Should you prioritize fortifying your customer foundation or accelerating your sales velocity? It’s a conundrum that will make your head spin.
In the traditional B2B SaaS cosmos, the creation of meticulous funnels was the golden key to customer acquisition. It was simple, straightforward, and utterly effective.
However, the landscape has evolved. The rise of the product-led growth flywheel has now taken center stage, spiraling the decision-making process into a labyrinth of complexity.
This piece promises to shine a light on this convoluted intersection, deconstructing the intricate concepts of a product-led growth flywheel and funnels, equipping you with the knowledge to navigate the twist and turns of your business journey.
Let us plunge into the depths.
Introducing Product-Led Growth Strategy: The Engine Powering Modern Success
Picture this – a marketing strategy where your product itself serves as the primary catalyst for growth. Welcome to the realm of product-led growth, a groundbreaking approach where your product’s inherent features and value become the quintessential propellers of growth.
In essence, product-led growth is an old wine in a new bottle – a refashioned version of the tried and tested ‘try before you buy’ philosophy practiced by Direct-to-Consumer businesses.
Let’s stroll down memory lane to when you visited your local apparel store. The shopkeeper would lay out an array of garments for you to choose from. You’d select your favorites, take them to the changing room, try them on, and make your purchase based on whether you liked how you looked in them.
Product-led growth mirrors this experience – but in a digital format. It offers you the liberty to experience the product firsthand before deciding to invest in it.
The distinctive difference between our nostalgic shopping experiences and product-led growth? It’s the self-serve model of the latter. Prospective customers discover the product (through targeted marketing activities) and explore it autonomously.
Interestingly, this model doesn’t just excel in the affordable market. It can also make substantial headway with premium, transaction-based products that feature straightforward onboarding.
Here’s the journey a typical prospect embarks on: Discover the product → Sign up → Experiment with the product → Commit to purchase.
To ensure a frictionless journey for your potential customers, you need to accomplish two tasks:
✔Permit sign-ups without immediate financial commitment.
✔Entice them with a free trial or freemium version of your product.
What is a Product-Led Growth Flywheel?
Imagine a business model intricately engineered around product-led growth, a model that doesn’t just acknowledge but reverberates the power of customer advocacy. Welcome to the realm of the product-led growth flywheel, a model with laser focus on user segments and their respective actions.
Let’s get acquainted with these pivotal user segments:
Now, picture these user segments set into motion through a series of actions:
So, let’s unfurl the mystery behind these user categories and their corresponding actions. Let’s delve deeper.
The User Segments
Picture this: a prospect stumbles upon your product for the first time. They’re unfamiliar with what you offer, despite having done some initial research about your product. To them, your product remains a stranger until they personally test it. These users, immersed in the trial phase of your product, are aptly titled ‘evaluators’. They experiment with your product using a free trial or freemium plan.
Consider Canva, a graphic design tool, as an instance. A prospective user hears about Canva through social media chatter and decides to explore further. They visit Canva’s website, beginning a virtual tour of its features and offerings. However, they’re still strangers to the product, and that’s precisely why they need the tour.
After their exploratory journey, they have a choice: to leave the website or to quench their curiosity by opting for Canva’s freemium version.
Should they choose the latter, they enter the evaluation stage. At this juncture, they start playing with Canva’s graphic design features, available in the freemium package.
By actively engaging with the product’s features, they’ve crossed the threshold from passive bystanders to active users, thereby ‘activating’ the product. The evaluator is now in action, a key cog in the product-led growth flywheel.
Beginners are those prospective users who have just started using your product’s free trial or freemium plan and are in the process of familiarizing themselves with its functionalities. They have an initial understanding of your product and are eager to explore how it can enhance their workflow.
For instance, consider a user who has recently started using Canva’s freemium version and is currently utilizing the “Design” feature to create basic graphics. However, they have yet to discover other advanced features offered by the platform. To fully maximize their design capabilities and productivity, they need guidance on how to effectively use the various features Canva provides.
The objective here is to guide beginners towards full adoption, ensuring they fully grasp the value and potential of your product. This can be achieved through:
- Product Education: By providing resources and tutorials that teach beginners how to utilize different features of Canva. This can include step-by-step guides, video tutorials, and knowledge-base articles that offer comprehensive instructions on leveraging the platform’s capabilities.
- Addressing Product-Related Queries: Beginners may have specific questions or uncertainties regarding Canva’s functionalities. By promptly responding to their inquiries and providing clear explanations, you can help them overcome any obstacles and gain confidence in using the product.
For example, a beginner user may be aware of Canva’s fundamental graphic design features but might not be familiar with the recently launched “Animations” feature. They may seek out resources, such as Canva’s blog posts or customer support channels, to acquire in-depth knowledge about this new feature and how it can enhance their design projects.
