On this episode of Ground Up, Kieran Flanagan talks about the early days of freemium at HubSpot, instilling a growth discipline that expanded well beyond the marketing team, managing cross-functional teams, and more.
Ground Up Podcast | Oct 21
Jessica Greene on August 7, 2019 (last modified on August 19, 2019) • 22 minute read
Companies like Dropbox, HubSpot, Buffer, Trello, and MailChimp have shown us that offering a free-forever plan with limited features is a powerful way to generate interest, press, and customers.
We even offer a freemium version of our tool here at Databox.
And while freemium is a great way to get people to try and use your product, it’s only really a viable business model if you can get a good percentage of those free plan users to upgrade and pay some money for your tool. After all, your tool may be free to use, but it’s definitely not free to build, market, support, and maintain.
So how can you effectively and regularly convert freemium users into paying customers?
To find out, we asked dozens of SaaS professionals to share their best tips and tricks for improving their freemium-to-paid conversion rates.
For context, 69.4% of our respondents work for companies that target small businesses (less than 200 employees), and the other 30.6% work for companies that target medium-sized businesses (201+ employees).
They shared both their average free-to-paid conversion rates and their best tips for keeping those rates high.
Here’s what we learned.
To know whether or not you need to focus on improving your freemium-to-paid conversion rate, it helps to look at some benchmarks. So we asked our respondents to share the percentage of their free users who upgrade to a premium plan in an average month.
The largest percentage of respondents who work for companies that serve small businesses reported average freemium-to-paid conversion rates of 6-10%. For companies that serve medium-sized businesses, the average conversion rates reported were a little lower at 3-5%.
If your freemium-to-paid conversion rates are much lower than the benchmarks provided above, it might be time to look for some new ways to convert your freemium users into paying customers. Luckily, our respondents offered lots of suggestions you can consider.
First, we asked our respondents to tell us which channel—marketing, sales, or support—is most effective at driving freemium signups. For companies serving both small and mid-sized businesses, marketing was the overwhelming winner.
If you’re looking to acquire more freemium users, putting more resources into marketing is probably the way to go. After that, use these 20 proven tips that our respondents recommend to convert your freemium users into paying customers.
“When considering freemium for your SaaS, it’s important to find the right balance of value and comfort,” says Chanty’s Olga Mykhoparkina. “It’s the point at which the user gets enough value to stay with the product, but at the same time, the freemium limits make using the product uncomfortable.”
“Therefore, the freemium limit should be uncomfortable enough to motivate people to switch to premium. At the same time, the value has to be provided in an amount that keeps people using the product,” Mykhoparkina says.
“Your free plan needs to have just enough features to give users a taste of the full service while also limiting access to your most valuable features,” says Michael Terwindt of Ammo Marketing. “You want to tease those premium features and position them such that the value they offer is way beyond any free plan.”
Creately’s Nilma Yapa agrees and recommends “putting limits on features used in the application that users tend to hit naturally as they move to more serious use.”
When users hit limited features, Mind the Graph’s Fabricio Pamplona recommends “protecting the natural exploratory behavior with a paywall. In our case, we display a popup when users reach a limitation for their account types.”
Milanote’s John Pooley suggests a different approach: “Place quantitative—rather than qualitative—limitations on your free-plan. Free users get all of the same features as premium users; they just can’t use them at the same volume as premium plan users.”
A couple of our other respondents shared examples of how they use this in their businesses:
Then, when users try to exceed the limits of their plans, HelpCrunch’s Daniil Kopilevych recommends “serving a big popup that explains that this is a feature for paid users only and asks them to upgrade.”
“Understanding your customers’ needs and the value of your product is essential,” says Benchmark Email’s Daniel Miller.
“Freemium is not a cheap version of your product. A proper freemium plan empowers the customer to get the job done. It shows the value of your product or service and encourages the user to grow into a premium plan as their needs and expectations grow,” Miller says.
Clockify’s Aleksandar Olic says that talking to your customers is a great way to find out exactly what to limit in your freemium plan. “Most users will never become paid customers, but they will send you emails asking if they can do something in your app.”
