Product-Led Growth and UX
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Summary: Â Product-led growth is a try-before-you-buy business strategy where the product experience informs how all areas of the business function. Successful product-led growth relies on strong product utility and usability.
By Sara Ramaswamy
Sara Ramaswamy
on 2023-05-21 May 21, 2023
Topics:
Strategy,Analytics & Metrics,design strategy,prioritization,desirability,mental models,definition,managing ux
Strategy Strategy ,
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It is increasingly difficult to attract and convert customers in the software market. Businesses are adopting product-led growth as a competitive strategy in which the product leads the way, speaks for itself, and (hopefully) sells itself. Achieving success with this strategy can yield major benefits to the business, but it is challenging to execute.
Definition : Product-led growth is a product strategy that seeks to acquire, convert, and retain customers by enabling them to try a product and assess its value before paying money for it.
Why Product-Led Growth
In the traditional sales-led growth model for software-as–a-service (SaaS) companies, potential customers cannot just try the product. Instead, they might be required to book a demo with a sales representative, sign a contract, and pay before getting to use the product. In a sales-led model, customers are likely to wrestle with the product since they already paid for it — a manifestation of loss aversion .
Product-led growth is an alternative to the traditional sales-led growth model and allows companies to deliver value to customers rapidly. A 2022 survey conducted by Bain & Company showed that product-led growth results in increased revenue growth, larger market share, and higher third-party investment.
There are several advantages of the product-led growth model:
Getting value into customers’ hands as quickly as possible
Saving the business money by removing the sales middleman from the customer journey
Decreasing the risk of losing a substantial revenue portion if one of few customer contracts ends
A company does not need to have adopted a product-led growth strategy at its conception to become product-led. Companies that are currently sales-led may experiment with a product-led strategy for a single line of business and may transition over time.
In a product-led growth strategy, businesses commonly monetize through one of several models:
a freemium model , in which the user has unlimited access to a subset of the available product features and needs to pay to access premium features
a free - trial model , where users have unlimited access to all product features for a limited amount of time before being required to pay
a hybrid model , that combines the freemium and free-trial models
Downsides of Product-Led Growth
There are two disadvantages of product-led growth:
Employee time is spent building products for customers that have not yet paid money .
A greater number of paying customers is required than in the sales-led, contract-based model, to account for supporting the customers who try out the product but do not ultimately purchase it.
Product-Led–Growth Metrics
Product-led–growth metrics are general metrics that asses how well the product-led–growth strategy is progressing, so all areas of the business, including UX, need to be able to answer the following question: How does what we do optimize for the following product-led outcomes:
Time to value
Conversion rate
Customer-retention rate
Customer-churn rate
Usage-churn rate
Customer-acquisition cost
Time to value represents the time it takes for new users to realize the product’s true value and upgrade to the paid experience. Since unpaid time costs the business money, this metric needs to be minimized.
Conversion rate  represents the percentage of users who convert from free to paid. We want to maximize this value.
Customer-retention rate is the percentage of users who return within a given time frame. We want to maximize this value, because returning customers boost profits significantly more than new customers , according to Bain & Company’s Frederick Reichheld, who created the net promoter score . They also cost the business less money. According to Harvard Business Review, acquiring new customers is, at a minimum, five times more expensive than retaining an existing one .
Customer-churn rate captures the percentage of customers who do not return in a particular timeframe. It is the opposite of the customer-retention rate and needs to be minimized.
Usage-churn rate  represents the percentage of users who show potential to churn due to decreased usage.
Customer-acquisition cost reflects the cost associated with attracting a new customer to use the product. The business wants to minimize this value in hopes that they can efficiently convert these users into paying customers. These newly acquired customers cost the business money unless they upgrade to the paid version or features. While acquisition is important, retention helps to evaluate whether new users are returning and were worth that initial cost.
The Role of UX in Product-Led Growth
UX is crucial for a successful adoption of the product-led growth model.  The user’s very first experience with the product is critical. If users do not understand the product’s value quickly, they are likely to move on to the next similar product offering. With the explosion of new software products, users have become less and less tolerant of  clunky first experiences (not unexpectedly, as Jakob’s law teaches us). UX is key to mitigating the major risks associated with adopting a product-led growth strategy.
How UX Can Help Product-Led Growth
Focus on Product-Led–Growth Metrics
UX must connect all design or content changes to product-led–growth metrics.
