Imagine a world where your product takes center stage, captivating prospects without a single sales pitch. This isn't just a dream for many top-tier SaaS companies; it's their origin story. Without traditional sales teams, these innovators have carved out market dominance. But how?
Traditionally, sales-led growth has been the driving force behind SaaS success, combining aggressive sales tactics with personalized customer engagement to fuel rapid expansion and solidify user loyalty. However, the tide is turning, and product-led growth has entered the stage, offering a compelling alternative that's reshaping the industry's approach to scaling.
This evolution prompts a crucial question: which growth strategy is the right fit for your company?
In this guide, we’ll break down the difference between product-led growth vs sales-led growth. You’ll learn the advantages (and differences) to clarify which is best for your business.
Product-Led Growth vs Sales-Led Growth: What’s the Difference?
Want to know the difference between product-led growth (PLG) and sales-led growth (SLG)? Here are the two models (and a third option) with examples of companies in each category.
What Is Product-Led Growth?
In 2022, nearly 60% of SaaS companies launched a product-led growth strategy. But what exactly does “product-led” mean?
The essence of product-led growth lies in its name—growth propelled by the product. This user-centric model prioritizes the product experience above all, leveraging it as the primary driver of customer acquisition, conversion, and expansion. It's an approach that diminishes barriers, allowing potential users to experience the value of a product firsthand through a self-serve model.
Through the use and experience of the product, followed by sales and conversion techniques to upsell, free trial users may upgrade to the paid or premium version of the product.
Consider the success stories of companies like Zoom, Slack, Calendly, and Dropbox. Each of these SaaS giants crafted a pathway to success by placing their products in the hands of users right from the start. By offering free versions, they showcased their product's value proposition directly to users, which naturally led to conversions and upgrades to more feature-rich paid tiers.
At the core of the product-led framework, companies concentrate on three pillars:
- Product development
- User Feedback
Webflow lets you design a website (you pay to publish it to your domain). Slack lets you send chat messages (you pay for unlimited messages). Notion lets you create notes and databases (you pay for team access).
The rise in product-led growth strategies among SaaS companies is a clear trend, indicating a shift towards delivering value upfront and letting the product's utility drive user acquisition and expansion. This model not only streamlines the path to growth but also aligns perfectly with the modern consumer's preference for trying before buying, fostering a sense of trust and transparency that is foundational to long-term customer relationships.
What Is Sales-Led Growth?
Have you heard about sales-led companies and their sales-led models? Salesforce (who, in 2022, generated $31 billion in revenue), Oracle, ServiceNow, and SAP are a few examples of companies that have used a sales-led strategy to grow their businesses.
Sales-led growth involves using sales reps to build customer relationships and direct them towards the product. This approach works best for higher-ticket products, enterprise solutions, and large accounts.
In contrast, product-led companies primarily focus on building relationships and directing prospective customers through sales teams.
To implement a sales-led model, companies may leverage chat boxes, phone numbers, demos, and other tools to connect potential customers with sales reps.
For instance, Salesforce's website includes several chat boxes, Oracle requires contacting a sales rep to use the product, and SAP uses pop-ups to connect with sales representatives.
What Is a Hybrid Model?
Navigating the SaaS landscape doesn't have to be a binary choice between product-led and sales-led growth strategies. Enter the hybrid model, a versatile approach that elegantly intertwines the strengths of both worlds to form a robust and adaptable go-to-market strategy.
This model combines both product-led and sales-led growth, which means you can have a sustainable and flexible go-to-market strategy.
With a hybrid model, your marketing team can reach potential customers through free trials and a sales-led approach, making it easier for customers to try out your product and see if it's a good fit for them. This also allows for different customer journeys and sales cycles while building a customer success team that can drive revenue growth for your company.
A great example of a company that successfully implemented this model is Dropbox. Initially, they embraced a product-led approach to get users hooked on their service. As they expanded their sights to larger enterprise clients, they seamlessly integrated a sales-led strategy to cater to the unique needs of these larger accounts. Their commitment to customer success and a well-defined customer journey have been pivotal in their story of sustained growth.
HubSpot also exemplifies this blended approach. While offering a free, self-service CRM, they also provide various touchpoints for engaging with sales, particularly when enterprise solutions are on the table. This duality ensures that regardless of the customer's preferred interaction style, there's a pathway that suits them.
Product-Led vs Sales-Led: Which One Is Right for You?
When structuring a sales team, PLG and SLG companies have different approaches. It's important to assess your product, target audience, and market fit to determine which is right for your business.
