Product Growth — from User Acquisition to Retention [Part 1]

Growth Hacking your Product

What is Product Growth?

Let’s get the basics straight. Growing a product, or product growth can be defined as increasing the value of your business for your customers, stakeholders, employees, shareholders and investors. This value can expand through an increase in —

1. revenue — improving revenue margins within the product through monetization
2. number of users — expanding your user base (new user acquisition)
3. usage of a product — engaging existing users (user engagement)
4. user retention for the long term — customer lifetime value (clv)

And you can have this product growth across all stages of your product funnel — acquisition, activation, engagement, conversion, retention.

The ways to accomplish all of the above are three-fold —

1. Product-led — growth (PLG) comes through by investing in developing new experiences, and/or enhancing existing experiences within the product i.e. solving for new user challenges and/or optimizing solutions for existing user pain-points. Product-led growth comes by new product initiatives (big rocks or bets), experimentation, optimizing funnels, fine-tuning processes and any other product-driven developments. In other words, the product itself is responsible for acquiring, signing up, retaining, and ensuring the loyalty of customers. Creating a holistic ecosystem (eg. Apple’s bundling of its products) or generating new lines of complementary businesses (through build, buy, partner — eg. Netflix’s foray into video-gaming or Amazon’s extension into finance) are also part of product-driven growth. Examples include almost all software & digital products (Meta, Netflix, Twitter) in today’s day and age.
2. Sales-led — is a traditional growth approach that comes through by improving the sales strategies, processes and the sales-funnel of a product and is manifested in aggressive quarterly/semester-wide growth targets, closing on or converting qualified leads, customer/client relationship building, upselling, account conversion & retention etc. Here, sales is the primary driver of revenue and the main profit center of the company. The sales funnel is relatively long — cold-calling, generating leads, qualifying leads, bringing them into the funnel through customer demos, presentations and free trials, converting leads to paying customers and then upselling them/retaining them to generate CLTV (customer lifetime value). Examples include service-led companies with complex products that require expertise/training such as Microsoft, Salesforce, Industrial Instruments, Manufacturing companies etc.
3. Marketing-led — is another traditional growth approach that introduces new marketing-driven growth loops into product ecosystem to help differentiate the product, re-invent the narrative, identify and articulate the product-value, grow the product brand, thus increasing revenue, users and/or usage. Whether it’s content-marketing (blogs, articles, videos), social-media marketing (on social channels such as Instagram, Snapchat, Meta for social shares and referrals), product-marketing (free-trial, upgrades, limited-time offers), paid-media or seo marketing (pay-per-click advertising, branded content and display ads), or traditional marketing (news, print, on-the-field), all encompass various channel-marketing techniques to help grow the product. Examples include traditional product companies such as Coca-Cola, Proctor & Gamble, Starbucks etc.

There are other types of product growths such as Customer-led where customer-feedback is the core part of generating user value, that can be achieved through incremental improvements in customer experience. However, we can club this into the PLG (product-led growth) strategy since improving customer experience is a part of the product development and enhancement process itself.

In this article, I’ll mostly concentrate on product-led growth (PLG) which is where I’ve spent the majority of my product career in, whereas I’ve helped support product-marketing initiatives by product-marketing teams a few other times.

Measuring Product Growth

Before we get into the various product-growth strategies (or product-led growth) in detail, let’s articulate how we measure product-growth. There’re various metrics that can act as the north star metric (or the OMTM — One Metric That Matters) depending on the stage your company is at, your long term vision, company priorities, competition and/or the market/industry conditions/fluctuations. In reality, you might be focusing on a couple of these stages in a product funnel at a point in time — acquisition, activation, engagement, conversion, retention.