Decrease Friction at Acquisition
At the acquisition stage, it’s critical that users perceive the product as highly valuable and easy to use, so they clearly understand the benefit of paying for more. UX should think of ways of making the initial experience as smooth as possible –- for example, by minimizing the need for onboarding tutorials  and removing any login walls .
For instance, for an application like ChatGPT, users should not need to create an account because the service doesn’t need to verify identify or pull information from another app. Banking and investing applications, however, might need to verify information. To boost acquisition, it is important to include only those steps that are absolutely required .
Minimize Time to Value
There is a difference between perception of value and actual value . A wide gap between the two means that the product does not successfully communicate its value.
UX should conduct research to understand users’ mental models and expectations for the company’s product. It should also investigate how effective the existing design is in meeting those expectations. If the product delivers value beyond users’ initial assumptions, is that value well conveyed by the design?
Spend Time on Converted Customers
It is wise to recall the Pareto Principle in thinking about conversion. Only 20% percent of customers generate 80% of a company’s revenue. The implication is that it is worth investing resources into understanding and prioritizing high-potential gains from the “vital few.”
UX folks should analyze qualitative and quantitative insights about existing customers and prioritize improving their experience.
Increase Customer Retention
UX should compare the behaviors and feedback of customers who converted to those of people who did not convert, by combining analytics with qualitative insights. Start with analytics and look at onboarding, in particular. What did successful users do early on in their usage? Where did people get stuck? Compare what they said was missing or thought was confusing to how they navigated through the experience to understand pain points and remove them. This approach can yield valuable insights related to both decreasing time to value and increasing retention.
Prevent Users from Quitting
If we observe in our analytics that a particular segment of users is using the product less over time, it could signal that the product does not sufficiently meet their needs or that the user experience is lacking. Again, returning customers are high-value customers, so it is critical to examine their usage and compare it with that of customers who have already churned. Look at how these users are engaging with specific features. Ask yourselves: How can we identify who might be at risk of churning and deter them from leaving?
For example, in a financial-investment application, investing or transferring money is a much more significant type of engagement than passively monitoring stocks. Only monitoring stocks may signal a higher chance to churn; therefore, to encourage more active usage, you can consider promoting additional features to passive users.
Ongoing Communication with Other Business Areas
Keep in touch with product, marketing, and sales partners. Consistently inquire about your organization’s high-level strategy and business objectives and make sure to always connect back all organizational initiatives to these objectives. Align on some measurable indicators and targets that can be directly tied to the product-led strategy metrics. Make sure to consider both macro and micro conversions. While macro conversions (high-level conversion tied to the primary purpose of the site) are often the first success indicators considered, it is, however, important to define and revisit micro conversions, which measure incremental improvements to the user experience. In product-led growth, products are competing at the micro-conversion level. Analyze the conversion user journey and create milestone micro conversions that capture progress toward primary macro conversions. Also identify secondary user actions on site that are correlated with macro conversions.
Talk to other departments to understand business risks . While UX can determine frictions that may cause churn and address them, it’s also necessary to be aware of threats identified by other areas of the business.  For example, in a product-led growth strategy, customer support is key for addressing customers’ problems or answering their questions. That department may take a slightly different lens in its analysis of issues and risks This same concept applies to marketing, customer success, and engineering. The idea is that each respective business area has its own respective risks to assess, and UX should be aware of what they are.
Conclusion
UX is at the heart of a product-led-growth strategy, charged with creating a compelling customer experience that will ultimately determine the success of the product in an increasingly competitive market. With knowledge of what is important to investigate and consistent communication with partners, this success is entirely within reach.
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About the Author
Sara Ramaswamy is a User Experience Specialist with Nielsen Norman Group. She applies UX methodologies to enterprise product development and conducts international user research.
