Tomasz Tunguz Blog · 2022-12-07 · 1275d

PLG vs Sales-Led Growth: The Profitability Trade-off Post-Covid

Product-led growth (PLG) companies have experienced a significant profitability decline post-Covid, operating at 10% worse profitability than sales-led growth (SLG) companies despite previously outperforming them. This shift is primarily driven by higher R&D spending (35% of revenue vs 26% for SLG) that has failed to generate equivalent returns in customer acquisition. The data suggests management teams should reassess the ROI of PLG versus SLG investments as net income becomes increasingly important for valuations.

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Metrics in this report

Combined S&M + R&D Spend - PLG

75%

of revenue

PLG companies post-Covid

Combined S&M + R&D Spend - SLG

67%

of revenue

SLG companies post-Covid

Net Income Margin Change

-5percentage points

across all quartiles

public software & infrastructure companies since Covid

PLG Profitability Gap

-5 to -10percentage points

range

PLG vs SLG post-Covid

R&D Spend - PLG

35%

of revenue

PLG companies post-Covid

R&D Spend - SLG

26%

of revenue

SLG companies post-Covid

R&D Spend Differential

9percentage points

additional for PLG

PLG vs SLG combined S&M + R&D

Sales & Marketing Spend - PLG

40%

of revenue

PLG companies post-Covid

Sales & Marketing Spend - SLG

41%

of revenue

SLG companies post-Covid