1. New User Acquisition, DAU to MAU rate, Time to Activate, Time to Value — If your company has raised significant funds through investors, your main objective might be to grow the number of users (acquire & activate) on the platform, thereby competing aggressively by creating monopoly in your target market, thus deferring revenue-generation to a later date. No. of acquired users, Visitor to sign-up rate, DAU to MAU rate, Time to Activate etc. might be the best metrics to track in this case. Here, you’re also burning cash at unprecedented levels (e.g. through costly promotional offers, heavy discounts etc.) through heavy focus on product & marketing initiatives, team & market-geographic expansion to attract new users. Burn rate (used by startup companies and investors to track the amount of monthly cash that a company spends before it starts generating its own income) and Runway (the amount of time that the company has before it runs out of money) become important yardsticks in this process. Quibi, Blue Apron, WeWork and a whole lot of other startups lost due to a high burn-rate, and ran out of runway before they could start generating significant income (operating & company-level profitability) that could sustain them further.
2. MAU, Feature adoption rate, Frequency of usage, NPS, NSAT, Session time — Whether you’re focusing on revenue for your product or not (eg. WhatsApp or complementary financial planning platforms from banks that do not directly charge users for the product), after the first new user acquisition phase, you’ll have to pivot your energies into engaging these existing users by hooking them into the product and creating a growth flywheel into the product ecosystem. The way to do this is to create more value in the product based on user behavior, actions and feedback, and generating a cycle where users feel delighted to frequent your product, thus driving repeat product usage. MAU, Frequency of usage, NPS (net promotor score), NSAT (net satisfaction), session time, number of sessions per unique user, feature adoption rate, and many more metrics can be used to measure user engagement.
3. Monthly Recurring Revenue, ARPU, Conversion Rate, Customer Acquisition Cost — when your product has amassed a significant audience and you’re in a less-vulnerable position, you’d start focusing on monetizing your product-value, either through subscriptions, freemium model, time-based contracts, transactional costing, advertising revenue and a whole host of other business models. Here, a sustainable MRR (monthly recurring revenue) in the case of SaaS and subscription-based businesses, ARPU (average revenue per user), conversion rate, paid conversions, revenue vs. coca (cost of customer acquisition) and other revenue-based metrics can be tracked depending on your business priorities, objectives and also market/investor pressure.
4. Customer/Revenue Churn, Retention Rate, CLV (Customer Lifetime Value) — At a mature stage of your product lifecycle, you’ll eventually start focusing on user retention. You’ve heard this multiple times — acquiring a new customer can cost five times more than retaining an existing customer. So you’ll start optimizing your sales, acquisition, engagement, conversion and funnels to patch up and streamline any gaps that lead to customer churn. You’ll want to identify frictions in the product that is leading to users dropping off, decrease in repeat purchases or reduction in usage frequency, or solve for specific needs of a certain user segments/personas that are highly valuable to your product growth. There are various ways to increase retention (measured by Retention Rate, Repeat Purchase Ratio) or reduce churn (measured by Customer/Revenue Churn, Time between Purchases), thereby improving the long term customer lifetime value (CLV).

Product-Led Growth (PLG) | Organic Product Growth

Building a Product that sells itself

Now let’s dive into product-led growth (plg) that relies on word of mouth/virality rather than run-of-the-mill promotional sales/marketing strategies. The product is responsible in driving user value, trust and loyalty through a frictionless, delightful user experience in contrast to your competitors. Thus, you prioritize user success (customer success) over monetization, to help drive product growth. Your product becomes the key broker for acquisition, activation, engagement, monetization and retention.

You can create product-led growth through — big bets (rocks) i.e. new product initiatives, enhancements of existing features, experimentation of funnel touchpoints and other features, fixes/technical debt to help improve performance, stability, scalability. You’re leveraging the core strength of your product, instead of an external stimuli (marketing, sales etc.) to help boost the inherent value of your product for your customers and stakeholders. And there lies the beauty of PLG.

Benefits of PLG —

1. Decreased customer acquisition cost — product-led growth, as the name suggests, doesn’t rely on external mechanisms to drive growth, rather it relies on organically strengthening the inherent product to create exponential value for its users/customers. Hence by default, the cost of acquiring customers is relatively less than when you employ marketing or sales-driven growth tactics. You gain users through mostly word of mouth and referrals, which are organic channels of customer acquisition, leading to minimal user acquisition and activation costs.
2. Decreased overall product costs — when you invest into your product (sprucing it up, renovating it & cleaning it as you go) by becoming customer-obsessed, paying attention to your user signals (needs, jobs, feedback, behaviors) and market/industry trends, you’re empowering your customers to be self-sufficient. And then indirectly reducing peripheral product costs such as customer support (reduced support queries), account handling and relationship building (less hand holding), product downtime or crash (because you’ve already cleaned up your tech debt, or upgraded to the latest tech-stack), customer chargebacks (since your customers are loyal to your product) and other marketing, operational costs.
3. Inherent good user experience — since you’re investing into the success of your users/customers through the betterment of your product, you’re actively creating a better user experience and workflows for your users. By identifying user pain-points and jobs to be done, analyzing needs of specific personas/user cohorts, and then solving for the usecases with the highest ROI, you keep optimizing your product slowly but surely, which makes it all the more attractive to existing and new users.

How to spot a PLG company?

Product-led companies have few characteristics in common — seamless delightful user experience, lower barrier to adoption, free or freemium model, strong community of product advocates, & virality. Other traits such as ease of sign-up, value-first money-later, short time to value, self-serve mechanisms also can help you identify such PLG brands. Here, the users experience the “aha moment” faster, making the product stickier to them, and they go on to become your biggest evangelizers.

Product led growth usually creates habit-building products that users get hooked on. You can attest to their simplicity and the ability to get the job done without blinking an eyelid. These companies compete based on their intrinsic value rather than their sales/marketing firepower.

Examples of product led B2B companies:

Dropbox, Slack, Shopify, Trello Enterprise, Hubspot, Amplitude

Examples of product led B2C companies:

Amazon, Robinhood, Instagram/Meta, Twitter, Hopper, Headspace, Classpass, Medium, Telegram, Google Photos

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