Product-led Growth

Product-Led vs Sales-Led Growth: The Ultimate Guide

Ruben Vleurick
Ruben Vleurick
May 25, 2022
Product-Led vs Sales-Led Growth: The Ultimate Guide

The never-ending discussion. What is best: product-led or sales-led growth? Truth is, most likely both, and it’s called product-led sales.

TL;DR

Product-led growth companies use the product itself as a catalysator to drive revenue. Indicators are free trials or a freemium model to get accounts to value faster rather than a traditional demo. They tend to focus a lot on the user experience and measure success in metrics like product-qualified leads (PQL).

Whereas sales-led companies use a sales team to move customers through the funnel and convert them into paying accounts. They offer a demo and tend to focus on enterprise customers, have complex implementations, and measure success in sales-qualified leads (SQL).

Let’s do a breakdown, and see who is ready for product-led sales.

go-to-market saas models. product led growth vs sales led growth vs product led sales.
Source: journy.io

What is Product-Led Growth?

Product-led growth companies use their product as the primary factor to drive user acquisition, retention, and expansion. Mostly self-served, without friction and the interference of a human. The product is built and optimized for an experience where the user can easily try, buy and use the platform.

The main focus of PLG is to give value first, and charge later.

These companies have a call-to-action like “get free trial” or “start for free”.

We did a breakdown of the theory behind product-led growth (PLG), along with some examples and key metrics.  

Who is this for?

  • Capabilities to use the product in self-service
  • You can give users value, especially the ‘aha’ moment, without the interference of a human
  • You don’t require complex setup and implementation
  • Pricing is straightforward
  • The product is easy to use, hence no complicated training needed

What is Sales-Led Growth?

Sales-led SaaS companies use a sales- and marketing team to acquire and push customers through the funnel, mostly with a demo in the sales process. This go-to-market motion uses manual hands to go out and find leads and product demo requests. The relationship is mainly 1 on 1.

Call-to-action (CTA) on the website will be “get a demo” or “get in touch”.

What are Product-Led Sales and PQLs?

Product-led sales is a model used by SaaS companies that both use the product and a sales team to grow. They use self-serve, bottom-up, product tactics like free trials or freemium to convert and retain accounts after which the sales team kicks in to convert and expand the most promising clients.

There’s no human interference growing the user base, when customers are hooked to the product a sales rep is responsible to push them through the funnel.

Most SaaS companies have a CRM like HubSpot, Salesforce, or Pipedrive where sales and customer teams can find all account-related business data. The biggest issue they face in 2022 is to find a way to identify leads that have the highest chance of converting into a paying account.

This is why journy.io exists. We deliver product usage data and signals straight into your CRM.

  • Trying to find accounts that already found the ‘aha’ moment? No problem.
  • Looking for leads that used features 1 and 2, but not 3? Easy peasy.
  • Which paying client is about to churn? Shoot a notification in my CRM when the product usage drops.
  • Who needs some help onboarding? Here’s a list.

All these things (and many more) are possible with journy.io. These leads are referred to as product-qualified leads (PQL).

PQL is the new MQL

Product-qualified leads (PQL) are different than marketing-qualified leads (MQL). MQLs focus on where your lead is based on marketing and website engagement, whereas PQLs focus on product engagement.  

Definition pql: a product qualified lead (PQL) is a lead who has experienced meaningful value using your product through a free trial or freemium model.
Source: journy.io

Should I choose a Product-Led or Sales-Led growth?

Both go-to-market motions have their benefits and drawbacks. There is no ‘best’ since it depends on factors like your company stage, business model, ideal customer profile (ICP), and pricing.

If you charge $10 per month for your software, then don’t use a sales team because you will never get the unit economics profitable. A good rule of thumb to start using a sales team is for companies that have an annual contract value (ACV) of around $3.OOO or higher. But again, this also depends on your overall go-to-market strategy e.g. do you have an inbound marketing team, do you focus on land and expand, etc.

Source: Openview Partners

While some main benefits of PLG are increased time-to-value (TTV), lower customer acquisition costs (CAC), and overall scalability, we also need to mention that you probably won’t close any enterprise deals, and churn will be higher.

It’s also harder to get off the ground, while with a traditional sales model you hire SDRs and they start selling.

So how do SaaS companies like  Slack, Dropbox, or HubSpot grow so fast?
They all adopted a product-led sales strategy.

Is my SaaS model ready for product-led growth?

According to Joel York there are 3 sales models that successful SaaS companies adopt. Choosing the right one will make or break your business. Avoid the 4th ‘Graveyard’ at all times.

