Hi and welcome to the second episode. I'm your host, Vincent Young, and today we're digging into one of the bigger enablers of a good PLG strategy—pricing and packaging. Who better to discuss this with than Kyle Poyar? This interview is part of my upcoming book called Product-Led Sales. The book is about the different ways B2B companies can combine PLG with their existing sales teams. For more info and early access, visit www.plgsales.com.

Now about my guest: Kyle is an operating partner at OpenView, an expansion-stage venture capital firm. He helps their portfolio companies fuel growth and become market leaders. Before this, he spent almost six years at Simon-Kucher Partners, consulting top technology companies on their packaging, pricing, and go-to-market strategy. He's also known for his weekly newsletter, Growth Unhinged, in which he covers in-depth case studies and deep-dive takes on product-led growth, pricing, and go-to-market strategy. When he's not busy with writing or work, he loves playing tennis, cooking Mediterranean food, hiking, or hanging out in Boston, where he's based.

Alright, Kyle, great to have you here. Thanks for joining. Today we're going to talk about product-led growth and specifically, I think a topic that you love, which is around business models and pricing. There are two parts I'd love to cover: one is that you've seen a lot in the market through your different experiences. Looking back, which things have you seen work and which have you seen not work so well? But also, I'd like to hear the more spicy things—maybe it's not proven by data yet, but what do you think? Where do you think the market is going? What do you think companies are doing now that just doesn't make sense to you? Or whatever you think is interesting to talk about. So that's kind of what we'll get into today.

The focus is a lot on companies that are already in business. I think there's enough content out there on what the PLG pricing model is and which ways you can go, but if you're in business today and you want to shift from, let's say, traditional sales to doing PLG, then how to do that is actually not that straightforward in many cases. One of the things that can really provide a challenge in this is the current pricing model that just may not be ready to support certain product-led motions.

To start off, what have you seen companies struggle with on this front? I mean, does it even sound familiar? What have you seen here? Can you give some examples of what you've seen work or maybe not work?

Absolutely. Well, there's a lot of barriers to shifting to a product-led growth model. Pricing and packaging certainly come into play because when we think about product-led growth, we think about focusing on end users and using the product as a means of acquiring and converting those users. So it often corresponds with having some sort of free offering for people to try before they buy and a relatively affordable entry point. If you're getting all of these people in who are more users or team leads for the product but not the executive buyer, you kind of need to nurture them on their journey to eventually become an enterprise purchaser. And that's often a lower starting deal size than many enterprise-focused companies are used to.

You just need more simplicity and transparency around pricing. Folks would be hesitant to even try out a product if they think there's going to be sticker shock. Why invest all that sweat equity in setting it up if it's just a non-starter in terms of affordability? All those things are challenging to a business that's usually enterprise-focused. A lot of companies give some discretion to sales to figure out pricing on a specific deal. Sometimes they call that value-based pricing or just making up pricing based on what folks think they could get in a given situation. That type of model doesn't work so well in a product-led growth environment.

Often, folks are thinking about cannibalization risks because they might have some existing customers that are paying a lot of money. If they introduce an entry-level package or have more transparency around pricing on their website, there's a risk of their existing customers wanting to downgrade and adopt some of these other offerings. So it's definitely challenging if you have that install base and history to adapt pricing in a way that fits PLG.

I personally believe that usage-based models work really well in these situations because you can grow with the customer as they grow their usage. Having a lightweight or affordable entry point means you're offering less usage in terms of the initial commitment and spend. But classic seat-based subscription models might not work so well for that type of purchase.

The other thing I would flag is that when you think about this idea of a premium or free trial as part of letting people try before they buy, you start to really worry about what you're giving away. Maybe you're being too generous with the free version, and someone could just keep using it and never need to upgrade. On the flip side, I often find that ends up being an excuse for watering down the free version so much that it's not actually usable for the high-value customers you're trying to attract. It ends up only being useful for prosumers, personal users, or small businesses.

