Product-Led Growth in SaaS: Identifying the Challenges and Opportunities

You may feel like you have taken enough risks with your SaaS business so far, and for this reason, it seems better to follow the traditional sales-led growth strategy. As SaaS itself shakes up every traditional model we are used to, it’s time to look at how product-led growth can benefit your SaaS business.

What’s the Problem with Sales-Led Growth in SaaS?

There are four main problems that SaaS business owners have or are likely to experience in the future. The first is a growing competition. Customers are now seeing the real value of SaaS for their companies, and there is ample room in the market for new ideas. What’s more, is that it has become relatively cheap to develop SaaS solutions. By taking advantage of free services to create a product, development costs are kept down— encouraging more people to join the SaaS industry.

To add to increased competition in the SaaS industry, you also have higher customer acquisition costs. When looking at Facebook alone, it now costs 171% more in cost per thousand impressions than it did in 2017. So, it might be cheaper to create a product, but the competition is fierce, and the cost to race with your competitors is growing.

We also have consumers (both B2B and B2C) who are now preferring to self-educate. Gone are the days when we would sit and read a manual or software documentation. Today, consumers turn to online videos or, much more favorable, the ‘try before you buy’ to fully appreciate the product’s benefits. This leads us to the final issue— consumers are expecting to test the product during the buying process.

While we aren’t about to dismantle our sales teams and convert to the latest SaaS craze, it is worth identifying the challenges and opportunities in product-led growth.

What Is Product-Led Growth?

Just a couple of decades ago, it was a massive effort for a company to install any new software. It would have been the general manager or company owner’s decision as the cost would have been high. Onboarding would have taken months. When you look at today’s business environment, the employees often try the software for free and introduce it to CEOs. Seeing the benefits, CEOs are more inclined to upgrade to the paid versions. Take Slack or Dropbox as examples.

According to OpenView, product-led growth is a growth model focusing on the end-user. The model depends on the product itself to drive customer acquisition, conversion, and expansion.

When turning to a product-led growth strategy, the entire company turns to the product as its focus. When every team, from designers to marketing, sales to customer support, is focused on the product, companies can create an environment that is centered on customer value.

Rather than learning from online behavior Key Performance Indicators (KPIs), the product-led growth model looks at product use and customer feedback behavior.

How do companies create a product-led growth strategy?

It might seem that all you need to do is offer a trial version or freemium model so that customers can experience the product. Unfortunately, as you are looking at creating a new environment that places the product as the central focus, the steps will be more detailed.

The cycle then starts again. Designers go back to the drawing board, the marketing team markets the improvements, technical and customer support personal aid with onboarding, and you can begin to collect fresh feedback.

Product-Led Growth in SaaS: Opportunities

1. The Sales Funnel Becomes a Product-Led Growth Flywheel

Even the name is more motivating than a sales funnel! The flywheel framework gives your SaaS business a distinct advantage over competitors in terms of growth. The first stage for customers to activate the product, adopt it, and then adore it. Increased customer satisfaction encourages the advocation of your product, increasing customer acquisition.

The more a business focuses on the customer experience, the faster the flywheel starts to spin, and customers move from one stage to the next, each time gaining more new customers.

2. More Time for Onboarding

Another factor that adds to rapid growth is that you can redirect your resources to onboarding and the ability to support more customers, even on a global scale. Taking the focus off sales-led growth means you don’t need to invest as much time—or money into developing and training your sales team.

Being able to dedicate more time to onboarding is going to improve the customer experience. They will be able to start getting the maximum benefits from the product sooner, which will, in turn, be reflected in your flywheel.

3. Lower Customer Acquisition Costs

When the focus of everyone is on an excellent product, there are two benefits. As previously mentioned, onboarding is straightforward because the user experience is optimal, and customers can self-learn. It also means there are fewer hiccups related to the product. You will find that you don’t need such a large team to get the same work done. In 2019, Ahrefs was able to generate $40 million ARR with just 40 employees. Smaller teams lead to higher revenue-per-employee. Fewer expenses lead to lower customer acquisition costs.

4. Sales and Marketing Teams are Aligned

Approximately 70% of online businesses fail because of bad usability. Though this isn’t specific to SaaS, it does show the correlation between expectations and reality. Huge customer frustration is when the sales and marketing team don’t deliver the expected product. Product-led growth is based on all teams focusing on the product. Teams are more aligned, and customers get what they are expecting.

Product-Led Growth in SaaS: Challenges

The positives will most likely outweigh the negatives for the majority of SaaS businesses. However, some SaaS providers may run into some challenges in the following cases:

1. When the product isn’t simple

Naturally, you will aim to make a product as simple as possible, but solutions might become more intricate when the problem is complex. A product-led growth strategy’s success depends on the customers being able to use the software with little interaction from the support team. When customers start running into their own challenges, it’s hard to move onto the “adore” stage of the flywheel.

2. Advocation and the viral loop

When a customer tries your SaaS, the viral loop likes it and recommends it to a friend who then tries it, likes it, and so forth. It’s a free form of advertising and greatly contributes to sales growth. PayPal is an excellent example of using the viral loop to boost sales. If your product isn’t one that is naturally viral, you may struggle to see the same growth.

3. You don’t offer a freemium or free trial.

There are many factors to debate when it comes to offering a free trial or freemium. What is relevant to the product-led growth strategy is that without this type of try before you buy, you won’t be able to gather the necessary user data and feedback. This data can be shared across all departments to improve and maintain focus on the product.

The Challenges and Opportunities of Product-Led Growth in SaaS— Conclusion

The product-led strategy is not new, nor has it reached maturity. It does seem to be the latest buzz in the SaaS industry and for a good reason. Since the global pandemic, SaaS companies are excelling, another reason why competition is increasing. SaaS business owners have to be willing to adopt new strategies to match the competition and surpass it. There is still room for sales-led growth, but you may be running the risk of being too slow in a world and industry that changes so quickly.

By turning your focus onto the product and the customer experience in a continuous cycle rather than a funnel, the UX you provide will stand out from your rivals. Furthermore, you are able to reduce customer acquisition costs, lower your churn rate, and experience faster sales growth. Instead of investing in larger teams, you can reinvest in new products that will also solve customer needs and meet expectations.