“Once you notice a pattern, you can develop the feature and put it in your paid plan, thus incentivizing people to pay for something that gives them actual value,” Olic says.
And Grapedrop’s Artur Arseniev says that knowing your customers can help you customize your plan offerings to best meet their needs:
“The key is to understand your target customer. Each plan can be customized for a specific type of customer, so the point is to understand which feature will deliver the value that a particular customer needs to switch to a premium plan.”
Many of our respondents said that the best way to convert free plan users is to reach out to them directly.
“One of the most effective tactics for CloudApp has been to proactively email customers who are the biggest enthusiasts of the product (based on active usage),” says Scott Smith. “Introduce yourself as one of the makers of the product and say that you’d like to learn more about what they love and hate.”
“This helps us develop a relationship that allows us to expand toward further usage at that business. We generally find that when more active users at a company use the free product (at least 2-3 users), we can introduce the product as a compelling solution to more employees at the company.”
“It also helps us build a broader use case to share—with both metrics and qualitative feedback—to either procurement or the buyer,” Smith says.
Several other respondents recommended similar approaches, though they use varied tactics:
“Having a short call allows you to establish a relationship with a customer, understand his/her pain points, and offer the right solution,” Zabalkanskaya says.
Outgrow’s Ananta Adithya says that a more personal approach also helps you create more personal packages for customers.
“Throughout the trial period, we are constantly in touch with our prospective clients. As we have a good sense of what our prospects want, we create personalized plans for them so that they get access to the features of their choice without breaking the bank.”
It might not be practical to pick up the phone and call every user who signs up for your free plan, but Filip Podstavec of Marketing Miner says you can take advantage of user scoring to find your most qualified users.
“We prefer one-on-one calls combined with user scoring. You track your users and their actions to create a metric called user_score. When user_score breaches the limit, you send an email (or use chat) to invite those users to one-on-one calls where you help them and show them how to use the tool.”
“This tactic filters power users from occasional users so you can focus on potential customers,” Podstavec says.
“One of the biggest fears many people have about switching from a free to a paid plan is that they won’t know how to access the additional value,” says Alexander Lewis of Lewis Commercial Writing. “Basically, they think they’ll waste their money.”
“Take that fear off the table by offering some hand-holding. Tell your free users that when they switch to a premium account, you’ll provide them a complimentary one-on-one training on the software and answer all of their questions,” Lewis says.
Vin Jawa of Sunny Landing Pages agrees: “Most of the freemium users are unable to get to the ‘aha’ moment when left to themselves. Onboarding tools, videos, and emails all pale in comparison to picking up the phone and walking them through their specific challenges and offering solutions.”
“Support is now becoming part of the software, so by offering additional layers of support for paid users, you can make serious free users move to paid plans,” says Pushkar Gaikwad of AeroLeads.
“For example, we offer email, chat, and phone support to our highest plans and enterprise users. This is almost on par with having a dedicated account manager for free. We also reply almost instantly to any inquiry on chat and email for free users, which helps build trust.”
Editor’s note: Want a clearer picture of how your customer success metrics impact churn. Grab this free Customer Success dashboard that combines data for key revenue and support metrics from Help Scout and Stripe.
“Not letting any users slip through the cracks worked wonders for Livestorm,” says Thibaut Davoult.
“From the start, we set up the free-trial onboarding so that no user is ever left behind. Each new free trial user receives a series of emails tailored to their usage (or not) of Livestorm’s important features (those features that lead to the aha moment).”
“We also segment free trials with a variety of signals (mainly firmographics) and automatically send invitations for a sales demo call to the most qualified ones. This has boosted not only the number of conversions but, more importantly, the number of conversions to yearly plans versus monthly plans.”
“Last but not least, we have a reactivation campaign that sends emails to free users who stopped signing in. The goal here is to reactivate them or motivate them to invite their teammates in the hopes that they will become champions of our solution in their companies and nudge their teams toward purchase.”
“So to sum up, we’ve relentlessly automated and personalized each message that our free users receive after they sign up. We made sure that:”
Crazy Egg’s Juliana Casale recommends “personalizing your onboarding emails based on the activities a freemium user has performed (or not performed). We’ve found we get much higher open and click-through rates back to the product when we provide tailored support.”
