Original link: https://arminli.com/plg-rd-ratio/
Products from many companies can
self-serve, also available in free or trial versions, doesn’t actually elevate it to a strategic position within the company. So how do you identify a true product-driven growth company?
R&D spending as a percentage of sales and marketing spending.
Two examples are, Atlassian
47% of revenue goes to R&D and only 16% to sales and marketing, a ratio of 2.9:1; while DocuSign only spends 19% of its revenue on R&D, 55%
For sales and marketing, the ratio is 1:2.9, so PLG is just a customer acquisition channel for them, not a strategic position, although they have a free version and can
self-serve.
Kyle Poyar of Openview
After sorting out all listed companies, 6 of the 10 companies with the highest share of R&D/sales and marketing expenditures are PLG companies. in
Atlassian (2.9), DigitalOcean (2.2), Dropbox (1.7), Datadog (1.1), and Shopify (1.0), followed by Twilio (0.9), Slack (0.8), Fastly (0.8), and Elastic (0.8).
In the top ten, four are traditional sales-oriented companies, they are
Workday (1.4), Q2 (1.4), Veeva (1.3) and
nCino (1.0), this is because they have a very high penetration rate into the target market, and the growth is mainly by selling more products to existing customers.
such as in
In Veeva’s Investor Day PPT, customers purchased an average of 3.72 products, compared to 1.9 in 2019; 20% of customers purchased 6
more than one product.
Let’s take a look at the 10 companies with the lowest R&D/sales and marketing spending, only two are PLG
Companies: Zoom and DocuSign.
Zoom’s revenue rises year-over-year due to pandemic
369%, under the growth of this scale, it is necessary to increase the sales force as soon as possible to meet the demand, which may be the reason for its low proportion. While DocuSign has been converted from PLG
saw amazing benefits in 1 billion signers and 76.7
Millions of paying digital customers, and their future growth will need to steer these customers into more complex enterprise products.
Overall, PLG
The company’s average was 0.87, while the value for non-PLG SaaS was
0.58. That’s not to say that investing in R&D spending is the right decision for any company, but this metric can help you tell the difference because financial statements don’t lie.
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