The topic of being product-led or sales-led is one that seems to have gained in importance lately for product leaders who I have recently worked with and coached. One of the challenges they face when trying to decide between product-led growth (PLG) and sales-led growth (SLG) approaches is the diverse landscape of problems and opportunities that present themselves at different stages of the organization’s maturity. As a product leader, should you base your growth strategy on building an efficient sales funnel and pipeline for demand generation and capturing? Or should you allow a product’s usage to drive its growth?
The image above summarizes the subtle but important differences between a sales funnel and a sales pipeline. A sales funnel refers to the stages a customer goes through to make a purchase while a sales pipeline includes steps that a potential customer goes through to be converted into a customer. A sales funnel is centered around the customer’s actions and journey, and metrics such as sales volume and conversion rate are used. On the other hand, a sales pipeline is more about describing the process to someone like a sales rep while looking at metrics like churn rate and CRM score.
Sales-led growth (SLG) focuses on crafting sales strategies to improve the different steps of the sales funnel for acquiring, converting, monetizing, and retaining customers. For example, if one of the strategies is to reduce churn in the evaluation phase, the sales team could look into the format and content of the proposal that was sent to the customer to try and understand why the customers didn’t evaluate it positively to move on with the purchase. They could also interview customers to ask about the unfavorable conditions in the proposal and play around with the different levers to reduce churn. SLG tactics depend on the metrics that the organization is trying to move the needle on, and include practices such as cross-selling and upselling products.
Product-led growth (PLG), on the other hand, relies on the product or service that an organization is building as the driver for growth. The focus of PLG is on using the product’s features and performance, rather than sales strategies and tactics, to acquire, convert, monetize, and retain customers. The product teams that build the product may also be responsible for acquiring customers. Rather than telling people the value that the product can bring (SLG), PLG focuses on showing people the value a potential customer could derive from the product by reducing their cost of usage to 0. A popular growth strategy related to PLG is freemium, where companies offer a limited number of (limited) features for free to customers while charging them for access to the premium and advanced functionalities. Companies that have leveraged this strategy for growth include Mailchimp, Spotify, WordPress, LinkedIn, and Tinder. The model relies on a non-paying customer’s positive experience with a product to drive their conversion into a paying customer.
What I’ve often seen missing from popular literature about PLG and SLG is the bigger picture of the market and where the organization fits into it. When considering PLG vs SLG, the product lifecycle stage and market adoption curve need to be part of the discussion.
Prior to the product-market fit (PMF) in the curve, where the main product has recently been launched and introduced to the market, a PLG strategy allows the early adopters to test it and get a feel for the product before potentially increasing their usage. During this stage of the product, it’s often very hard to adopt an SLG strategy because there are no notable users at this point in the product’s life. As the product matures into a high-growth product or cash cow in the maturity stage, an SLG strategy could be a more appropriate fit as there is likely to be existing data points and customers to help you drive the marketing and sales pitches. Such an approach, called the product-centric growth (PCG) strategy, includes both PLG and SLG as appropriate approaches at different stages of the lifecycle that the product finds itself in. At the same time, a PCG strategy prioritizes signals from the market as levers for switching between PLG and SLG. As customer acquisition, conversion, monetization, and retention hit their high points and just as they start to plateau, using a PCG focused on SLG in the short term will bring dividends by leveraging the existing customer base.
A PCG strategy understands that an amazing product experience is ultimately irreplaceable for customer acquisition, conversion, monetizing, and retention, while respecting the need to be more sales and marketing-led in the late growth, maturity, and decline stages. If the product isn’t expected to extend its lifecycle through innovation and new offerings, then it makes sense to continue milking the cash cow by keeping it in the mature stage through SLG. PCG places the product experience at the focal point because unless your product delivers in helping make the lives of your customers better, no amount of fine-tuning and improving the sales pipeline will help you acquire, convert, and retain users. In the case of a sub-optimal product that has excellent sales processes around it, the organization will tend to over-promise and under-deliver, leading to increased mid-term and long-term churn.