Sales-Led vs Product-Led Growth: How to Choose

In a sales-led model, a salesperson sells the software over a long sales cycle, typically to a senior executive. Buyers talk to the vendor first. They see the product later, often in a demo that the vendor controls.

In a product-led model, the product does most of the selling. OpenView defines product-led growth (PLG) as a strategy where the product itself drives acquisition, retention and expansion. The firm says its partner Blake Bartlett coined the term in 2016. Users sign up, try the product on their own and pay when they see value.

The history helps. OpenView describes field sales in the 1980s and 1990s, when software was a large capital purchase made by senior IT leaders. Cloud software in the 2000s moved buying power to business managers and led to inside sales. Since about 2010, firms such as Slack and Dropbox have made business software self-service, like a consumer app.

Sources: OpenView, "Product-Led Growth: What It Is and Why It's Here to Stay"; McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype" (August 8, 2023)

Product-led growth rests on a free way to try the product. In a 2019 survey of more than 500 software leaders, OpenView found that 58% offered a free version. One in four had a freemium plan, and most of those also ran a free trial. Newer firms leaned toward freemium: 41% of seed stage companies offered it, against 20% of later stage ones.

Onboarding matters most. Free users have no money at stake, so they leave fast if the product feels hard. OpenView notes that users want to understand a product in hours or minutes, without formal training.

The same firm gives a few numbers to track. It says best in class PLG firms show 130% to 150% net dollar retention. It calls a 20% to 40% activation rate for sign-ups normal. It also says PLG firms often grow more slowly than peers until they reach about $10 million in annual recurring revenue, and faster after that.

Sources: OpenView, "The State of Product Led Growth" (July 30, 2019); OpenView, "Product-Led Growth: What It Is and Why It's Here to Stay"

Sales-led growth puts people at the center. Reps find accounts, run demos, answer security questions, shape a price and guide the contract. This costs more per deal. It also fits deals where the buyer needs proof, a custom setup or sign-off from several people. Our guide to the B2B buying committee shows why such deals take time.

McKinsey notes that contract values are generally lower for small and mid-sized buyers, while the fixed cost of a sales force does not shrink. That gap pushes larger software firms to offer self-serve buying to smaller customers. Sales-led teams are not out of date. They are the right tool when each sale is big enough to pay for the effort.

Sources: McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype" (August 8, 2023)

Product-led growth is not a sure path to better results. McKinsey studied 107 publicly listed B2B software providers. It found that product-led firms grow faster than sales-led peers on average, but a small group of top performers account for most of that gap. Most firms that use product-led methods saw no boost.

McKinsey also found that average product-led firms spend much more on operating costs than average sales-led peers, yet do only slightly better on key measures. Strong product-led firms in its sample spent ten percentage points more on marketing, sales and research combined than strong sales-led ones. They also grew annual recurring revenue ten points faster and earned valuation ratios 50 percent higher.

The lesson is simple. The model matters less than how well you run it.

Sources: McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype" (August 8, 2023)

Three questions point toward one model or the other. This test is our own rule of thumb, not a published formula.

Time to value is the key point. McKinsey says that time to value and a product's built-in tendency to spread between users set how far a firm can move toward product-led. If a new user cannot see a result quickly, a free trial will mostly produce lost sign-ups. Also check your pricing. Our guide to B2B pricing models covers plans that suit self-serve buying.

Sources: McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype" (August 8, 2023). The table is the editors' own rule of thumb.

Most firms end up in the middle. McKinsey calls the blend product-led sales (PLS). A self-serve product creates the lead. A sales rep then steps in to close a large contract. Different people get different treatment: an executive may get a live demo, while the end users get a trial.

The lines are already blurring, McKinsey says. Pure PLG firms are hiring sales teams for large customers, and sales-led firms are adding free trials to prove value. HubSpot is one example. OpenView reports that the once sales and marketing led company now offers free versions of its tools, and its CEO said half of new customers used the free product before buying.

A practical path is to start where your buyers are. If small teams can start alone, offer a trial and watch which accounts use the product most. Send those accounts to sales. OpenView calls them product qualified accounts. If your buyers are executives, keep the sales motion and add a short trial or sandbox to speed up proof.

Sources: McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype" (August 8, 2023); OpenView, "The State of Product Led Growth" (July 30, 2019); OpenView, "Product-Led Growth: What It Is and Why It's Here to Stay"

1. OpenView, "Product-Led Growth: What It Is and Why It's Here to Stay." openviewpartners.com
2. Kyle Poyar, OpenView, "The State of Product Led Growth," July 30, 2019. openviewpartners.com
3. Alaghband, Panagiotidou, Roche and Schneider, McKinsey, "From product-led growth to product-led sales: Beyond the PLG hype," August 8, 2023. mckinsey.com