Everybody loves free stuff. Grocery stores give out free samples of food they want you to try. Magazines and TV streaming services give you a free month to check it out. And even the Chinese restaurant near my coworking space gives out free orange chicken samples to anyone walking past. So the freemium business model is always a big, big hit with consumers because it lets them try out your product or service for a time to decide if they like it. But how do you increase your freemium conversion rate and convince more customers to upgrade and pay for the full premium version of your offering?
A typical freemium conversion rate usually clocks in around 1%, although a few years ago, Dropbox was getting a 4% conversion rate.
Compare that to Spotify's nearly 26.6% conversion rate, and you can see that 1% may be respectable, but it's not 20-million-users-out-of-75-million respectable.
Even if you have just a 1% conversion rate, an additional 1% bump could mean some serious money. If your 1% conversions are netting you $10,000 per month, imagine what an additional 1% could mean for you. (Well, another $10,000 per month. I wanted to keep it easy.)
In this article, I want to help you find a free-to-paid conversion strategy that can help you make the most out of your freemium offering.
Whether it's a software service, trunk club or jelly-of-the-month club, your subscription service or product offering could always use more premium subscribers.
Related: Subscription-based sales — A primer for small businesses
What is a freemium business model?
The term "freemium" is a portmanteau of "free" and "premium," and it's usually used as a subscription model of pricing that offers both a free level of service or access and a bigger, more feature-rich level of access that requires payment.
Although freemium pricing has been around since the 1980s, it wasn't coined until 2006, when it was first used by Jarid Lukin of Alacra.
According to Wikipedia, "A freemium model is sometimes used to build a consumer base when the marginal cost of producing extra units is low."
In other words, if it doesn't cost any more to give someone free, but limited access to your service, it's a good marketing model.
Software companies like the freemium model because they can hold back certain features from the free service that only become available if you pay for the upgrade.
Software-as-a-service (SaaS) packages are usually good candidates for freemium pricing, where a jelly-of-the-month club would not be.
You can easily limit the features of the software to free users without adding any costs, but even shipping one jar of jelly each month has associated production and shipping costs.
It's different from a free trial model, which gives you a limited time to use the service, and you can only continue to use it if you pay for the subscription.
Freemium is also not freeware, which only relies on the generosity of the user to donate for the use of the software. It's a good way to earn some beer money, but it's not a way to build a company or support a lifestyle.
Related: What is a freemium business model, and is it right for your business?
How to increase your freemium conversion rate
The whole point of freemium software is to get as many paid users out of your free users as you can. But remember, most freemium conversion rates still hover between 1% and 4%, so you can see that it's a difficult process. If it were easy, everyone would do it, and you would easily surpass Spotify's nearly 27% conversion rate.
Be sure you project your revenue accordingly, based on your industry's average, as well as the typical free-to-premium conversion strategy yields.
Here are a few ways to increase your freemium conversion rate and add more subscribers to your service or product offering.
- Make sure your product is worth upgrading for.
- Provide great customer service.
- Limit your free version features.
- Don't be too stingy with free features.
- Push users toward using premium features as soon as possible.
- Leverage email marketing to engage users and promote upgrades.
- Build a community.
- Create more urgency to upgrade.
- Make it easy to upgrade.
- Make it easy to choose paid options.
Let’s look at each tactic in more detail.
1. Make sure that your product is worth upgrading for
We shouldn't have to say this, but you'd be surprised at the number of companies that don't follow this advice.
Either they give away too much at the free level, so subscribers don't need to upgrade. Or the price is too high for what's offered, and very few people can afford it. Or the product just isn't that good to begin with, and people barely want to use the free version.
As you start your product development, do plenty of market research, product testing and talking to potential customers to find out what they want.
Gather their feedback and see what they can't live without and what's just "nice to have." See which features they want to use in the free product, and which ones will drive them to the paid version.
Related: 5 tools for product market testing on a budget
2. Provide great customer service
While we're on the subject of making sure the product is worth it, that also includes your level of customer service and technical support. If people have difficulty using the product, or there's a steep learning curve, you won't win yourself any friends if you can't provide a better-than-average level of support.
Related: Measuring customer satisfaction as a service-based business
3. Limit your free version features
As I said earlier, you can be too generous with your free version, and freebie yourself right out of business.
If you offer too many free features — "freetures”? — people won't feel a need to actually upgrade.
You're better off giving people a limited number of uses of a feature, such as LinkedIn's five InMails per month, than not letting them experience something cool at all.
Another example is Evernote, which lets you upload 60 MB of notes on the free version, but 10 GB for the paid version. You can use two devices with a free account, but unlimited devices with the paid version. This is a great way to limit your free benefits without eliminating them altogether.