You end up having all of these free users with a support burden but who have no real likelihood of converting to paying customers down the line. So you've got to really strike that balance, and unfortunately, I think too many people are nervous about offering too much and then it ends up coming back to haunt them.

Yeah, these are real risks for businesses. It doesn't come from nowhere. Like you're saying, the free version often becomes the biggest competitor for sales. Cannibalization can apply to existing customers but also to new business. Are we now serving people for free or for less, and that used to maybe be at full price or the original price?

Do you have any methods, models, or ways to gain more confidence there? In other words, if I'm doing sales today and I'm selling at a certain price, how do I bridge the gap? How do I get more confidence as a company in making that step?

It's a great question. I think there are actually a lot of different routes to test out product-led growth strategies that don't require fully jumping into the deep end right away. I like to prove out those different steps and sequentially build out a more sustainable PLG model. Ultimately, product-led growth is about using your product as a means of acquisition, conversion, and retention. That means it's more of a dimmer switch than an on-or-off switch. You have companies that are very extreme in terms of using the product across the entire journey, having a lot of revenue come from self-service purchasing where there's no human interaction. But there are other instances where products are great lead-gen into the sales funnel—Ramp's a great example of that.

You could also find examples where you have interactive demos on the website that are really great ways of taking existing traffic or prospects and getting them more interested in an actual demo and purchase process. There are different levers, like the expansion angle, where once someone's an existing customer, can they try a free trial of a new product offering that you have?

The first thing I would think about if I were at a company thinking about this is: Can we test a free trial call-to-action on the website that's actually a person-assisted free trial? Not fully self-served, but someone can request a free trial, and then you have someone on the team help set them up in a 30-minute onboarding call. Does that actually meaningfully influence the number of folks that take action when they visit the website? Does it overly cannibalize the group that's selecting "contact us" or "request a demo"? Or is there a healthy balance of both? You might find that it increases the overall pie that's available for the business, or you might find it just shrinks an existing pie. But that's something you have to experiment with to validate. This is something you can do without having a fully self-served, fully operational free trial. It's more about testing the appetite for a free trial.

Another angle is testing an interactive demo on the website. As I mentioned, interactive demos allow folks to see the experience of what using the product would look like and the value they'd be able to get from it without actually doing all of the work around setting it up—setting up integrations, moving data over. For many people, that's something they want to see before they ever talk to someone on the sales team. Once they've seen it, they're often a lot more bought into the sales process. So, I tend to find that when you have these interactive demos on the website, you're able to increase the amount of qualified demo requests, and you see that these folks are extremely high-intent leads that are much more likely to buy than the average customer.

Particularly for a product that's in a newer category or where part of the benefit is taking something that maybe there's an existing software for that people don't like, or it's not workable, or it's legacy software, and really demonstrating how you're unique and how the product is better. There's something about saying that you're better through a demo process, but there's another thing about someone actually experiencing that for themselves and seeing firsthand, coming to their own conclusion. So, I think those are really great entry points. From there, I would think about, you know, if those were moving towards a more self-service free trial or premium edition. You can often do that while continuing to have the same pricing.

We have portfolio companies that have done that, you know, in an enterprise model, and it acts more as a self-service proof of concept that they might otherwise do in the sales process. So, that's another way to test out this PLG opportunity. If you end up finding that you're getting a lot of these free trial requests or free trial signups, folks are seeing value in that trial, but they're ultimately not buying because the price is too high. That's when you can really start thinking about, you know, a new entry-level package or offering designed around this audience that you know already exists and is already kind of eager to buy just at a different price point than you're selling today.

