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Estd 4.22.2023
In the evolving landscape of SaaS, Product-Led Growth (PLG) has transformed how companies build, market, and sell their solutions. While traditional sales-led models relied heavily on outbound tactics and lengthy sales cycles, PLG puts the product experience at the forefront—allowing users to experience value before making a purchase decision.
But this shift raises critical questions about pricing strategy. How do you effectively experiment with pricing when your product, not your sales team, is doing the heavy lifting? Let's explore how pricing experiments change in a PLG environment and what executives need to consider.
The Fundamental Shift in PLG Pricing
In traditional sales-led organizations, pricing changes were typically implemented through direct sales conversations, with immediate feedback from prospects. The PLG environment operates differently:
User-driven adoption means pricing must be transparent enough for prospects to self-select the right tier without a sales representative guiding them.
Time-to-value becomes a critical metric. Users expect to experience value quickly, making the timing of pricing exposure crucial.
Value perception forms before any sales interaction occurs, meaning your product must communicate its worth independently.
According to OpenView Partners' 2022 Product Benchmarks report, PLG companies with successful pricing strategies generate 2x more revenue per employee compared to their sales-led counterparts. The stakes for getting pricing right are significantly higher.
Key Differences in PLG Pricing Experiments
1. Granular Value Metrics Matter More
In a PLG context, pricing experiments aren't just about testing different dollar amounts. They're about identifying and validating the right value metrics that align with how customers perceive value.
While a sales-led company might test pricing tiers based on broad categories like company size, PLG companies must experiment with usage-based metrics that directly correlate with customer success.
Slack's per-active-user model and Dropbox's storage-based pricing are perfect examples of value metrics that scale naturally with customer success. When implementing a pricing experiment, PLG companies often test different value metrics simultaneously, not just different price points.
2. Incremental Testing vs. Complete Overhauls
Sales-led organizations can more easily implement complete pricing restructures because sales teams can explain changes to prospects. PLG environments require more incremental approaches:
A/B testing of pricing pages for new users while maintaining existing pricing for current customers
Feature-specific pricing adjustments rather than wholesale changes
Gradual introduction of new pricing tiers rather than complete replacements
Atlassian, a PLG pioneer, famously maintained its original pricing for existing customers even as it adjusted pricing for new customers—sometimes for years. This approach protected existing relationships while optimizing revenue from new customers.
3. Behavioral Data Drives Decisions
The wealth of product usage data available in PLG companies transforms how pricing experiments are evaluated:
Traditional Sales-Led Metrics:- Win/loss rates- Sales cycle duration- Discount frequencyPLG Pricing Experiment Metrics:- Conversion rates at different stages of the funnel- Feature usage before/after pricing changes- Time-to-conversion changes- Expansion revenue impactsHubSpot's shift toward a PLG model involved extensive analysis of which features drove conversion from free to paid tiers before restructuring their pricing accordingly. Their product usage data revealed that users who engaged with specific reporting features were 3x more likely to convert to paid plans.
Best Practices for PLG Pricing Experiments
1. Start With Your North Star Metric
Before designing pricing experiments, identify which metric most closely correlates with customer success and long-term revenue. This becomes your north star for pricing decisions.
For Calendly, this was meetings scheduled. For Figma, it was active editors. Your pricing experiments should align with and reinforce this metric.
2. Implement Cohort-Based Experiments
Rather than risking disruption for your entire user base:
- Test new pricing with specific new-user segments
- Compare conversion rates, expansion patterns, and retention
- Roll out successful changes incrementally
Notion implemented this approach when testing their team pricing, resulting in a 54% improvement in team plan conversions without disturbing existing customers.
3. Build Pricing Communication Into the Product
In PLG environments, the product itself must communicate pricing value. This means:
- Feature-level indicators of which tier includes specific functionality
- Usage meters showing proximity to limits
- In-app messaging about value received
Canva effectively embeds upgrade opportunities within the workflow, showing premium elements that users can incorporate with a simple upgrade. According to their internal data, this in-context pricing approach yields 3X higher conversion rates than traditional paywall messaging.
4. Use Free Tiers Strategically
The free product tier isn't just a lead generation tool—it's a data goldmine for pricing experiments:
- Monitor which premium features free users attempt to access most
- Track where adoption stalls without additional features
- Analyze usage patterns that predict willingness to pay
Airtable's free tier evolution is instructive. By analyzing millions of free user interactions, they identified that users who created more than 3 interconnected bases were 5X more likely to need premium features, helping refine their pricing thresholds.
When PLG Pricing Goes Wrong
Failed pricing experiments in PLG environments typically share common characteristics:
Misaligned value metrics that don't correspond to actual value received
Complex pricing structures that users can't understand without assistance
Premature monetization before users experience sufficient value
Evernote's struggles with pricing provide a cautionary tale. Their shift to a more restrictive free tier without clear value communication resulted in user backlash and stalled growth. The lesson: PLG pricing changes must be preceded by clear value demonstration.
The Future of PLG Pricing Experiments
As PLG models mature, we're seeing several emerging trends:
AI-driven dynamic pricing that adjusts based on predicted customer lifetime value
Hybrid pricing models combining usage-based elements with subscription components
Community-influenced pricing where power users help shape pricing evolution
According to Tomasz Tunguz at Redpoint Ventures, companies that successfully combine usage-based pricing with subscription elements show 38% higher net dollar retention than pure subscription models.
Conclusion: The Continuous Experiment
Unlike traditional pricing strategy reviews that might happen annually, successful PLG companies treat pricing as a continuous experiment—constantly measuring, learning, and refining based on user behavior.
The key difference is that in PLG environments, your pricing strategy is as much a product feature as any other aspect of your solution. It must be designed with the same attention to user experience, tested with the same rigor, and optimized with the same data-driven approach.
For executives leading PLG initiatives, this means fostering closer collaboration between product, marketing, and revenue teams. It means investing in analytics capabilities that can measure the impact of pricing adjustments across complex user journeys. Most importantly, it means embracing experimentation as a core competency rather than an occasional exercise.
In the PLG world, your pricing isn't just what you charge—it's an integral part of how your product delivers and communicates value.