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6. Summary:  Product-led growth is a try-before-you-buy business strategy where the product experience informs how all areas of the business function. Successful product-led growth relies on strong product utility and usability. By Sara Ramaswamy. Sara Ramaswamy. on 2023-05-21 May 21, 2023. Topics: Strategy,Analytics & Metrics,design strategy,prioritization,desirability,mental models,definition,managing ux. Strategy Strategy , Analytics & Metrics. Share this article: It is increasingly difficult to attract and convert customers in the software market. Businesses are adopting product-led growth as a competitive strategy in which the product leads the way, speaks for itself, and (hopefully) sells itself. Achieving success with this strategy can yield major benefits to the business, but it is challenging to execute. Definition : Product-led growth is a product strategy that seeks to acquire, convert, and retain customers by enabling them to try a product and assess its value before paying money for it. Why Product-Led Growth. In the traditional sales-led growth model for software-as–a-service (SaaS) companies, potential customers cannot just try the product. Instead, they might be required to book a demo with a sales representative, sign a contract, and pay before getting to use the product. In a sales-led model, customers are likely to wrestle with the product since they already paid for it — a manifestation of loss aversion . Product-led growth is an alternative to the traditional sales-led growth model and allows companies to deliver value to customers rapidly. A 2022 survey conducted by Bain & Company showed that product-led growth results in increased revenue growth, larger market share, and higher third-party investment. There are several advantages of the product-led growth model: Getting value into customers’ hands as quickly as possible. Saving the business money by removing the sales middleman from the customer journey. Decreasing the risk of losing a substantial revenue portion if one of few customer contracts ends. A company does not need to have adopted a product-led growth strategy at its conception to become product-led. Companies that are currently sales-led may experiment with a product-led strategy for a single line of business and may transition over time. In a product-led growth strategy, businesses commonly monetize through one of several models: a freemium model , in which the user has unlimited access to a subset of the available product features and needs to pay to access premium features. a free - trial model , where users have unlimited access to all product features for a limited amount of time before being required to pay. a hybrid model , that combines the freemium and free-trial models. Downsides of Product-Led Growth. There are two disadvantages of product-led growth: Employee time is spent building products for customers that have not yet paid money . A greater number of paying customers is required than in the sales-led, contract-based model, to account for supporting the customers who try out the product but do not ultimately purchase it. Product-Led–Growth Metrics. Product-led–growth metrics are general metrics that asses how well the product-led–growth strategy is progressing, so all areas of the business, including UX, need to be able to answer the following question: How does what we do optimize for the following product-led outcomes: Time to value. Conversion rate. Customer-retention rate. Customer-churn rate. Usage-churn rate. Customer-acquisition cost. Time to value represents the time it takes for new users to realize the product’s true value and upgrade to the paid experience. Since unpaid time costs the business money, this metric needs to be minimized. Conversion rate  represents the percentage of users who convert from free to paid. We want to maximize this value. Customer-retention rate is the percentage of users who return within a given time frame. We want to maximize this value, because returning customers boost profits significantly more than new customers , according to Bain & Company’s Frederick Reichheld, who created the net promoter score . They also cost the business less money. According to Harvard Business Review, acquiring new customers is, at a minimum, five times more expensive than retaining an existing one . Customer-churn rate captures the percentage of customers who do not return in a particular timeframe. It is the opposite of the customer-retention rate and needs to be minimized. Usage-churn rate  represents the percentage of users who show potential to churn due to decreased usage. Customer-acquisition cost reflects the cost associated with attracting a new customer to use the product. The business wants to minimize this value in hopes that they can efficiently convert these users into paying customers. These newly acquired customers cost the business money unless they upgrade to the paid version or features. While acquisition is important, retention helps to evaluate whether new users are returning and were worth that initial cost. The Role of UX in Product-Led Growth. UX is crucial for a successful adoption of the product-led growth model.  