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PLG & Profitability : More Product Doesn't Necessarily Mean Greater Profits by @ttunguz

tomtunguz.com · 419 words · saved by 1 readers

Profitability or net income margin has become the most important correlate to public software company valuations. But public companies are less profitable today than a year ago. Surprisingly, PLG companies’ profitability has suffered more than sales-led businesses. Across every quartile, public software & infrastructure companies have seen a 5 percentage point drop in net income since Covid. Product-led growth (PLG) companies - those who educate & convert buyers with product rather than sales & marketing (SLG) - operate at about 5% to 10% less profitability than sales-led motions. Curiously, this profitability pattern changed during the pandemic. Before, PLG companies operated at better profitability. Since then, PLG companies operate with 10% worse profitability (p-value < 0.001). What happened? PLG companies spend comparable amounts on sales & marketing (S&M) to SLG companies, but they spend more on research & development (R&D). The chart above shows the combined Sales & Marketing +

In short : PLG companies are now less profitable than sales-led firms, revealing shifts in SaaS spending and business models post-Covid. Profitability or net income margin has become the most important correlate to public software company valuations. But public companies are less profitable today than a year ago. Surprisingly, PLG companies' profitability has suffered more than sales-led businesses. Across every quartile, public software & infrastructure companies have seen a 5 percentage point drop in net income since Covid. Product-led growth (PLG) companies - those who educate & convert buy

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