Sales-led Vs. Product-led: Why You Don’t Have to Choose
Our friends at Maxio recently hosted a LinkedIn Live on this very topic. VP of Marketing Hillary Lovric sat down teammates Maggie Ott (Manager of Business Development) and Hillary McManus (Product Manager) to discuss sales-led and product-led go-to-market strategies, and determine which is the best GTM approach for SaaS businesses. Listen to their conversation here!
While there are many ways to successfully launch and scale a SaaS company, the two most common go-to-market strategies are sales-led growth (SLG) and, more recently, product-led growth (PLG).
In a sales-led model, sales processes and teams are the primary drivers of revenue growth. Whereas, in a product-led model, the product itself is used to acquire, onboard, and retain new users. Each has its own strengths and weaknesses, but neither is better or worse than the other. In fact, many B2B SaaS companies use a hybrid between the two to adapt to changing market conditions.
Forbes named 2020 the “Year of Product-led Growth.” While PLG strategies had already been gaining traction in SaaS, the shift was accelerated by the COVID-19 pandemic. As remote work replaced the office, demand for quick and easy access to software to stay connected skyrocketed. As a result, workplace collaboration tools like Zoom, Slack, and Dropbox all experienced record revenue numbers during this time.
These companies were all well-equipped to respond to this sudden shift in the market through their hybrid GTM strategies. Their product-led growth functions helped them quickly build a larger individual user base, while sales-led motions allowed them to nurture and manage the key business accounts that contributed the most to their annual revenue growth. (For example, Zoom’s annual revenue increased 325.81%.)
All of this was made possible by deploying both product- and sales-led growth tactics.
(Image Source: SaaStr 2021)
Why the Hybrid Model is the Future of Saas
Today, many traditional sales-led (SLG) companies are introducing product-led tactics, experimenting with low friction, self-serve models to increase customer acquisition while PLG companies introduce sales teams and processes to move up market.
By taking a hybrid approach, SaaS companies get the benefits of PLG—product virality, reduced CAC, and faster client activation—while using their sales teams to nurture relationships with enterprise customers. Here’s what it looks like in practice.
Product-led companies use many different tactics to acquire, onboard, and retain new users, including:
In-depth knowledge bases
Community groups and user forums
While these resources make it easy for individual users to sign up and get started, they don’t provide infinite support—especially if the product in question gets rolled out across an entire department or organization. Eventually, 1:1 support is needed. This is where the sales-led motion comes in. Sales reps can negotiate pricing and put together a custom plan for users/teams whose needs exceed an entry-level pricing plan.
By offering support from the end-user to the enterprise level, a hybrid model allows companies to capture greater market share and retain users over longer periods of time.
There Aren’t Many 100% Product-Led Companies
If you observe the average sales headcount of early-stage product-led companies, you’ll find that many have already laid the foundation of a hybrid model because (in most cases) a strong sales team is what ultimately allows them to scale and maintain their hold on the market.
In a study that analyzed the growth trends of 495 product-led companies, Peersignal found the percentage of sales headcounts at product-led companies increased along with total employee growth. In short, as product-led companies begin to scale, they lean further into a sales-assisted or hybrid model.
Sales-Led Companies are Turning to PLG
Many sales-led companies have a smaller Total Addressable Market (TAM), so to achieve future growth and avoid stagnation, they’re adopting PLG tactics to monetize their existing user bases.
One such company is Logz.io, who took self-service users from 0% to 50% of new customers in only 12 months. What started out as an adaptive move to help Logz.io align with buyer behavior turned out to be a powerful way for them to open up the market and build on their existing success. This is the power of a hybrid model.
How to Introduce Product-Led Motion (for SLG Companies)
Introducing a product-led motion is a big shift for SLG companies—one that affects your product, operations, customer enablement, and culture. That’s a lot of change. For established sales-led companies, diving right into a product-led model can seem more disruptive than productive. Since introducing a new growth model is a cultural change as much as it is an operational one, when you choose to make this shift matters. You’ll need both internal and external buy-in as well as momentum to support it. Good times to introduce PLG may be when you’re:
Rolling out a new product
Making a major product update
Acquiring another company or product
Announcing a company-wide rebrand
But most importantly, the switch to a hybrid model should be spread out into bite-sized pieces. Start your product-led journey with a single product. Instead of completely removing sales from the equation, sales-led companies can hire or train a dedicated product-led team to manage, roadmap, and test a single product to see how it performs in the market. Based on its success or failure, you can make an internal case to the rest of your company to conduct more product-led growth experiments and create new opportunities.
How to Introduce a Sales-Led Motion (for PLG Companies)
Introducing a sales-led motion is less speculative and requires an in-depth analysis of your current user base.
The first step is to identify accounts that would be good candidates for sales development. For example, a company with several employees already using your entry-level product would make a great qualified prospect—these internal users willing to champion your product to leadership, and the increased usage could potentially lead to a high annual contract value (ACV).
Once you’ve identified qualified prospects within your customer base, you’ll have to find alignment between your new sales and R&D departments. At first, your reps should focus on expanding deal sizes with existing customers instead of closing new deals—this will prevent them from making feature promises to customers that could alter your product roadmap.
Finally, consider implementing a “commission-free” compensation plan at the early stages to prevent reps from chasing accounts with high ACV’s that aren’t a good fit for your product. Instead, use this time to test what accounts respond best to sales engagement. A standard commission plan can be reintroduced after you’ve nailed down your sales processes.
How a Hybrid Approach Affects Finance Teams
It doesn’t matter whether you’re currently product-led or sales-led. If you’re looking to scale, both are needed. Customers want more control over what they buy, when they buy, and how they buy your SaaS—sometimes that means getting started on their own, and sometimes it means talking to a sales rep.
However, the flexibility afforded by a product-led or hybrid model is only possible if you have the systems and tools to support it. This is the main hurdle that SaaS companies, specifically sales-led ones, face when transitioning to a hybrid model—they soon find they don’t have the tools to quickly develop and maintain flexible pricing and packaging.
Even when you do finally manage to deploy a new pricing strategy, the problem shifts to finance’s shoulders as they attempt to recognize and report on complex revenue while maintaining GAAP compliance. This friction puts sales/product and finance teams at odds with each other, especially when creating a competitive GTM strategy.
Still not sure if product-led growth makes sense for your SaaS company?
To bring some clarity to your financial operations, we’ve put together this ebook, How Product-Led Growth is Changing B2B SaaS. In it, you’ll learn:
Why product-led growth is being adopted so rapidly
How to determine if product-led growth is right for you
Is Sales-led SaaS dying?
How PLG will affect your SaaS business
How to introduce a hybrid GTM strategy
Sound interesting? You can download the ebook here.