In a recent Linkedin live, some of our Maxio and Maxio (becoming Maxio) GTM experts met to discuss sales-led and product-led go-to-market strategies to determine which is best for SaaS companies.
Contributors:
Hillary Lovric, VP of Marketing
Maggie Ott, Manager of Business Development
Hillary McManus, Product Manager
You can watch their full conversation here.
Sales-led growth
What is sales-led growth?
Sales-led is the original GTM approach. It was the primary go-to-market strategy used during the early on-premise software days—before product-led growth was adopted—and is still effective today.
In sales-led growth companies, sales members are the main drivers of customer acquisition and, ultimately, bringing in revenue. Because of this, ample time and resources go into building a high-performing sales team.
This is because, in a sales-led model, a company’s success is primarily on the sales’ teams backs. Sales reps are solely responsible for generating new ARR, and there aren’t many self-service options for customers. In other words, if a potential user wants to try out or demo your SaaS, they have to go through sales first.
Common traits within sales-led SaaS companies
AGGRESSIVE GROWTH GOALS
Historically, sales-led companies tend to be well-funded and focused on hypergrowth. With plenty of capital to burn, most sales-led companies scale their sales and marketing efforts to pursue aggressive growth and expand their market share.
INCENTIVES FOR SALES EMPLOYEES
Due to the pressure of driving ARR growth, sales rep compensation packages look slightly different than the average B2B SaaS employee’s. A standard sales compensation plan typically offers a lower base salary in exchange for commissions on sales deals and a quarterly or yearly bonus.
Likewise, due to the pressure placed on high-performance sales teams, the turnover rate for sales employees is higher than in other departments (according to Hubspot, The average rep tenure sits at 18 months). While product-led companies typically have higher research and product development costs, sales-led companies need to be mindful of the costs associated with hiring, training, and retaining talented sales employees.
STICKIER CUSTOMER RELATIONSHIPS
Customers who go through the effort of completing a full sales cycle will likely commit to a year-long contract at the very least. While product-led SaaS businesses could suffer customer churn at any point in the customer lifecycle, sales-led companies can create 1:1 relationships with target accounts, increase their average customer lifespan, and improve retention rates.
GREATER FLEXIBILITY IN THE QUOTE-TO-CASH PROCESS
In a sales-led company, there’s a lot of flexibility between all the systems involved in the quote-to-cash process (CRM, general ledger, e-payments, etc.). The problem with this sales-dominant approach to the buying process is that finance teams end up having to manage countless unique sales negotiated contracts, each with their own terms, agreements, invoice line items, and price tags. Because of the greater workload placed on the finance team’s shoulders, it takes longer for prospects to receive a proper quote or customer contract, which could result in a closed/lost deal for the sales team.
Product-led growth
What does a product-led growth strategy look like in practice?
In a product-led model, the product itself is used as the primary driver of customer acquisition, conversion, and expansion.
For example, instead of conducting a product demo with a follow-up sales pitch, many product-led companies use free trials, pay-as-you-go options, and feature-gated entry-level subscription plans to attract new users and deliver quick time to value. Then, those new users take the lead in rolling out the product across their organization. Only after the rest of the organization has experienced the product’s value does a PLG company sweep in with a sales motion or premium subscription plan to seal the deal.
This bottom-up approach to growth naturally puts emphasis on the end user. Instead of trying to land target accounts with high ACVs, product-led companies use their product to build trust with the end user and scale with them over time.
Is product-led growth replacing the traditional sales-led model?Download the guide to find out.
Common traits within PLG companies
Freemium Business Model
While not every PLG company offers one, free trials are often seen as the quickest way to get customers signed up and using a SaaS product. PLG businesses use a freemium business model to prove value early, build brand awareness, and eventually convert free users to paid users over time.
Self
Product-led SaaS companies typically offer a billing portal where customers can change payment methods, upgrade their subscription plan, or purchase add-ons without having to consult with a company representative. While sales-led companies typically lock customers into an annual contract, PLG businesses give end users greater flexibility in how, when, and what they pay for their software.
