Product-Led Growth (PLG)
Definition
Product-Led Growth is a go-to-market strategy where the product itself serves as the primary driver of customer acquisition, conversion, expansion, and retention. PLG companies offer free trials, freemium models, or self-service options that allow users to experience value before purchasing. The product experience is designed to be intuitive, viral, and valuable enough that users naturally progress from free to paid tiers. This approach contrasts with sales-led growth where human salespeople drive conversions. PLG requires deep investment in product analytics, user onboarding, in-product engagement, and self-service capabilities that enable users to succeed independently.
Why It Matters: PLG companies typically achieve lower customer acquisition costs, faster growth rates, and higher efficiency metrics compared to sales-led competitors. Product managers in PLG organizations must obsess over activation metrics, time-to-value, and creating viral product experiences that drive organic growth.
Related Terms:
- Freemium Model: Offering basic features free with paid premium upgrades
- Time to Value (TTV): How quickly users achieve their first meaningful outcome
- Viral Coefficient: Measure of how many new users each existing user brings
Example: Slack exemplifies PLG by allowing teams to start free, experience collaboration value immediately, and naturally upgrade as usage grows. The product's ease of use and network effects drive expansion without sales involvement.
Related Terms
Churn Rate
Churn rate measures the percentage of customers or revenue lost during a specific time period, typically monthly or annually. Customer churn (logo churn) counts the number of customers lost, while revenue churn measures the monetary value lost. The basic formula is: (Customers Lost / Total Customers at Start) × 100. A 5% monthly churn rate means you lose 5% of your customer base each month. Churn is the enemy of SaaS growth because it directly impacts the compounding nature of recurring revenue models and significantly affects customer lifetime value calculations. Why It Matters: Even small improvements in churn can dramatically impact long-term revenue. A company with 5% monthly churn retains only 54% of customers after one year, while 3% monthly churn retains 69%. Product managers must understand churn drivers to prioritize retention features and identify at-risk customer segments. Related Terms: Net Revenue Retention (NRR): Revenue retained from existing customers including expansions Customer Lifetime Value (LTV): Total revenue expected from a customer relationship Cohort Analysis: Grouping customers by signup date to track retention patterns Example: A SaaS product starts January with 1,000 customers and loses 50 by month-end, resulting in a 5% monthly churn rate. The PM investigates and finds that customers without onboarding completion churn at 15%, leading to improved onboarding prioritization.
Annual Recurring Revenue (ARR)
Definition: Annual Recurring Revenue represents the predictable and recurring revenue components of a SaaS business normalized to a one-year period. It includes subscriptions and contracted recurring revenue but excludes one-time fees, professional services, and variable usage charges. ARR is calculated by multiplying Monthly Recurring Revenue (MRR) by 12 or by summing all annual contract values. This metric provides insight into business health, growth trajectory, and valuation potential, making it essential for financial planning, investor communications, and strategic decision-making. Why It Matters: ARR serves as the primary health metric for SaaS businesses, directly influencing company valuation, investment decisions, and strategic planning. It enables product managers to understand the financial impact of product decisions, prioritize features that drive retention and expansion, and align product roadmaps with revenue goals. Related Terms: MRR (Monthly Recurring Revenue), Net Revenue Retention, Customer Lifetime Value Example: A SaaS company with 100 customers paying $500/month has an ARR of $600,000 ($500 × 100 × 12), which helps them forecast growth and secure Series A funding.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the predictable revenue stream a SaaS business expects each month from active subscriptions. MRR normalizes all subscription values to a monthly amount, excluding one-time fees, usage overages, and professional services. Key MRR components include New MRR (from new customers), Expansion MRR (from upgrades), Contraction MRR (from downgrades), and Churned MRR (from cancellations). Net New MRR is calculated by adding new and expansion MRR, then subtracting contraction and churned MRR. Tracking MRR movement helps product managers understand which customer actions drive revenue growth and where product improvements are needed. Why It Matters: MRR provides a real-time pulse on business health and growth trajectory. Unlike revenue recognition accounting, MRR immediately reflects subscription changes, enabling faster decision-making. Product managers monitor MRR trends to evaluate feature launches, pricing changes, and retention initiatives, making it essential for agile strategy adjustment. Related Terms: ARR (Annual Recurring Revenue): MRR multiplied by twelve for annual view Net New MRR: The combined effect of all MRR movements in a period MRR Growth Rate: Percentage increase in MRR month-over-month Example: A SaaS product has $100K MRR. They add $15K from new customers, $5K from upgrades, lose $3K to downgrades and $7K to churn. Net New MRR is $10K, bringing total MRR to $110K, a 10% growth rate.