You’ve checked into hotel rooms and stocked up on complimentary shampoo. You’ve waited hours in line to get freebies for winning some random game. Free gifts probably surprise and please you. And you’re curious about what value comes with it.
But, do you ever stop and think about why companies and brands give out things for free? To grab the attention of you, their potential customer, of course. And to persuade you to use their product or service. If you like what you get, you’ll surely want to invest your money in these brands, right?
The SaaS game is no different. Customer acquisition is at the root of profits, and as a SaaS brand, offering free services is the best way to customer success. Enter free trials and freemiums.
While free trials offer a part of your services free to your users for a limited time, freemium models offer them a part of your services free forever.
What Is Freemium to Premium Conversion?
It is a conversion when your freemium users upgrade to the premium plan for an additional cost, and extra benefits. These extra benefits include features like access to premium tools, unlimited result generation, or unlimited storage space, depending on the SaaS product. For example, Dropbox offers its users different benefits under different pricing plans.
To scale up your monthly SaaS revenue, you must aim to maximize freemium to premium conversions.
Grammarly, Trello, Canva, Toggl, Slack, and many more renowned brands have rocked the freemium model and have successfully converted millions of freemium users to paid users.
Is Freemium Worth It?
Freemium is not a prototype. It’s a limited yet full-fledged service provided to your users for free. Using freemium, the customer can get some of what they are looking for. If you get the freemium model right, it can also reduce your customer acquisition costs (CAC). But would a freemium model work for your SaaS business? See for yourself by understanding its pros and cons.
Pros of using a freemium model
Get maximum users onboard
The free in the freemium attracts a large base of users to your product. For example, If you are a new business, freemium is a great way to introduce your services and build your brand awareness among your ideal users.
If you are an existing or recently acquired business that has a freemium option, understand who your customers are and why they chose your product. This will help you understand where your product adds value for your users.
Check out 13 proven strategies listed below for converting freemium customers to premium subscribers.
Convince your user of your product’s worth
Freemium services give your users unlimited time to experience your product’s value. This increases the chance that they will upgrade to your premium services. In contrast, a limited free trial might not give the user enough information to choose your product. A freemium plan helps when the user knows almost nothing about your product and is unlikely to invest in premium services.
Increase your likelihood of getting paying customers
You have an opportunity to entice the user to upgrade to a paid plan every time they run into feature limitations. The paid experience offers things like ad-free content, additional resources, or extra downloads. Your users invest in premium services if the limited features create blockages in their way.
Unlock selected features of your SaaS product at a little cost
You can also generate revenue while your user is still at the freemium stage. The best and most successful example of this is the Candy Crush saga. Users can play this game for free but can unlock the tools required to reach the next level at an additional cost. Reportedly, this company was making $1 million per day through its freemium model when at its peak success.
Cons of using a freemium model
It is a costly approach if you don’t get enough paying or active customers
Freemium services cost nothing to users but have a significant cost to your SaaS business. You have to support a never-ending base of free users, allocate them your resources, support them, and spend money to analyze your customer’s behavioral patterns. Make sure you know how much you spend on your freemium users vs how many paying customers you acquire over time.
To decide if your SaaS brand needs a freemium model, you need to be clear on the who, why and what of this free-to-paid conversion strategy.
- Who are your target users?
- Why are you offering your services for free? Are you gaining paid customers later?
- What services/features/strategies are you incorporating to justify the freemium to premium conversion plan?
If you don’t have enough users onboarding for your SaaS brand, your freemium idea is not working. The problem may be the quality of your services, the market you’re targeting, or the demand for your product in the industry.
SaaStr states that you need 50 million users actively engaging with your SaaS freemium model to make the freemium model work.
What’s the Freemium Conversion Rate benchmark?
The average freemium to paid conversion rate is between 2% and 5%. A 1% conversion rate is also fine.
If your rate is below this, your SaaS product is not convincing enough. But there’s also a risk to having a high conversion rate. It implies your users have too high of expectations from your premium offer. If their expectations are not met, it will significantly increase your churn rate.
There are SaaS brands that have greater conversion rates and are successful. In 2019, Spotify was reported to have a 46% conversion rate from freemium to premium and is still the most-used app worldwide.
Here’s how you can calculate your freemium conversion rate.
Freemium conversion rate = Number of freemium users who upgraded to premium services/Number of freemium users
Let’s say, over a month, you have 100 freemium users out of which 20 converted into premium subscribers. Then, your freemium conversion rate = 20/100 = 20 percent.
Strategies That Actually Convert Your Users from Freemium to Premium
1 – Build a product that makes waves in the SaaS industry
Your product will always be in the spotlight. It must make your user’s life one step easier. We can’t stress this enough – research and analyze what problems bother your ideal users and make your product solve them. Even better, offer them a little something extra.
- What services does your SaaS product offer that sets it apart from your competitors?
- Is your SaaS brand in sync with the market trends?
- Do you offer smooth and quick customer support?
- Is your online presence powerful enough?
When you address these essential questions, you’ll create a product that matches your ideal user’s needs and emotions. If your users use your product and think to themselves, this is it!, they will invest in your premium plans.
2 – Provide the right distinction between freemium and premium
It can be trickier to decide what separates your freemium plan from the premium plan. You can’t offer your customers a narrow slice of your services and expect them to upgrade. They will underestimate the value of your product and look elsewhere.