By facilitating their learning journey, providing comprehensive product education, and being responsive to their queries, Canva can empower beginners to become proficient and enthusiastic advocates of the platform.
Regular users are the category of active individuals who consistently utilize your products. They have seamlessly integrated your product into their daily workflow, relying on it for their core activities and finding innovative ways to leverage its capabilities.
These users are the backbone of your business, showing genuine enthusiasm for your product and considering it a reliable ally. Once users become regulars, it presents an opportunity for you to gather valuable feedback from them to enhance your product with new features, integrations, and use cases.
For example, let’s take a product like Shopify, a leading e-commerce platform that fosters a thriving community through forums and online groups. Within these communities, dedicated Shopify users actively engage in discussions, providing valuable feedback and insights on different aspects of the platform.
This vibrant community serves as a knowledge hub, allowing users to share experiences, exchange ideas, and make suggestions for enhancing Shopify’s features and functionalities. By listening to this user-driven feedback, Shopify has been able to implement significant improvements to its platform.
As a result, Shopify has introduced a host of valuable features, including advanced inventory management, seamless integration with popular payment gateways, customizable storefront designs, and comprehensive analytics tools. These enhancements have empowered Shopify users to build and scale their online businesses more effectively, driving their success in the competitive e-commerce landscape.
When regular users genuinely connect with your product, they become brand advocates who naturally promote it to their friends, colleagues, and social networks through word-of-mouth recommendations and social media sharing. However, achieving this level of advocacy requires striking the right balance between two crucial elements:
- Positive Product Experience: Regular users have experienced consistent value and satisfaction while using your product. It is essential to continually deliver an intuitive and reliable product that meets their needs and exceeds their expectations. This positive experience solidifies their loyalty and enthusiasm.
- Interactive Customer Support Experience: Providing exceptional customer support plays a pivotal role in nurturing regular users. By offering responsive and personalized assistance, addressing their concerns, and actively listening to their feedback, you cultivate a strong relationship that fosters their commitment and advocacy.
Ultimately, by fostering regular usage and creating a thriving feedback loop, you can leverage the insights and loyalty of your regular users to refine and expand your product, ultimately driving its success and growth.
Champions embody your most engaged users. They eagerly explore the potential of your product, uncovering new use cases along the way.
They maintain a frequent dialogue with your customer success team and find immense satisfaction in the quality of their experience. Their satisfaction reaches such heights that they willingly vouch for your brand and offer compelling case studies.
Their affinity for your product runs so deep that they seek various forms of partnership with you. These enthusiasts are always brimming with anticipation for your forthcoming features. They eagerly volunteer to be the first to test your beta versions and graciously provide valuable feedback.
This collective of users holds immeasurable value for your organization because they are eager to:
Become your affiliates, endorsing your product Participate in case studies, sharing their remarkable experiences Craft exceptional product reviews Serve as references for other prospective customers These champions can evolve into product advocates, guiding your endeavors to enhance and excel in the market.
But how can they contribute?
Consider the following ways they can lend their expertise:
✔Engage in one-on-one interactions with your product team
✔Grant them exclusive access to cutting-edge product features
✔Feature them in podcasts, case studies, and surveys focused on customer experiences
What is a Product-Led Growth Funnel?
The primary objective of a product-led growth funnel is to convert users into paying customers by employing various sales strategies.
This process follows a 4-step cycle:
- Sign up for the product.
- Use the product/Engage
- Identify the values
- Become brand advocates.
To achieve the conversion stage, product-led growth funnels utilize four types of funnels:
- Self-serve funnel: Users aim to purchase the product independently, without requiring sales assistance. This approach works effectively when the product is straightforward and the onboarding process is seamless, free of obstacles.
- Self-assisted funnel: The sales team supports users in transitioning from the evaluation phase to the decision-making stage. The objective is to generate a pipeline that enables the sales team to close more deals successfully.
- Bottom-up funnel: The sales team collaborates with end-users, encouraging them to try the product, derive value from it, make the decision to pay, and refer their friends. Sales representatives can then approach decision-makers and propose larger contracts for a product that the end-users have already embraced. The goal here is to generate expansion revenue by expanding into midmarket companies and enterprises.
- Top-down funnel: The sales team targets enterprise customers and employs outbound and account-based marketing (ABM) strategies. This funnel involves personalized onboarding, multiple meetings, and access to the product granted only after the sale is finalized. The aim here is to enable sales by catering to the specific needs of enterprises.
Product-Led-Growth Flywheel vs Funnel: The Difference
- Driven by product-led growth
- Effective for enhancing retention and expansion
- Focuses on user segments and their actions: evaluators, activate; beginners, adopt; regulars, adore, and champions, advocate.