The great thing about this is that you're de-risking the whole investment. You can do this with the team and the motion that you have today. It's almost like adding a button and figuring out how to give people access when they ask for it. Exactly, exactly. Definitely de-risking things. It also starts to create some shared incentives across teams. A lot of times in SaaS, we get into this handoff model, right, where marketing hands off prospects to an SDR who qualifies them, who hands it off to an AE, who hands it off to a solution consultant, and so on. What happens is you have a lot of friction for the customer, right, because they feel like they're being handed off. It's not a seamless experience, and you're missing out on opportunities by not connecting the dots and bringing teams together cross-functionally.

If you have, for example, a marketing team that's thinking not about how many MQLs they can bring to sales but how much qualified pipeline they can generate, all of a sudden, doing these things like free trial experiences on the website or interactive demo experiences align with what marketing is focused on. Now, marketing is a much better partner for sales because everyone is trying to do the same thing at the end of the day. So, you can break out of these siloed thinking or assembly line models and find creative solutions. I tend to find what works really great for testing PLG is using an area that is a critical focus point for the business.

You might say, hey, we've got to get CAC payback down with this segment, or we've got to accelerate time to close, or we've got to increase competitive win rate. Whatever it is, if it's the number one thing the board cares about, I'm sure there's a PLG angle that might help with that opportunity that you haven't considered. If you can apply PLG towards the problems that everyone in the business knows are really important, that ends up unlocking a lot of permission to go further on the PLG journey.

Yeah, I'm nodding because this is something I emphasize a lot as well. It's not about doing PLG; that's not the goal. It's about achieving the goals the company has, right? The more you align with that, the easier it becomes to drive that change in the end. If we look on the flip side, are there any categories of companies or pricing models where you've just seen, okay, it just doesn't work there? It's okay, not everybody needs to do this, but if you're in this business, or if you do this, then probably it's not the first thing to look at?

In our product benchmark survey from earlier this year, we surveyed hundreds of companies and tried to get a sense for which categories are right for PLG and which categories make PLG a much harder sell or harder to pull off. What we found is that anyone selling to a really small business audience or SMB, product-led growth was very common. It was much less common if you're selling to large enterprises with a thousand or more employees. That's where you only saw maybe 15% or 20% PLG adoption. So, the size of your target customer matters a lot.

The other angle that matters is the category of software. Any software that's selling to developers or in an infrastructure-type environment, product-led growth adoption is extremely high, and there's almost an expectation now from the developer community that people should be able to use the product on a self-serve basis. They don't want to be forced to talk to sales. But then, if you look at categories like finance-oriented technology, vertical-specific software, or legal tech in particular, you see much lower PLG adoption.

The takeaways for me are, first off, some of these industries are just less tech-savvy in the first place. The buyers don't really want a self-serve experience. They maybe need help or want a more consultative experience. So, make sure that you're focusing on an industry where the way people actually want to buy your software is aligned with PLG. That would be takeaway number one.

Number two is when you think about SMB versus enterprise. One factor is, at the enterprise level, there are more stakeholders involved in the purchase decision. There's more risk, and there are more complex integrations. It's not all turnkey, like, hey, we could just set everything up in a few clicks. An enterprise-specific integration with another enterprise technology is often a lot more complicated than that. There's also a lot of data and complex workflows to ensure are working, so if you're selling to an enterprise with a lot more friction involved with setting up the product and seeing value, convincing people there's value, that's obviously much harder to pull off PLG unless you can find a specific wedge within that bigger opportunity where someone can actually get up and running quickly.

The final area I’d point to is if you're selling to a very small business audience, you don't have a lot of deal sizes. They're usually small, maybe a couple hundred dollars a month, and you don't have a lot of ability to invest in a high-touch sales motion. The CAC payback just can't support as high-touch of a sales motion as in an enterprise setting, where you're maybe getting $100,000 or $200,000 deals. So, in that case, you're looking for anything you can do to automate the customer journey and bring that into a product-based or more scalable solution as opposed to having a human doing it manually.

