In the realm of Software-as-a-Service (SaaS), keeping pace with the changing dynamics of customer attraction, engagement, and retention is crucial. As traditional sales-led approaches are being eclipsed, a more user-centric model known as Product-Led Growth (PLG) has come to the forefront.
In a recent episode of Lenny's Podcast, Elena Verna, a seasoned SaaS growth expert, delved into the intricacies of transitioning from a conventional sales approach to a product-led strategy. She discussed how this transition not only optimizes the user experience but also maximizes conversions and drives sustainable growth.
In this post, I'll share my notes and takeaways from this illuminating podcast. We'll explore the role of marketing in crafting a product-led pipeline, the importance of monetization awareness, the strategies to set and achieve revenue targets, and much more.
Whether you're an experienced SaaS veteran or new to the field, these insights from Elena Verna will provide actionable strategies to help propel your SaaS venture towards a successful product-led future. So, are you ready to dive in? Let's get started!
Importance of Marketing in Product-Led Growth
Marketing is crucial in the development of a product-led pipeline. This is because marketing serves as the educating force behind the brand, leveraging techniques such as account-based marketing to target specific customers.
Collaboration between Marketing and Product Teams
A successful product-led growth strategy requires close collaboration between marketing and product teams. The aim is to bring the brand enablement feature set on self-serve, which allows customers to understand and use the product independently. This collaboration should then be brought to the sales team to align efforts across the board.
Disruption of Traditional Sales by Product-Led Sales
Organizations that rely solely on top-down sales methods are at risk of being disrupted by those employing product-led sales strategies. This is because product-led sales focus on demonstrating the value of the product first, which can be more appealing to customers.
Setting Revenue Targets for Product
Defining a revenue target for a product involves determining key performance indicators (KPIs). For self-serve revenue, these should include the rate of free users converting to paid (free-to-pay conversion) or trial users converting to paid (trial-to-paid conversion).
It's also essential to look at the mix of packages being purchased, the average revenue per user (ARPU), and retention rates. These metrics can show you where the friction is: in acquiring a paid user, in maximizing the value of that user, or in retaining that user over time.
Improving Free-to-Pay Conversion
Often, the largest opportunity to drive revenue is through increasing free-to-pay conversion. This is assuming the product has a good fit in the market and solid retention. To do this, you should focus on three pillars: monetization awareness, conversion optimization, and providing an appealing product.
Monetization awareness is typically the most crucial aspect. Most free users of a product aren't aware of the benefits of the paid version. It is the product's role to communicate this value through feature walls, usage walls, and trials.
Examples of successful monetization awareness tactics include Slack showing message limits and SurveyMonkey using consistent UI triggers.
Conversion Optimization and Reducing Friction
Optimization of the conversion process involves creating a seamless user experience, especially at the checkout page. This could mean reducing the number of steps to checkout, simplifying the information required, or clarifying the benefits of conversion.
Selling a Desirable Product
The last pillar is ensuring what you're selling is something people want to buy. This involves considering the features in each plan, the price point, the upgrade path, and whether you have strategies for add-ons and moving customers from one paid plan to another.
Product Qualified Accounts (PQAs) in Product-Led Sales
PQAs are an important metric in product-led sales. They indicate a user or account that has demonstrated enough engagement with the product to be considered a high-quality sales lead.
Defining a PQA target should be more of a conversion rate target. You should track how many teams within your ideal customer profile segment are active and how many of these are reaching the PQA target.
Monetization awareness can be tracked qualitatively by running surveys and asking customers about specific features. Alternatively, you could track how many users land on the pricing page.
Design Reviews from Different Customer States
Functionality should be reviewed from every state of the customer journey: free state, lower paid state, and the target paid state that the functionality aims at. This ensures that all customers, regardless of their payment status, have a coherent and beneficial user experience.
Sales Interactions in Product-Led Sales
In a product-led sales approach, sales interactions should not be disruptive but rather add value to the customer journey. Understanding the right triggers and usage patterns can help automate the qualification process, similar to automating SDR efforts, to determine when it's the right time for sales to engage.
Generally, it takes 12 months or more of product usage before a user is ready to engage with a sales person. However, some high intent buyers may be ready within a week.
Onboarding and User Profiling
Onboarding is a critical opportunity to profile users. Questions asked during this process should be limited to three or four screens and should only ask for information that will be used in customer segmentation to personalize messaging and experience.
Key questions include company size, the department the user is from, their seniority on the team, and their use case. Optional information like phone numbers should be tested before making them mandatory.
Understanding Conversion Rates
Premium conversion rates typically hover around 5%, while trial conversions are closer to 10 or 15%. Product-led sales conversion rates are similar, but contract values tend to be higher due to the nature of product-led sales emphasizing value first.