“For example, if someone’s using our heatmap reports but not our session recordings tool, we can direct them to our YouTube video series where we dive into the value of seeing their site visitors navigate from page to page.”
“Mapping in-app actions to celebratory emails or inspirational content has been hugely helpful in keeping our free trial email campaigns useful and relevant.”
“Just because people sign up for your product doesn’t mean they’ll reach the point on their own where they understand how powerful your product can be,” says Heap’s Kevin Charette. “They may never see the reason to invest in your premium version.”
“For this reason, the most important nurture is the onboarding nurture. This is your opportunity to get in front of your most ready-to-be-impressed cohort of users. They feel empowered to use a tool that they have never used before because they think it’s going to make their lives easier.”
“Your goal should be to guide your free users to the event that correlates most with why your users buy your premium version—or at the very least why they continue to come back to your product regularly. This is sometimes called your activation event.”
“Ideally, you can use your customer behavior data to understand what your activation event is, but sometimes you just have to trust your gut.”
“Here’s a quick step-by-step guide on what to do next:”
“Doing #1 and #2 are super easy if you have Heap, but if you don’t, don’t worry. Work with whatever data you have to make it happen. The point of doing this is to measure where you stand today so that you know if you are making an impact.”
“Doing #3 is easier written down than done, but if you build the nurture assuming that people aren’t doing the activation event because they either don’t know how or they don’t want to/lose interest, that’s a good starting point to build something impactful.”
“If you assume that lack of knowledge of the product and lack of interest are the two main reasons someone wouldn’t reach that activation point, your nurture should do a combination of the following:”
“This kind of nurturing performs the best when your marketing and product teams align on improving your activation rate (i.e. marketing sends emails and push notifications and product creates in-app guides),” Charette says.
“As a SaaS business with a freemium model, you have to be relentlessly focused on driving toward the shortest path to value for your freemium users,” says Drew Beechler of High Alpha. “Optimize every aspect of the onboarding and product experience toward that single action.”
“For a company like SendGrid, its core measurement is making sure the time from sign up to send for a forgotten password email is 20 minutes or less. Being able to drive directly to value-creation in under 20 minutes is almost unheard of, which is why SendGrid has been so successful with its freemium product.”
“I advise our portfolio companies at High Alpha often to focus on optimizing the time to value and removing all the friction between signup and value. Push all of your less positive experiences to a different point in the customer journey, and take them out of the sign up to success journey.”
“At Upkeep, we’ve recently moved all freemium users to a free trial of our paid plan for a week so that they can experience all that our product has to offer,” says Ryan Chan. “This essentially lets users test drive the car around with no risk and has been an effective tactic for getting users to become paid customers.”
“When a user realizes the valuable impact of our product on their business, they have a hard time walking away from accessing the product on a longer term.”
“Since we just rolled out this offer, we are still learning about performance data. However, the free trial plan allows us to impact even more users with our product and eventually save businesses thousands of dollars by improving their maintenance programs,” Chan says.
A similar approach has worked well for Databox, too:
“What we have found effective in converting our free users into paying customers are our product-driven blog posts and excellent customer support and service,” says Daafram Campbell of Switchit.
“Every month, we publish an article on our blog discussing a specific feature within the app. We do this to educate our users on how to accomplish the desired task and provide them with a step-by-step guide to how the feature works. This approach increases the adoption of our product,” Campbell says.
On a similar note, Appoint.ly’s Monika Ciemiecka recommends “building a thorough knowledge base with an FAQ section, instructions, video tutorials—everything that can help your users understand how the app works.”
And Rajnish Kumar of HackerEarth recommends hosting webinars: “Webinars are a good way to convert MQLs and SQLs, and it has the same effect on trial to paid. We’ve seen as much as a 500% ROI from webinars.”
Editor’s note: Help Scout users who need a better way to monitor how their knowledge base is performing can grab this free Help Scout Docs Report dashboard. It provides a comprehensive view of top-viewed articles, common failed searches, and the percentage of users who found an answer vs. failed to find an answer.