Here is a breakdown:

  • Self-service: a saas product with lower prices where customer acquisition, onboarding, and invoicing are done on autopilot without a human touch.
  • Transactional: hybrid sales model with a higher pricing tier compared to the self-service model. Looking at annual contract values (ACV) of around $3K to $6K. Works well in combo with automated lead generation campaigns, an inbound marketing team, and an inside sales team to convert leads into paying customers.
  • Enterprise: for higher-priced products that require a dedicated salesforce. Tend to have longer sales cycles and complex implementations.
Source: Medium

4 Key differences: product-led vs sales-led growth

#1 The customer journey

The customer journey is completely different for both strategies.

The following flow is focused on a self-serve motion.

  • Website visitor: first time someone lands on your website.
  • Leads: user signs up for an account or the newsletter and gives personal information about themselves.
  • Activation: lead starts to set up the account.
  • ‘Aha’ moment: starts using the product and sees value
  • Customer: account starts paying after seeing enough value
Source: Amplify Partners

This customer journey is built to provide a self-served, but highly valuable outcome. Some examples are:

  • Designing and publishing your website on Webflow (CMS software, only for cool companies)
  • Making and sending your first outbound sales sequences in Lemlist or Apollo.io (sales prospecting software)
  • Scheduling your social posts and publishing them on Linkedin and Twitter via StoryChief or Buffer (Content Marketing Platform. StoryChief is only for really cool companies. Try it here for free - not affiliated but we like them a lot)

Sales-assisted motion uses human touches in between

  • TOFU (top-of-the-funnel) traffic comes from the same sources, and is also helped by a sales team.
  • Leads making it to the demo and are interested in a proof-of-concept (POC), also referred to as Sales Qualified Leads (SQL).
  • Setting up the account.
  • ‘Aha’ moment.
Source: Amplify partners

#2 Lack of control vs human-controlled

There’s a huge difference in control between product-led and sales-led companies. Product-led growth has a self-serve user onboarding mechanism built within the application. While this is interesting to make the company more scalable, it also becomes increasingly harder to get a grip on users.

PLG companies have no human interaction at the beginning of the user journey, whereas sales-led companies need some kind of touch with prospects in order to push them over to a paid account. Whether this is in a demo or sales call.

Sales-led companies are winning here since they are able to personalize the
buyer journey from the beginning, by just talking to prospects and users.

#3 Target audience

Sales-led companies tend to focus on mid-market or enterprise clients. This inherently comes with longer sales cycles since there are different internal decision-makers, legal requirements, etc. Don’t expect high ticket clients to just swipe their credit cards after creating an account.

Product-led companies tend to focus on SMB clients. They significantly shorten the sales cycle since it's possible to get started within a couple of clicks.

The fastest-growing SaaS companies have a low barrier entry model where users can sign up and get value themselves. They then use a product-led sales model aka a sales team + free trial/freemium model to drive expansion revenue for the most promising accounts. An ideal combo.

#4 Focus on PQLs rather than SQLs

We already talked about product-qualified leads or PQLs. Sales qualified leads (SQLs) measure actions that are not related to the user experience in the product, but rather on the qualification of a prospect via frameworks like BANT.

BANT stands for Budget, Authority, Need, and Timing and is widely used in traditional SaaS companies to determine if prospects are a good fit.

Trying to qualify via these tactics without understanding the user on a product experience level is like running around with an eye cap on. You only see half the truth. You can identify accounts that need a certain solution, but you’re unaware if the product you are offering is solving it from a usage perspective. You basically have no clue if they (will) use the product the right way.

Consequently can it cause misalignment with the GTM team since SQLs don’t measure product growth.

The same thing applies to marketing qualified leads or MQLs. They determine buying intent based on marketing behavior like:

  • Subscribing to the newsletter
  • Downloading an ebook or guide
  • Attending a Webinar

To really understand the intent of a prospect, it’s necessary to track and see changes in its user behavior and act accordingly. Things like:

  • Account already got to ‘aha’?
  • Where is the prospect in the customer journey?
  • What is the engagement score?
  • Should I nurture them with behavior-based content?
  • How active are they?
  • Should I reach out to push them to a paying account or expansion module?

Shameless promotion: we do exactly that for SaaS companies at journy.io.

Conclusion

According to Openview Partners is only one in four companies directing their sales and customer success efforts towards PQLs. It is however essential for any SaaS company that wants to transition to a product-led (sales) approach and get away from the traditional sales model.

journy.io helps  SaaS businesses fight churn, increase user retention, and expansion revenue, at scale. Get a demo or start for free.
   
   

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