Everyone loves free stuff — like free samples of fancy cheese at the grocery store. But there’s a reason the store hands out free samples, and it’s not out of the goodness of their heart. They want you to spend money on a whole block of the fancy cheese.
Freemium SaaS models — where the lowest service tier is free and additional features come with a monthly or yearly cost — dominate the software landscape. Spotify, Mailchimp, Box, OneDrive, Evernote, and Zoom are some popular examples, but there are thousands of brands built on this model.
The problem is, those lowest-tier subscribers aren’t making you any money. For freemium to work, at least some portion of the people who try out the free version have to make the leap to the upgraded, paid tier of the software. Someone has to buy the fancy cheese.
The gold standard in the freemium world is Spotify. As many of us have discovered, Spotify is an application that allows users to stream music, podcasts, and other media to their computers or mobile devices. They offer two main tiers of service, one for free and one for $9.99 a month.
On average, a freemium software company can expect about 1% of their subscribers to pay money for the service. A really good conversion rate is a company like Dropbox, which boasts 4% conversion. As of 2018, Spotify had 83 million premium subscribers out of a total of 180 million monthly active users — an astonishing conversion rate of 46%.
So how does Spotify do it? And how can you try to repeat their success? We have some pointers.
Know what your Customers Love and Make it Easy
This is perhaps the most important consideration when deciding if a freemium or free trial is an option for your software.
If we look at Spotify’s functionality, ease of use, and tremendous selection, it’s easy to see why they can convert us so easily. It’s a rare occasion that I look for a song or album on Spotify and can’t find it. I can make endless playlists, and share them with my friends. I’ve found music I never knew existed through their Discover weekly feature. They have podcasts and stand-up that I can stream or download. If you can remember the first time you used it or something like it, you may remember being excited, and wanting to find all the little gems that had been difficult to find.
I hardly need to sell Spotify, but the point is they knew people would love it and could use it easily, so creating a free version made sense. They knew we’d get hooked. The cheese was tasty and we wanted more.
When looking at converting freemium customers to paid, it’s important that your customers can 1. Find value and joy quickly and 2. Don’t need to spend a lot of time and effort getting it into place.
Embrace the Power of Automation
Whatever approach you take to converting free customers to paying ones, automation should play a role. It may be hard to embrace the idea, but automation tools are getting better and better, helping with the tedious and difficult parts of the Customer Success workflow and making the rest of it easier.
“Tech Touch” is the seamless integration of technology into Customer Success roles. There’s no replacing human interaction when it comes to helping your customers, but technology can make that human interaction more targeted and more useful.
For example, you might want to find freemium subscribers who log in a lot more often than most users, or who are close to maxing out the features offered by your free tier. SaaS platforms have access to this behavioral or user data, and Customer Success tools can help you identify them and nudge them toward that upgrade through e-mails or in-app notifications. When a CSM does call the customer, that conversation is geared toward how they want to leverage the tool in their business for example. The key here is that automation can take care of the simple communication to smaller customers, and open up more time for CSM’s to engage in meaningful conversation with customers.
Make It Easy to Upgrade
One of the most important factors in getting people to upgrade is reducing friction — anything that makes it harder to move from free to fee. Take a look at the process that free users have to go through to become paid subscribers. It’s not a bad idea to create an account from scratch as though you’re a stranger, just to see what the process really looks like.
Then, see how many steps you can eliminate in the process of transitioning from a free user to a paid user. Do customers have to contact a sales rep or send an email? Do they have to provide any personal info, like their name or email address, that they’ve already given? Do they have to fill out additional forms? If users aren’t sure they want to upgrade and the process is too annoying, they’ll give up on it.
Don’t Wait Until The End of Their Trial
Free trials aren’t exactly the same model as a freemium business, but the idea is similar: users get a sense of the software for a few weeks or months, then like it so much that they decide to upgrade. Spotify has been offering both a free tier and a 60-day trial of their Premium tier, and the numbers speak for themselves.
But a lot of free-trial-based companies wait too long to start talking about what comes next. Let’s say you offer your product free for 30 days. Once the trial ends, you send them an email with a CTA to a paid subscription link. The problem is, by the time they see the email and think about the offer, they’ve gone a few days without the product, and they may have realized they don’t miss it as much as you hoped.
Instead, your goal should be to hook a new subscriber before their trial expires. But why would they start paying you any faster than they have to? Because you give them a reason. Offer a discount on their subscription with a hard deadline on it — “offer only good for 24 hours!” Lots of customers would rather snag a good deal right now than wait a few more days for a worse one. Even if revenue is slightly lower by discounting their first month, it buys you more time to show the customer how useful your product is.
Don’t force users to commit to a long-term plan either. If you ask them to commit to a year, they’ll put a lot more deliberation into the decision and might balk at the cost. It’s common practice to offer a discount if customers pay by the year, but a month-to-month option will probably get you substantially better conversion rates. Once they’re on board, your usual Customer Success strategies will come into play to drive adoption, usage, and renewal.
Offer a Free Extension
Squarespace does something fairly unique when their users come up against the end of their free trial: it gives them another one. The circumstances don’t really matter — maybe the user signed up and forgot, maybe they got sidetracked with other projects, maybe they were just on vacation. In any case, they haven’t had a chance to truly familiarize themselves with your product.
Give them that chance. Remember, this is about the long game — another free month is nothing if it shows the user the utility of your product and turns them into a subscriber. This is another occasion to use your automation software. Seek out users that are nearing the end of their trial but haven’t logged in very often, and send them an email telling them you’re extending their trial so they can get a chance to really try out your software.
Focus on Conversion, Not Attraction
Free trials and freemium software are both great ways to get people to try out your product. Your free users are both leads that need to be converted and existing customers that need to be renewed, and you’ll need to adjust your approach accordingly.
Remember, getting more free users doesn’t earn you another dime. But if you follow these tips and show your existing users how useful your software can be, you’ll turn free users into paid users and generate sustainable revenue going forward.