is all about: ensuring that customers are so satisfied with a product or service that they become your strongest advocates. Customer success helps ensure that’s happening across the customer organization and across your entire customer base.