FusionAuth’s Brian Pontarelli says the best way to convert free users to paid is: “Don’t try. If you force this for a developer-oriented tool like FusionAuth, your users are going to get annoyed and start ignoring you or stop using your tool completely. Build a great community, and then conversions will just happen.”
Danielle Juson of inSided agrees: “We find that online user communities have a big impact in converting B2B SaaS users from free trials or freemium tiers to paid users.”
“When users are trying out your software—whether via trial or freemium—you don’t want them to run into any issues. They’re still validating the product, and you want them to get the most out of their use so that they have a positive experience with it.”
“You want to make sure that it fits their needs and that they have all the relevant information in place to decide whether they want to continue to use the product. An online user community helps you provide them with all of that as efficiently as possible.”
“With a community, you have all these new questions, answers, and insightful conversations added on a daily basis. Plus, it’s done by peers, so you don’t have to scale up your own customer success team to make sure that everybody has access to the latest information.”
“User engagement is a very important factor that we see leading to increased retention rates and upgrades from freemium to paid tiers. Our own prospects that use a free trial or demo make use of our own community, inSpired, so they can speed up their own onboarding.”
“The biggest reason that people don’t upgrade to paid plans is that they take the free trial period for granted and hardly use it,” says Brett Downes of DFY Links. “There’s no sense of urgency, so when it comes to time to buy, they have no attachment to the software and will ignore emails or calls to purchase the software.”
“Demos are the way forward. Whenever somebody signs up for a free trial, a big effort should be made to book in an online call where the agent can guide the subscriber through the main features of the tool. This will give them a taste of its benefits and encourage them to use it.”
“This can massively enhance conversion rates. Through our research, we have learned that when people have participated in demos, conversion rates have more than tripled,” Downes says.
And Rano Ghosh of Wild Apricot by Personify says that another way to create urgency is to avoid promoting free trial extensions. “It takes resources and negates the point of the trial.”
“This is not to say that exceptions shouldn’t be made on a case-by-case basis, but eliminating the offer of a trial extension helped us preserve resources and focus on onboarding trial users in a timely manner,” Ghosh says.
Andrei Vasilescu of DontPayFull recommends “offering a special discount and sending this offer a few days after users start enjoying your free product. This will drive users to purchase quickly to ensure they get the discount.”
It’s an approach that Outgrow’s Ananta Adithya also uses occasionally: “At times we offer our trial users free access to some of our exclusive paid features or amazing discounts when they sign up within a given time span.”
“As the end of their trial approaches—after going through their requirements—we email them the offer with a deadline to create a sense of urgency,” Adithya says.
“You need to ask for money as soon as free users reach the aha moment and see the value in your product,” says Jack Paxton of VYPER. “Asking for money too early will scare people off, and asking too late will upset people as they are comfortable using it for free.”
But Gal Thompson of Secured Signing notes that it may take a while for users to get to the point where they’re ready to upgrade:
“When the time is right, they will convert. In our space, the willingness is often there, but the company might have something more pressing on the agenda. Eventually, we get on the agenda, and the key is that hopefully they have remembered us and will not shop around.”
Oleg Zaidiner of AmazeOwl recommends “working with affiliate coachers—affiliates who teach people about the domain and recommend our tool. Sometimes, they sell bundles of their educational content and our subscription.”
Our final tip comes from Craig Streaman of Streaman Marketing who reminds us not to turn people off at the moment you’ve been waiting for: “Make the payment information all that they need to enter to upgrade.”
“Too many upgrades make you re-enter in all of the information that was already collected when you initially signed up. Provide the user with the option to upgrade and a form that is completely filled out with everything but payment details.”
Finally, if you’re still on the fence about whether you should offer a freemium version of your SaaS product or not, Designmodo’s Andrian Valeanu leaves us with a few of the benefits you’ll get if you decide to take the plunge.
These benefits make the freemium model ideal for all types of SaaS businesses, but Valeanu notes that they’re of particular benefit “for new businesses that don’t have big advertising budgets and haven’t yet earned the trust of search engines.”
Ready to learn more? If you offer a free trial instead of a freemium plan, check out these 8 strategies for converting free trial users. Not sure which model is right for your business? Here’s advice from 70+ experts on how to make the right decision.
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