The user’s very first experience with the product is critical. If users do not understand the product’s value quickly, they are likely to move on to the next similar product offering. With the explosion of new software products, users have become less and less tolerant of  clunky first experiences (not unexpectedly, as Jakob’s law teaches us). UX is key to mitigating the major risks associated with adopting a product-led growth strategy. How UX Can Help Product-Led Growth. Focus on Product-Led–Growth Metrics. UX must connect all design or content changes to product-led–growth metrics. Decrease Friction at Acquisition. At the acquisition stage, it’s critical that users perceive the product as highly valuable and easy to use, so they clearly understand the benefit of paying for more. UX should think of ways of making the initial experience as smooth as possible –- for example, by minimizing the need for onboarding tutorials  and removing any login walls . For instance, for an application like ChatGPT, users should not need to create an account because the service doesn’t need to verify identify or pull information from another app. Banking and investing applications, however, might need to verify information. To boost acquisition, it is important to include only those steps that are absolutely required . Minimize Time to Value. There is a difference between perception of value and actual value . A wide gap between the two means that the product does not successfully communicate its value. UX should conduct research to understand users’ mental models and expectations for the company’s product. It should also investigate how effective the existing design is in meeting those expectations. If the product delivers value beyond users’ initial assumptions, is that value well conveyed by the design? Spend Time on Converted Customers. It is wise to recall the Pareto Principle in thinking about conversion. Only 20% percent of customers generate 80% of a company’s revenue. The implication is that it is worth investing resources into understanding and prioritizing high-potential gains from the “vital few.” UX folks should analyze qualitative and quantitative insights about existing customers and prioritize improving their experience. Increase Customer Retention. UX should compare the behaviors and feedback of customers who converted to those of people who did not convert, by combining analytics with qualitative insights. Start with analytics and look at onboarding, in particular. What did successful users do early on in their usage? Where did people get stuck? Compare what they said was missing or thought was confusing to how they navigated through the experience to understand pain points and remove them. This approach can yield valuable insights related to both decreasing time to value and increasing retention. Prevent Users from Quitting. If we observe in our analytics that a particular segment of users is using the product less over time, it could signal that the product does not sufficiently meet their needs or that the user experience is lacking. Again, returning customers are high-value customers, so it is critical to examine their usage and compare it with that of customers who have already churned. Look at how these users are engaging with specific features. Ask yourselves: How can we identify who might be at risk of churning and deter them from leaving? For example, in a financial-investment application, investing or transferring money is a much more significant type of engagement than passively monitoring stocks. Only monitoring stocks may signal a higher chance to churn; therefore, to encourage more active usage, you can consider promoting additional features to passive users. Ongoing Communication with Other Business Areas. Keep in touch with product, marketing, and sales partners. Consistently inquire about your organization’s high-level strategy and business objectives and make sure to always connect back all organizational initiatives to these objectives. Align on some measurable indicators and targets that can be directly tied to the product-led strategy metrics. Make sure to consider both macro and micro conversions. While macro conversions (high-level conversion tied to the primary purpose of the site) are often the first success indicators considered, it is, however, important to define and revisit micro conversions, which measure incremental improvements to the user experience. In product-led growth, products are competing at the micro-conversion level. Analyze the conversion user journey and create milestone micro conversions that capture progress toward primary macro conversions. Also identify secondary user actions on site that are correlated with macro conversions. Talk to other departments to understand business risks . While UX can determine frictions that may cause churn and address them, it’s also necessary to be aware of threats identified by other areas of the business.  For example, in a product-led growth strategy, customer support is key for addressing customers’ problems or answering their questions. That department may take a slightly different lens in its analysis of issues and risks This same concept applies to marketing, customer success, and engineering. The idea is that each respective business area has its own respective risks to assess, and UX should be aware of what they are. Conclusion. UX is at the heart of a product-led-growth strategy, charged with creating a compelling customer experience that will ultimately determine the success of the product in an increasingly competitive market. With knowledge of what is important to investigate and consistent communication with partners, this success is entirely within reach. Share: Share this article: Twitter |. LinkedIn |. Email. Share this article: Twitter. LinkedIn. Email. About the Author. Sara Ramaswamy is a User Experience Specialist with Nielsen Norman Group. She applies UX methodologies to enterprise product development and conducts international user research. Subscribe to our Alertbox E-Mail Newsletter: The latest articles about interface usability, website design, and UX research from the Nielsen Norman Group. Subscribe. Learn More. Articles. Recognize Strategic Opportunities with Long-Tail Data. UX Strategy: Study Guide. UX Roadmaps: Who, When, and How Much Time? UX Strategy: Definition and Components. UX-Roadmapping Workshops: Agenda + Activities. UX Conference Training Courses. UX Roadmaps. Customer-Journey Management. Discoveries: Building the Right Thing. Analytics and User Experience. How to Interpret UX Numbers: Statistics for UX. Research Reports. UX Metrics and ROI. Operationalizing CX: Organizational Strategies for Delivering Superior Omnichannel Experiences. 1-Hour Talks. How Inclusive Design Expands Business Value. Conversion Rate Optimization and Applied UX Research. Digital Workplace Transformation. Form Design 101. Rapid UX Research for Lean and Agile Teams.