4. Don't be too stingy with free features
Of course, if your freemium version doesn't do much, people will get annoyed and stop using it at all. I've used freemium software that didn't offer many "freetures." Without those, I couldn't give the software a fair shake, and, as a result, I stopped.
It's a hard balance to strike, and it may take some market testing to figure out what you should offer.
For example, Evernote was having problems making enough money, so they cut back on the number of features in their free model, which angered a lot of users, and they lost a lot of potential subscribers.
5. Push users toward using premium features as soon as possible
This is not the place to let grass grow. Once people begin using your freemium product, you need to start pushing them to upgrade to the premium level.
Think of the freemium adopter as a middle-of-the-funnel customer.
You've gotten them to take some interest in the product and start using it (top of the funnel). They've taken some steps to become a paid user, but they're not quite there yet. So you need to nurture these prospects, just as if you were working in any other sales organization.
Share tips, ideas, whitepapers and helpful videos just as if this were a regular sales cycle on any other product.
Related: 6 tips for moving your customers through the sales funnel
6. Leverage email marketing to engage users and promote upgrades
Email marketing is already an important part of lead nurturing, so it needs to be a part of your free-to-premium conversion strategy.
You can always build reminder splash screens into the software to gently nudge people into upgrading every time they open it, but if they don't use it regularly, they won't see those messages very often.
7. Build a community
Communities can help build value for your paid product.
Sorry to ring the Evernote gong again, but this is something Evernote has done right — they have built a strong and vibrant community of users of varying levels, all giving advice and suggestions on how to better use the product.
They also allow power users to become certified Evernote consultants, and those people are constantly sharing videos and articles on how to best use Evernote.
The community overall helps Evernote to educate people on how to best use their product, which drives them to upgrade, since they can see how much more the product can do than they may have imagined it.
8. Create more urgency to upgrade
While many freemiums are indefinite — LinkedIn lets you use their basic model for as long as you would like — other freemium subscriptions give you a time limit to compel you to pay. Netflix and Spotify have 30-day free trials, while Hulu’s trial is just seven days.
Some services have discounts for their upgrades. For example, you can pay for the full premium service for 25% less than the actual upgrade, but "you have to act now!"
Demonstrations and tutorials can also drive this sense of urgency: They're a great place to drop in those calls to action (CTAs) during the actual demo.
Make it a part of the script and tell people that if they place their order within a specified amount of time, you'll give them the lower upgrade price. You can also give them a price break if they pay for an entire year rather than going monthly.
9. Make it easy to upgrade
There should be plenty of CTAs scattered throughout your website. One of LinkedIn's favorite tactics is to add the "Upgrade to Premium" button on every job posting, whenever you see who has looked at your profile and even on your own profile page.
10. Make it easy to choose paid options
Similarly, you should only have a couple of levels of premium upgrades available.
The more levels you have, the more complicated the decision becomes, and your customers might be frozen into inaction because of all the choices.
Keep it down to just a few levels, and if you can manage it, keep it at an odd number. That's because people tend to pick the middle option through something called the Center Stage Effect.
That means that whatever options you have, more people will choose the middle option, whether you have three, five or seven choices. (But when it comes to freemium levels, try to stick with no more than three.)
Finally, one thing to watch out for are credit card chargebacks, which happen when users are required to give a credit card number to sign up for a free trial, but then they forget to cancel until they see the charge on their credit card bill.
They then call the credit card company and contest the charge for a chargeback.
If your chargebacks total more than 1% of your total credit card charges, your credit card processor or bank could revoke your merchant services. This puts you in the high-risk category, which means you'll have a hard time finding a new processor, and pay higher fees as a result.
Using the full-funnel approach for freemium conversion
Improving your freemium conversion rate means treating your subscription process like a regular marketing funnel.
- Getting people to download your software or sign up for your service offering is the top of the funnel.
- Getting them to actually use it and try it puts them in the middle.
- And getting them to sign up for a month-by-month or year's subscription puts them right into the bottom of it.
To get them through the funnel, you need to offer the right number and balance of free features, use marketing to push them through the second half of the funnel, build a community of users to grow their enthusiasm and increase their knowledge, give them a sense of urgency to upgrade, and then make it easy for users to upgrade and choose their level.
Building a free-to-premium content strategy might be a bit formulaic, but it works for a reason. It grows subscribers and gets more people to commit to using your product or service. More importantly, it keeps them resubscribing month after month, year after year.
Follow these steps, work them through the funnel, and keep your customers coming back.