That's where it's much more business-critical from a KPI standpoint to find lower CAC ways of doing business. So, I'd say also make sure you're applying PLG to develop the unit economics and build an attractive business. If your business can support high-touch experiences that win over these really high-value customers, that's great, and maybe in those cases, PLG is not as much of a requirement. But if you need to focus on extreme efficiency, the calculation switches.

Great, great. All right, so then let's get into some more, not unproven, but some more edgy topics around PLG. What's happening today in the world? In your view, where do you see it going next? Yeah, it's a great question. PLG almost became trendy in 2021 and 2022. I saw a number of companies trying PLG or looking at PLG from the outside, but it was never core to their business model. It was more of a side project, something people thought they should be doing or might cure other challenges. They ended up building a PLG motion with the whole team to support it—more engineers, more product folks, more CAC in terms of setting up a PLG motion, and a long payoff time to see those works come to fruition alongside a totally traditional model.

In those cases, I’ve noticed people are disinvesting in PLG. They're trying to double down on what they know works, focusing on the core, and building a more efficient business. As anyone looks to do more with less, they're going to focus on what they know works as opposed to things that they see as experiments. So, that's actually a good thing for PLG, as we're able to find folks where it's really meaningful for their business, and they're thinking about it the right way.

One thing I look at to see if that's effective is product-influenced revenue as a new metric. It's a KPI that can hold teams accountable for whether PLG is actually doing what it's supposed to do. Product-influenced revenue is how much of net new ARR starts with a meaningful product interaction before there's ever a human involved in the sales motion. In our latest SaaS benchmark survey, we found that premium companies have a range from the 25th percentile to the 75th percentile of basically a quarter of their revenue as product-influenced, to 100% of revenue being product-influenced. There's a big range, and just because a company has a premium offering doesn't mean they're generating much product-influenced revenue or that the product influence is meaningful.

I think a trend we're seeing is the cutting of PLG initiatives that aren't working or were more side hustles or experiments as opposed to core initiatives. For PLG to really take off, companies need to find low-cost, scalable ways of acquiring users. A benefit of PLG is that you're able to reach people earlier in the buying process, bringing along end-users of the product rather than just targeting the upper-echelon executive buyers who might not have time for you and are getting pitched by hundreds of other vendors. You're able to get these end-users, show them value, and have them advocate from the bottom up for adopting the technology. That's great if you can attract these end-users at scale.

This means you need to be able to reach thousands of people—whether it's daily, weekly, or monthly. You should expect very high drop-off rates in terms of how many people you reach end up signing up for the product, how many of those take some meaningful action for activation, how many convert, and how many expand. You have to really open up the top of the funnel and target the user, who is often motivated by a very different type of message on the website. It's something more oriented around what they're trying to do, as opposed to the business or executive messaging, which is much more ROI-focused.

For example, with Salesforce, they're helping the CRO have predictable revenue. But for a sales rep, if Salesforce is trying to get them as an individual user, the sales rep often hates manual data entry in CRMs and the back-and-forth of scheduling meetings. The pain points motivating the end-user are different from the executive buyer's. You have to keep that in mind when you're thinking about finding scalable marketing channels. It requires a different skill set and a different set of channels than people might be used to.

One of the key channels that has worked for many of the successful PLG companies today is SEO. However, looking ahead, I don't know if we can rely as much on SEO as an efficient, cheap way of attracting thousands or hundreds of thousands of users to the website and getting them to sign up for the product. With what generative AI is doing to SEO opportunities and zero-click searches in general, we have to find other alternatives. You're starting to see more creative acquisition tactics around community strategies, social media—whether it's LinkedIn, TikTok, or working with influencers. There's a totally different set of tactics for reaching users than what folks were using five years ago.

