- PLG and usage based pricing are attractive because they are cost-effective. They minimize our sales and marketing costs and increase customer LTV.
- Trying to convert product users versus MQLs means you have a hundred X scale factor for the number of leads and accounts that you must pay attention to.
- New acquisition, continuous expansion, and churn prevention all become equally important.
- In order to stay cost-effective, you need to harness data to automate how you reach out to customers.
- While the vision state uses technology-led outreach, the outreach still needs to have a personal touch, the same way human-led outreach traditionally has.
Benefits of product led growth
Before we get into scaling, let's look at why product led growth and usage based pricing are so exciting right now.
Other than the intangible benefits of being very user focused and end-user-value focused, there are cost drivers for why PLG and usage based pricing are exciting.
First and foremost, PLG go-to-market motions tend to have lower customer acquisition costs because you're targeting the end user of your product, as opposed to the buyer and sponsor. There are many more end users in a company compared to people who are going to write the $50,000 check, so it's just many more people to target. You can also acquire them through referral programs and non-monetary channels like communities.
The second reason why PLG and usage based pricing are exciting is that you are optimizing for the number of people using your product. That means you get the product market fit a lot earlier. Working this way also results in faster growth, both in terms of customer acquisition as well as revenue in later stages, typically after the $20 million ARR mark.
Never forget that the purpose of PLG and usage based pricing is to have a highly cost effective way to acquire and retain customers, and acquire revenue.
Challenges of product led growth
The challenges that are associated with PLG specifically are twofold.
One, scale. Let's take Zoom as an example of a product led growth company. Zoom has hundreds of thousands of users at any given time, lots of them free. That creates a huge scale challenge because the needs are no longer MQLs that are coming because of marketing programs, but rather users that are actively using the product.
So, it ends up being a thousand X more leads potentially at the top of your funnel and a hundred X more accounts than these leads map to. And that creates massive scale challenges because your old way of doing work just stops working when you have to thousand X the amount of contacts and accounts that you are reasoning over.
Two, broad focus. The other big challenge with PLG is you cannot only focus on new logo acquisition, which is often what early stage startups tend to focus on. Even later stage startups are thinking about expansion in a very narrow way.
For PLG to scale, expansion is an ongoing evergreen stream. You are trying to get your seat licenses up, you're trying to cross sell and upsell. TLDR, what that means is you are required as a marketing and sales organization to focus at all times with the same level of diligence on ongoing expansion, churn prevention, and new logo acquisition. Again, that poses a scale challenge.
A simple way to solve for volume would be to say, let's just increase the number of people on our team.
Unfortunately when the scale factor is a thousand X or a hundred X, we cannot thousand X or a hundred X our SDR teams, our marketing teams, and our account management teams.
Why not? Because PLG is exciting because it is cheap to acquire customers. So, if we deploy old school tactics to a new business model, we actually end up losing out on the benefits of the model itself.
How to scale PLG
And so then what is the way out? How do we scale up a thousand X or a hundred X within the marketing and sales organization?
There is no answer other than automation, and automation requires data and insight. You can't automate something if you don't have the requisite data to be able to say, when X happens, we do Y. And that's the process that we're going to automate.
So, insight and automation are combined and they are the only way to scale to the massive factor increase we're seeing with product led growth or usage based pricing companies.
There are four key steps to thinking about how you automate SDR, marketing, AE, and account management workflows in order to scale up the demands of product led growth.
- Dynamic enrichment of contacts and accounts
- Personalized outreach
Traditionally, in your CRM, you have contacts, you have accounts, you might be using enrichment services like Zoominfo, you might be using intent data or ABM platforms. We're talking about a different type of enrichment here, and it has to be automatic.
Enrichment can’t be done once a month, manually, because again, that does not scale.
And so the types of enrichment that we're looking at at the contact level and at the account level are all marketing and sales engagement activity that is happening on a per contact level and an account level.
What’s missing right now in most CRMs is product usage engagement data.
To me, product usage is the new intent data.
We used to use third party intent data to prioritize which contacts to reach out to and which accounts to focus on. By the way, historically, third party intent data’s accuracy is sub 50%, so while it feels helpful, you could flip a coin to prioritize your data and get almost the same results.
However, product usage data is the goldmine that needs to be attached at the contact level and at the account level. And it needs to not just be a snapshot. It also needs to show usage information over time, whether the trend is upward or downward.
So, an example. Let’s say you were either prospecting Zoom as an account, or they were an existing account.
An enriched account here would look something like this: there are three contacts in the account that have recently downloaded a white paper, one of them has responded to a marketing email, and one has responded to a sales outreach.
That's the example of how to incorporate marketing and sales activity data, which most of us already capture and sync to our CRM.
Then, you need to add in product usage activity and trends over time.
Another example: five additional users were added to Zoom's instance. Two of them actually created a call within one week, and one users’ number of calls created is rapidly increasing. They also happen to be a director of engineering.
This is the type of information where you're going beyond the snapshot of five new users were added to this account and two of them created a Zoom call this week.
You are also actually looking at how usage is changing over time per user. If the user ends up being someone with a title that has budget authority, then it’s the right time and they’re the right person to reach out to.
It’s important to automate dynamic enrichment so these insights are created every single day and you can act while the time is appropriate.
When they first find Falkon, a lot of our customers are used to dumping product usage data in their warehouse. They'll use something like Census or Hightouch and write select fields back to the contact, object, or account object. But that’s still only giving you a snapshot view. Again, a snapshot view is not telling you what the right time to reach out to someone is.