One way to do this is to conduct market research and gather data on customer acquisition cost, customer lifetime value, and effective sales processes. This information will help you make an informed decision that aligns with your resources and budget.
So, which growth model is best for you?
Well, here’s a quick breakdown:
To help determine which growth model will serve your business best, we’ll break down the benefits of each (and use cases).
Benefits of a PLG Strategy
The main benefits of a product-led growth strategy are lower acquisition costs and scalability. It tends to have a self-serve model, where customers can sign up and start using the product without interacting with a sales team.
Here are a few reasons to consider a PLG strategy:
- Lower cost to acquire customers: PLG doesn’t rely heavily on sales teams or major marketing campaigns, saving on labor and marketing costs.
- Improved product experience: The free trial model allows customers to start experiencing the product at scale.
- Time-to-value is shorter: PLG lets your customers use your product immediately with fewer barriers, letting them extract value quickly.
- Viral growth opportunity: Focusing on a stellar product experience lets you turn customers into brand advocates to share with others.
When Is Product-Led Growth a Good Fit?
Product-led growth isn’t for everyone.
One of the biggest challenges is that it requires a heavy investment in the product and design. This means a major upfront investment to craft the product to do the selling rather than teams.
However, once the product is up and running, there isn’t a high customer acquisition cost (CAC). PLG best suits companies with simple products targeting lower-ticket consumers and businesses.
Benefits of an SLG Strategy
Sales-led growth is a proven growth method that has worked for decades. SLG companies rely on a traditional sales model, with a team of sales reps who engage with potential customers and guide them through the buying process.
Here are a few reasons why SLG is dominant:
- Personalized interactions: You can never go wrong with speaking to your clients over email, phone, or face-to-face. SLG is more personal since there are more human touches.
- Better control over the sales process: SLG gives you more control over how the sales process goes. This is crucial for selling high-ticket products to enterprise organizations.
- Improved customer experience: More human interactions means custom solutions can be crafted, giving greater opportunities for better customer experiences.
- High ticket sales are easier: If you’re selling a high-priced product, jumping from a free trial to thousands per month will be hard. SLG helps close high-ticket deals with large accounts.
Where Does Sales Fit in a PLG World?
In a world that's increasingly product-led, where does traditional sales fit? It's true that a heavy-handed sales approach can create unnecessary barriers, placing a gatekeeper where today's consumer expects open doors. However, that doesn't render sales obsolete.
Sales-led growth has its place, particularly for SaaS companies that offer complex, high-touch products aimed at large accounts or industries where personal relationships and custom solutions are paramount. In these scenarios, a sales team can provide the necessary guidance and expertise that a purely product-led approach may lack.
Product-Led Growth Isn’t an Either/or Decision
Fifteen years ago, sales-led growth was the leading growth strategy for SaaS companies.
Gone are the days when sales-led growth stood unchallenged as the de facto strategy for SaaS companies. The industry has pivoted towards a product-led ethos, but that doesn't necessitate an all-or-nothing decision.
But this doesn’t mean you have to choose one or the other.
When weighing product-led growth against sales-led growth, consider the intricacies of your product, the nuances of the buying process, and the characteristics of your target market. If you're offering a straightforward product to a customer base that appreciates autonomy, product-led growth can be a perfect fit. Conversely, for intricate products that necessitate a guiding hand, a sales-led model may be indispensable.
The key to navigating this landscape is data. Utilizing frameworks like product-qualified leads (PQLs) can empower you to spot engaged users ripe for conversion. Beyond that, marketing automation tools are invaluable for nurturing leads and refining your sales strategy to align with customer behaviors and preferences.
Plus, you can always implement a hybrid approach to reach the masses via PLG and expand to high-ticket sales via SLG. Here’s a breakdown:
At the end of the day, sales-led growth and product-led growth are about one thing.
Get Help Making the Right Decision with Operatus
Deciding on the optimal growth strategy for your software company can be daunting. If you're seeking clarity and direction, consider partnering with experts like us at Operatus.
We specialize in Revenue Operations as a Service, designed to streamline your revenue growth and put it virtually on autopilot. Here's how we can transform your operations:
- Drive sustainable revenue
- Get the most of your tech stack
- Give time back to the sales team
- Remove silos between teams to improve collaboration
- Increase your pipeline visibility to improve sales forecasting
Take Bloomfire as a case in point—a software firm with a team of 80. We revolutionized their sales processes, optimized technology workflows, and unlocked valuable time for them to dedicate to growth and scalability.
If you want to improve your revenue and grow your business, reach out today.