I think to an extent, it's healthy for PLG to prove itself. Product-influenced revenue, for example, is a good thing in the long run. It makes PLG a real business practice that companies can decide to use or not use. Now, if we look at the other direction, something I see that doesn’t make sense to me is when companies underestimate the value of their PLG efforts. Some companies make a shift into Enterprise. For example, Airtable made a big announcement about their shift to Enterprise. What often happens is they start seeing more of their revenue coming from enterprise customers. Enterprises often have higher retention and expansion rates, so it looks like a really appealing customer target. However, they lose sight of how they’re actually reaching the Enterprise.

Focusing on an Enterprise customer doesn’t mean the same thing as abandoning PLG. For many companies that were successful in transitioning from PLG to Enterprise, PLG became their opportunity to attract individual users at larger companies. These individuals would try the product on a self-service basis and then advocate for enterprise adoption. Or, users might have started with the product at an SMB, and then switched jobs to an enterprise, maintaining brand affiliation with the PLG tool they loved.

Oftentimes, companies make the mistake of thinking that when they go Enterprise, they need to kill all PLG initiatives, kill any self-service access, and raise prices for everyone. It might look like it works for the first couple of quarters, as they're able to take self-serve, free users and convert them into paying enterprise customers. But a year later, they don’t have a pool of users they can convert into enterprise customers. All of that dries up because they disinvested in PLG, which became the foundation for their Enterprise growth efforts. The notion of "going Enterprise means we kill PLG" often ends up being shortsighted, and companies regret it later.

Now, what’s something that I personally think is really cool or something that has a lot of potential, but hasn't been proven yet in PLG? One thing that comes to mind is the opportunity to apply different sales tactics in conjunction with PLG. We've dispelled a lot of myths about PLG being anti-sales. There's a lot of room for synergy between PLG tactics and a human touch, especially for high-value leads who are ready to buy. But we're still early in this process, and we haven’t done much around outbound efforts for PLG businesses.

We also haven’t figured out how the sales process changes based on product information. We're getting better at using product signals to identify product-qualified leads and product-qualified accounts, but sales reps don't always use that information to provide a different customer experience. Ultimately, we’re trying to get to personalization—selling to the right person at the right time based on what we know about them. PLG provides amazing data to personalize the customer experience, but we’re not doing that today.

Another thing is that many of the techniques with PLG focus on automating the customer journey by taking actions that would typically be done by people—like SDRs and sales reps—and bringing that into the product. In theory, this is more efficient for the business and provides a better customer experience, because the products are always on and always available. However, there are ways to automate the customer experience that don't necessarily fall under traditional PLG methods.

For example, we could automate email streams tied to actions that customers take in the product, and those could appear to come from an AE. Or, we could run automated outbound campaigns, such as identifying users within an organization who are adopting the software and reaching out to them with an automated message to encourage them to try the product for free. There's not a lot of that kind of behavior in PLG businesses today, but I think the next generation will automate the customer experience, independent of how much of it happens within the product experience versus any other touchpoint the customer has.

Thanks for going through all that. We’ve come to the end of today’s session. I’m a big fan of your newsletter, Growth Unhinged. How can people follow your thinking and the things you publish? I appreciate that. I write the newsletter Growth Unhinged every week, featuring different stories and playbooks from fast-growing software startups. I also regularly share insights on LinkedIn, posting three or four times a week with different growth advice, lessons learned, and stories from our portfolio and beyond. Folks should definitely follow either or both to stay up to date. I’d suggest following both—that’s what I do!

Thanks so much. It was great having you on. That brings us to the end of this episode. There were some great ideas today for sales-driven companies looking to introduce PLG into their experience and pricing model. For more insights, make sure to follow Kyle on LinkedIn and subscribe to his newsletter, Growth Unhinged. Also, keep an eye out for my book, Product-Led Sales, which will be released soon. For early access, go to www.lgsales.com. Thanks for listening, and I hope you’ll tune in for the next episode, where I’ll be talking with Becca Kinan, co-founder and former CEO of Leadfeeder. We’ll talk about how they developed a successful product-led sales approach 10 years before the term was ever invented. See you then!