And for good reason: PLG companies have the opportunity to grow extremely quickly with extreme efficiency.
But finding success with a product-led model is growing increasingly difficult. A free offering is no longer a differentiator–especially as larger, well-capitalized businesses throw their hats in the PLG ring. Those legacy businesses are finding out the hard way that you can’t simply slap a “Try Now” button on a low-value tool and drive qualified leads directly to the sales team. Product-driven conversion rates can be hard to swallow, especially for seasoned SaaS execs, because they tend to be significantly lower than sales-led rates.
If the big guys are having a tough time, it goes without saying that most startups are struggling, too.
So, how can early stage founders stand out? This year, we broke out some of the top PLG companies that responded to our survey so you can understand how your own product compares–and how you should build your product to reflect the user’s journey–NOT your sales funnel.
We surveyed more than 450 practitioners and segmented respondents into four product experience categories:
This year, more respondents than ever had a freemium or free trial product experience. This is our first year where the majority of respondents are product-led.
The number of respondents with more than $10m in ARR has nearly doubled year over year.
That scale can be hard to keep up, so as a result, the percentage of fast-growers–those growing at more than 100% annually—has dropped.
Since we began to publish the product benchmarks report three years ago, we’ve measured product-led adoption across respondents. It’s grown from 45% to 55% since 2019. Meanwhile 61% of companies in the Cloud 100, which recognizes the top private software companies, now have a PLG strategy.
PLG tactics like making your product easy to use, introducing a free product, or allowing users to self-serve are quickly becoming an expectation, not differentiators.
Why is PLG so popular? First off, today’s most successful companies are adopting PLG, leading others to try to mimic their approach. Respondents at product-led companies, especially those with a freemium model, are over 2x more likely to be growing quickly (100%+ year-over-year revenue growth) than sales-led models.
There's a misconception about how easy it is to become self-service if you didn't start out that way. It goes something like this: ‘I'll just put a self-service signup form on the front end of my product and offer a free tier, and then boom! Now I'm product-led.’
Dave Grow CEO, Lucid
Trying to simply achieve short term monetization with PLG can lead to an awkward user experience.
Organizations frequently use ‘free trials' disguised as opportunities to collect users’ personal information so that they can be relentlessly pursued by a salesperson. In that case, the free trial is lead generation masked as a product interaction.
Real success for freemium product experiences–and even some great trials–comes from providing value to those users before asking them to pay. In return, these users not only become leads for your business, they become advocates for your product! Your successful users become your best marketing asset through virality and word-of-mouth adoption. More on that later.
The typical go‑to‑market playbook SaaS experts used to follow isn’t as relevant as it used to be. Why? Because it assumes that prospective customers will only encounter the product with a sales or customer success representative alongside them. Since PLG products enable users to discover, try, and buy on a self-service basis, the standard “sales funnel” is no longer accurate.
Look, the data is clear: PLG products, especially freemium PLG products, see lower conversion rates compared to traditional sales-led products. With low signup or conversion rates, it’s extremely difficult–if not impossible–to make high cost-of-acquisition channels work for these tools.
Instead, start with an organic and viral acquisition strategy that targets users rather than just executive buyers. The name of the game is to become discoverable everywhere your users spend time whether on Google, in their chosen communities, or even inside of other products. The best freemium businesses generate the lion’s share of their new users through organic search (53%) and product-driven referrals (13%) rather than paid advertising (10%) or outbound sales (8%).
Standout PLG companies (those with >$30M in ARR) tend to have a high percentage of leads coming from product-driven referrals and organic search. As these companies have matured, they’ve made investments to ensure that other channels work in their favor—growing their partnership and marketplace acquisition engines quite a bit.
Not all paid marketing is created equal. B2C social advertising channels like Instagram, TikTok, and paid influencers are frequently leveraged by freemium and free-trial software models–with TikTok and influencers the most unpenetrated channels. These channels help you reach an end user audience at a relatively affordable cost (for now at least!)
Understand your ideal mix per channel based on company stage and ideal customer when you download the full report.
Some founders may believe that adopting PLG means that there’s less of a need for marketing–especially the less tangible aspects of marketing like positioning and messaging. But your brand, and the first impression you give a prospective user, matters more than you may think. In fact, PLG increases the importance of these practices because you have to earn the user’s trust in order for them to devote time to giving your product a try.
In this year’s survey, we asked respondents about their first go‑to‑market hire. Turns out, when marketers are the first go‑to‑market hire, the conversion rates from visitor to free signup are the highest. Why? Because these marketers are most likely tackling fundamentals like positioning, identifying the jobs-to-be-done of core user groups, and writing copy that entices prospects to sign up.
As you optimize for user signups on your own website, it’s important to keep these key PLG brand principles in mind:
Activation is the moment when your product delivers on the promised value. The metric you choose for activation is specific to your product and your product alone—it’s not a one-size-fits-all metric, which makes it very challenging for organizations to settle on and adopt. Amplitude calls it the product’s “North Star” metric. For companies without strong product telemetry, adopting an activation metric is even more challenging.
Whatever cool features you've built won't matter if your activation doesn't work.
Hila Qu Former Director of Growth, GitLab
The vast majority of standout product-led businesses actively monitor activation as a key metric, as do most freemium and free trial organizations we surveyed.
To understand how activation rates look for collaborative vs. single-player products at all sizes and stages of growth, check out the in-depth report.
Only 5% of all freemium signups convert from free to paid. With that success rate, you can't afford to reach out to everyone who signs up—yet still, almost one-third of freemium companies do just that.
One solution is to create a product-qualified-lead metric (PQL) for your team to focus on the accounts that make sense for your business. PQLs lean in on product data to correlate product behaviors with a users’ propensity to convert, helping you improve focus and deliver a better customer experience.
Unfortunately, our general pool of respondents still do not use PQLs. 45% of freemium companies have them and 19% of sales-led companies do. The majority of standout PLG companies, on the other hand, do have a PQL metric.
Want data on how sales and customer success activity impacts conversion? Download the report to learn more.
Product-led businesses typically have above-average net-dollar retention rates. An individual free user might turn into a team account and then a large enterprise deal if given enough time. But low initial contract sizes mean that it’s not a great investment to spend time on 1:1 customer success efforts or churn reduction.
Instead, product-led businesses ought to focus on usage retention—the percentage of freemium users who are still active in the product after signup–typically measured on a cohort basis. Stickier products have much greater potential to ‘go viral’ inside of a customer. Freemium businesses that took our survey have on average a 30-day retention of 20%. That means 20% of users are still “active” (however respondents define it) in the product a month after signing up.
Standout PLG companies that took our survey see similar rates—16% of users were retained on average.
In our diligence of PLG companies, we’ve seen a direct correlation between usage retention and conversion rate. It’s a no-brainer–the more people keep coming back and using the product, the more value they will see in it. There are a number of ways you can hack usage retention:
Outreach to users–and who it’s performed by–can make or break your usage retention. Download the full report to understand which tactics work best.Download the Report
Follow the New User Journey and start building products people love. Don’t forget to download the full report for even more objective data that lets you see how your company stacks up.
Note: Some of the companies referenced in the report are OV portfolio companies. For a full list, please see our website. Also, OpenView is the source of all the data featured in this report, unless otherwise specified.