- Utilizes low-cost acquisition channels
- Ideal for product-led growth companies
Product-Led Growth Funnel:
- Concentrates on product-led conversions
- Effective for improving the conversion rate
- Follows a 4-step cycle: free trial sign-up, product usage, and conversion
- Relies on high-touch sales interactions
- Suitable for marketing-led or sales-led 828 SaaS companies
The Product-Led Flywheel is a dynamic approach that propels growth through the product itself, placing emphasis on user segments and their actions. It excels at enhancing retention and expansion, utilizing cost-effective acquisition channels. This model is a perfect match for companies focusing on product-led growth.
On the other hand, the Product-Led Growth Funnel specifically targets optimizing the conversion rate. It follows a step-by-step process, encompassing free trial sign-ups, product usage, and eventual conversion. This funnel relies on high-touch sales interactions to drive conversions. It is particularly beneficial for marketing-led or sales-led 828 SaaS companies.
Choosing the Right Product-Led Growth Approach for Your Business
To select the most suitable product-led growth strategies for your business, it is essential to define your company’s objectives. To accomplish this, consider the following questions:
- Do you aim to enhance conversions through your product, or is your product intended to be the primary driver of growth?
- What if you desire to achieve both objectives simultaneously?
By implementing a product-led growth funnel, you can effectively convert new customers for your business. On the other hand, employing a product-led growth flywheel allows you to not only attract new customers but also enhance customer satisfaction.
Hence, whether your goal revolves around acquiring new customers exclusively or encompasses acquiring and retaining them, it significantly impacts the strategies you should adopt for product-led growth.
Approach 1: Product-Led Growth Flywheel
The product-led growth flywheel model aligns perfectly with companies focused on product-led growth. It facilitates the enhancement of the in-product experience, allowing existing customers to witness the ongoing improvements and enjoy a superior product experience. This, in turn, plays a crucial role in attracting new customers to your business.
When individuals perceive the value your product offers and recognize how it addresses their challenges, they naturally develop a desire to utilize it. This organic inclination is a highly effective approach compared to creating an average product and relying on manipulative sales tactics to attract more customers.
Approach 2: Product-Led Growth Funnel
The product-led growth funnel is a right fit for marketing or sales-led B2B SaaS businesses that want to assign resources to user acquisition with different marketing campaigns and sales flows.
And this funnel can be AARRR or RARRA.
The AARRR framework, also known as the Pirate framework, was created by Dave McClure of 500 Startups in 2007. This framework encompasses five stages within the funnel:
Acquisition — Users visit your website or app for the first time and opt for a trial. Activation — Users have a positive experience with your product and proceed to sign up. Retention — Users find value in the product and continue to use it consistently. Revenue — Users recognize the value provided by your product and are willing to pay for it to access additional benefits. Referral — Users perceive your product as valuable enough to recommend it to others.
As an illustration, when a user signs up for Dropbox, they are presented with three pricing plans to choose from. Regardless of the selected plan, the user is granted a 30-day free trial period.
Picture this: You’ve put in the effort and investment to acquire 100 users through paid advertisements. However, a mere three days later, a staggering 70% of them vanish into thin air, leaving you with a considerable revenue shortfall.
This alarming scenario highlights the urgent need to challenge the traditional AARRR funnel and embrace the transformative power of the RARRA funnel. Let’s dive into the intricacies of each stage:
Retention: Deliver an exceptional value proposition during users’ initial interactions with your product, ensuring they fully experience its potential and are compelled to stay.
Activation: Foster a consistent and ongoing sense of value for users, encouraging regular usage and engagement to establish a strong bond with your product.
Referral: Motivate and incentivize users to actively share their positive experiences with others, igniting the spark of organic word-of-mouth growth.
Revenue: Sustain the loyalty of your existing customer base by continually delivering valuable product experiences that justify their ongoing investment.
Acquisition: Harness the support and advocacy of satisfied paying customers to attract new users, expanding your customer base through their enthusiastic referrals.
By realigning your growth strategy to prioritize retention, activation, referral, revenue, and acquisition in this sequential order, you can effectively optimize your growth trajectory and mitigate the risk of losing valuable users shortly after acquisition. Let the RARRA funnel chart your path to sustainable success.
💡Pro tip: Optimal results can often be achieved by adopting a hybrid approach that combines elements of both the product-led flywheel and funnel models. This strategy focuses on enhancing the value of your product from the outset, ensuring it meets the needs of existing customers while simultaneously attracting and retaining new ones.
In conclusion, the Product-led Growth flywheel emerges as a transformative business framework that places the product at the forefront of driving growth. By focusing on user segments and their actions, this approach amplifies customer advocacy and fosters sustainable growth. To implement your own Product-led Growth flywheel, prioritize the stages of Evaluators, Beginners, Regulars, and Champions, while ensuring seamless transitions through the actions of Activate, Adopt, Adore, and Advocate. Embrace the power of user-centric experiences, exceptional value, and organic referrals to propel your business forward. With the Product-led Growth flywheel as your guide, you have the tools to unlock unprecedented growth and success.