Higher Research and Development Needs
By using their product as the main customer acquisition channel, PLG companies don’t have to spend nearly as much on labor-intensive sales outreach or lead-driven marketing campaigns. But there’s a catch—a product-led strategy has its own unique set of startup costs, including significant investments in research and development, additional server space, and increased customer support.
Based on a study by Crunchbase, the typical rule in SaaS for a growing and mature software company, 40% of revenue is spent on sales and marketing, 20% is spent on product/R&D, and 20% is spent on general and administrative expenses. Put simply, it’s the rule of 40/20/20. These numbers stand in stark contrast to a PLG purist company like Atlassian, who spends a whopping 47% of their revenue on R&D compared to only 16% on sales and marketing.
Fewer Opportunities for Customization in User Contracts
PLG is the opposite of sales-led in that there is much less opportunity for customization in user contracts. Because users aren’t creating a custom software package with a sales rep, customers are limited to the pre-defined subscription and pricing plans that a company offers.
However, in exchange for contract flexibility, finance teams are able to recognize revenue generated from pre-defined product and service offerings easily. The reduced variability in user contracts also makes it easier to maintain organized financial records, which are vital when navigating funding rounds, reporting to investors, or preparing for an audit.
The hybrid approach
While both sales and product-led growth have their advantages, they have their limitations as well.
For example, product-led growth is great at creating opportunities down market, but it struggles to meet the needs of large enterprise accounts that require more hand holding. In contrast, sales-led companies are built to target enterprise customers but are burdened with longer sales cycles and a high-touch implementation and support process.
This raises the question: what if you could have the best of both?
“While product-led growth is an easy way to launch a SaaS product, what if you could have the best of both worlds? A big trend we’ve been seeing in the SaaS space is many B2B SaaS companies are using a hybrid between these go-to-market strategies to better adapt to changing market conditions.”
— Maggie Ott, Manager of Business Development
Benefits of a hybrid GTM strategy
At first glance, product- and sales-led initiatives seem like opposite strategies, but the reality is neither exists in a vacuum. In most cases, the best GTM strategy includes a mix of the two.
By taking a hybrid approach, you get the benefits of product-led growth—scalability and faster client activation—while directing your sales team’s effort toward nurturing relationships with enterprise customers.
By combining these two models, SaaS companies can:
Quickly adapt to changing market conditions
Capture greater market share between enterprise accounts and individual users
Give customers multiple ways to discover and purchase their SaaS
Implementing a hybrid growth model
If you’re an established sales- or product-led organization, experimenting with a new GTM approach can seem daunting. However, transitioning to a hybrid model is a slow, iterative process that can be rolled out over time and doesn’t require an immediate overhaul of your company’s operations.
That being said, the main hurdle that SaaS companies, specifically sales-led ones, face when transitioning to a hybrid model is that they soon find they don’t have the tools and systems in place to develop and maintain flexible pricing and packaging.
Once front-office teams finally figure out a way to build and manage a PLG product catalog, the problem shifts to finance’s shoulders as they attempt to recognize and report on new revenue models while maintaining GAAP compliance. This friction puts sales/product and finance teams at odds with each other, especially when creating a competitive GTM strategy.
Therefore, SaaS companies interested in transitioning to a hybrid approach need to align front and back office teams around their GTM strategy.
Key takeaways
1. Sales-led and product-led are very different approaches, and what may be the easiest approach for your company right now may not be the best long-term. If you’re going to put resources into one over the other, make sure it’s the right plan to meet your growth goals 3-5 years down the road.
2. Taking a hybrid GTM approach allows you to remain flexible and agile during times of market change by diversifying your approach to customer acquisition, conversion, and expansion.
3. Having the right systems in place to manage both GTM motions is vital because it affects how your front and back office teams navigate the quote-to-cash process.
So, which GTM strategy should you choose?
There’s no one-size-fits-all approach. 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.
Need guidance on how you can optimize your current GTM strategy? Check out our latest ebook to find out how product-led growth is changing the future of B2B SaaS.