Last example. If I tell you someone created 30 Zoom calls, how do you know whether it's the right time and this is the right person to reach out to? If I tell you they've created 30 calls and, by the way, they have been consistently increasing the number of calls they create per week from 10 a month ago to 20 to weeks ago, and now it’s at 30 and projected to go higher … and I’m able to enrich the data and tell you they’re a director of engineering, then you know they’re the right person to reach out to.
Everything else I'm going to share with you after this cannot work unless you have this type of enrichment in place.
After we've done dynamic enrichment, what do we actually do with it? Dynamic enrichment is still just data going from place A to place B in a way that you can reason over it, but it's not insight by itself. It's not action by itself.
The next key step is segmentation.
Segments need to be built at a micro level based on enriched data. Historically, segmentation in traditional B2B SAAS companies has been very, very coarse-grained because all outreach was so personalized through human engagement.
Hyper-personalization experiences don't exist in B2B SAAS in an automated way. Therefore, to manage a human's workload, we end up coarsely segmenting our prospect and customer base, and enrolling them in campaigns and sequences based on that.
Often, at Falkon, we see a key way in which customers will group their customers is by segment: enterprise, mid-market. That, unfortunately, is not going to drive personalization through automation.
Traditionally, you end up essentially relying on human beings to do the personalization.
Instead, we can automate micro-segmentation.
For instance, I could create a segment of all non-ICP accounts. So, all accounts that do not meet our ICP criteria, but have power users in them. These are not necessarily accounts we want to pursue. However, they have a lot of usage in them and a lot of people that are using our product in a very advanced way. Later, I'll show you the actionability for that segment versus others.
Another segment can be all ICP accounts that have medium product usage, but that product usage is on a growth path. It's not steady growth, but it’s growing.
Third, we could segment all engaged contacts that are in ICP accounts that also happen to have a director title.
The power here is to have a segmentation engine that is able to help marketers and sales leaders build hundreds of segments because the more microscopic the segment is, the more personalized your outreach can be.
Now that we've done this segmentation, the next step is deciding what do we do with the segments.
We want to reach out. So, let’s auto enroll them into highly personalized sequences in Outreach sequences, HubSpot, Marketo, any CRM or marketing automation platform. The point is to be able to take a micro segment and say the next best message or engagement we can have with this micro segment is X and just automatically route them.
So, we're not routing leads to people anymore. We’re routing leads to the appropriate automated outreach in our marketing and sales enablement platforms.
Back to the segment of all non ICP accounts that have power users. Again, these are not accounts that we are actively pursuing. They're not on our target account list, which probably signals we should not be spending human capital on converting or expanding these accounts.
However, we have power users within them and usually power users are the most influential and vocal community. Activating them and turning them into evangelists, almost like a free marketing program, is very powerful.
So, perhaps the action here can be the marketing team can come up with an automated community-slash-events outreach program where you invite them to participate in key communities where you want your evangelists to be talking about your product.
Enrolling them in a campaign or a program like that has an incredibly low cost. Because you are doing this through automation, you're not spending ad dollars. You're using free or low cost channels, like email. And you’re leveraging these power users' profound love for your product to inspire other people potentially in target accounts.
Let’s look at the segment of all ICP accounts that have medium usage, but that usage is growing. Perhaps they can be enrolled in an automated sales-assist outreach.
It's not about selling, it's about assisting the customer through an expansion, a workflow or through a conversion workflow. You’re reaching out to them with the intention of helping them proceed in that process.
Again, this outreach does not need to be a person writing a customized email, but rather auto enrolling them into an automated program or campaign or set of sequences that you've already figured out.
And then, the last example is all engaged contacts and ICP accounts that have a director title. This segment could go into an automated, personalized intro outreach email series that looks like it was personalized because of the level of specificity you’re able to use based on what you know – title, usage, company, etc.
So, we are enrolling different micro-segments in highly personalized sequences and humans only get involved when we get a response on these personalized outreach programs.
We've all been sort of drowning in the sea of data that we have in PLG and UVP companies. Drowning here is a lot faster and a lot more overwhelming than in traditional companies because there's so much more data. Proactivity is the solution to stay afloat.
If an account manager's now responsible for 50 or a hundred accounts rather than 30 accounts, how can we expect them to stay on top of which accounts to focus on during any given day, which contacts to focus on within the account, and what follow-up tasks to create in a timely way?
It's just not possible to do that manually by having every account manager go and look at their hundred accounts every single day to figure out what the next best action for each account is. That results in many, many missed opportunities.
Instead, we need to rely on proactivity, where you have systems that are monitoring this data and are able to pull out meaningful, timely insights. Then, tasks for account managers are automatically created based on usage changes (rather than pouring over every account).
Let’s say a director who has recently been made an admin on your product is adding many users. That's an example of a timely insight that can then automatically create a Salesforce (or any CRM) task for the account manager, signaling to them that a user is now taking a lot of high-value actions, which indicates that they should reach out.
You can also use an automated system that is able to generate reports based on milestones, such as hitting Zoom’s 30 minute meeting limit, rather than user activity changes. If you know everyone who is repeatedly hitting that limit, and you add in titles and other enrichment data, you end up with a prioritized list of contacts who are ready to connect with a person about expansion. Port them automatically to your CRM and you’re off to the races.
To stay cost-effective as a PLG company, which is the whole point of the model, you cannot hundred X your team to achieve revenue goals.
You have to rely on harnessing data to automate how you reach out to customers. You do this through dynamic enrichment, micro-segmentation, personalized outreach, and proactivity.
And in the vision state here, the reach out is technology led. But from an end user perspective, it still has the same personal touch that a human led outreach does.
Want more on scaling PLG through automation? Check out our video.