Product-Led vs. Sales-Led

It looks like every SaaS company wants to be product-led these days - and there are many great success stories of product-led companies.

However, it is important to look at its merits objectively to decide if it is right for you. It's definitely not suitable for every SaaS company and not every company adopting a product-led model achieves the desired results.

How to distinguish between Product-Led Growth (PLG) and Sales-Led Growth (SLG)?

The easiest way is to consider when & how the customer first interacts with your product.

PLG: Customer will be able to experience your product self-serve – without the need to speak to someone of your team.

SLG: Customer has to speak to someone of your sales team before being able to access or use the product.

The two are not mutually exclusive! You can be PLG and still have an inside sales team to..→ convert high value customers, and/or..→ increase adoption.

OpenView, a thought leader in PLG, has introduced the term Product-Led Sales for this hybrid model.

Because of all the hype, you may think that most SaaS companies follow a PLG approach. But in fact the opposite is true.

Let's now evaluate what’s right for your business!

Market Sophistication

If you look at the points below and you think you can check the box for each of them, chances are high that your product is suitable for a PLG approach.

Why?!

You are able to bypass the step of educating the market & creating awareness of the problem you want to address.

Profitability

Can you run a sales org cost-effectively?

As a general rule, it’s unlikely you can run a sales-led motion with an initial ACV < $10k unless you have a high degree of automation – or you are able to generate significant upsells over time.

Considering LTV is crucial. Not only for retention but also for ongoing account expansion, CAC and overall margins.

Regarding CAC Payback Period: Under 12mo is deemed good. 6 months is deemed best-in class.

Business Viability

How many potential customers are there in the market for your product?

If the number is low, you will need a higher ACV to build a decent business. Therefore, a sales-led approach will most-likely be more suitable.

If there are only 100 companies you can potentially sell to, you have to be highly targeted with your $$$ spent.

Conclusion

Large TAM, with customers actively feeling the pain you solve and looking for a solution, with a product with a fast time to value and a low ACV → PLG

Small TAM, customers with pain, with a complex solution, slower time to value and a high ACV → SLG

This chart may also help you decide:

Choose what’s right for you based on the evaluation criteria...

And remember that the best SaaS companies end up doing both in the long-run anyway! ✌️

Sources:

• https://www.paddle.com/blog/plg-and-slg-hybrid-growth-strategy

• https://productled.com/blog/plg-vs-slg

• https://www.toplyne.io/blog/product-led-growth-vs-sales-led-growth

• https://www.notion.vc/resources/how-to-choose-between-a-product-led-and-a-sales-led-go-to-market-motion