On the other hand, you can’t offer them most of your services for free to convince them of your product’s worth. They will love your product but never upgrade. If they are getting value for free, why would they pay you?
You need to find a middle ground.
What features solve your users’ problems at the basic level and leave them wanting more? Include those features in your freemium plan. Then, follow up with these strategies:
- Show your freemium users what they are losing since they didn’t upgrade to a paid plan. These (advanced) features must bring a significant change in what they achieve.
- Use ads to interrupt your user’s activity. And not just sidebar ads that don’t disturb your user’s focus. For example, if your SaaS product belongs to the gaming industry, display a minute-long ad at the peak of the game. If your user loves your services they will upgrade to a premium plan for ad-free interaction. Spotify offers its users an ad-free premium version for $9.99 monthly. Statista reports that this brand has earned 182 million premium subscribers from Jan 1st to March 31st of 2022.
- Build an online community where users share relevant news, updates, insights, and success stories about your product and your premium services. To avoid spam, limit how the community members interact. An admin can approve content before it’s posted in the community. Having a stream of positive conversations about your product will build credibility and entice your freemium users to upgrade.
3 – Limit your features to freemium users
If you want to offer your entire set of features for free, limit the feature use. If the users depend on your product to generate results, they will soon exhaust their usage limit. Send them a pop-up to inform them that the free feature limit for the day has ended.
Users can continue to function within your feature usage limit or upgrade right away for unlimited feature benefits.
Tease your users by highlighting what they miss if they don’t upgrade to the premium services. Target their emotions while you’re at it.
For example, Loom provides its users with a five-minute video recording limit. When the user hits this limit, they send an in-app prompt to their users to upgrade to a premium plan for unlimited hours of recording. They follow this tagline – You’ve got a lot to say! This targets the user’s emotions – they want to express themselves and they want their freedom. Then, they nudge the user for a premium subscription, saying You’ve hit the 5 minute recording limit. If you have more to add, upgrade for unlimited recording time. A clear CTA is put in place so the user upgrades easily.
4 – Highlight your user’s pain points, empathize with them, and provide a solution
Study how your user interacts with your product. What services interest them most? What services do they not use? Pick out their pain points and target them in your upgrade notifications.
Use quick surveys to understand your user’s expectations. Then, use this data to map out the best offers to upgrade them to the paid plan.
Constantly show your users how easy it is to achieve their goals with your premium plans.
5 – Make the premium upgrade seem urgent through FOMO
It’s easier to create urgency for free trial users by reminding them of the free trial expiration and pushing them towards a paid plan. But how does it work in a freemium model?
The trick is to offer discounts, promotions, or vouchers to your freemium users for a limited time. A countdown timer works best in this scenario. Don’t forget to emphasize the benefits the users gain after they upgrade to premium services.
For example, if your users have a limited number of keyword searches daily, show them how much better they can boost their SEO game with unlimited searches.
Your users will consider your promotion/discount/vouchers because it’s cost-effective and available for a limited time.
Present a clear value proposition and CTA to increase your chances of getting more paid customers.
For example, the Wix Website Builder lets its users build a website for free, but it also runs regular promotions for their premium plans.
6 – Compel your users to unlock additional features
Display all your product features to your users, but enable only those that work with the freemium model. Gray out your premium features or place a lock symbol around them. This keeps additional features in your user’s sight. When your user hovers or tries to access such a feature, they see a popup that guides them to upgrade their services.
An example is QuillBolt. For the freemium version, it paraphrases the user’s text in two modes – standard and fluency. When the user clicks on the remaining visible modes, such as formal, simple, or creative, they are prompted to unlock premium mode.
7 – Gamify the user interaction
You can also award your users with badges, scores, or credits if they consistently use your product or hit a pre-defined milestone. Then you can offer your premium services for free, and for a short period. There is no reason they won’t give in to the opportunity.
When your users experience your premium features and understand their value, there is a better chance of freemium to premium conversion.
8 – Make your premium subscribers your privileged users
If the user upgrades to premium, show them that they are your priority. Give them a personal communication address, provide a quick response time, or give them access to complimentary paid resources for free.
The point is to promise that your premium users will feel premium. To access the perks and the associated feeling, they might consider an upgrade,
9 – Make the upgrading easy and flexible
When you convince the user to pay for your premium services, the last thing you want to do is make the premium upgrade difficult. Here are some points you should consider to be on the top of the conversion game:
- Create multiple premium plans to target users with different financial capabilities. Limit your respective features accordingly. This will give your users a range of options to choose from. For example, Slack offers four pricing plans to target four different categories of users.
- The upgrade process should be quick and easy. Ask for a minimum of personal details. For example, ask them to select the plan, enter the payment information, and checkout. Even if the user wants to cancel their premium subscription, you must give them an easy pathway.
- Make it easy to deactivate your services, as this can be a valid concern in your user’s mind. Face it – your customer can have different priorities at different times. Your premium plans should not constrain them but make them free.
- If your customer is about to cancel your premium plan, offer them a quick survey to understand the reason behind it. If possible, come up with alternative solutions that will stop your customer from cancelling. For example, your customer might not need the premium services for a brief period. Retain such customers by offering them a customized set of services for a limited time at less price. Or, offer to keep the premium plan as is. In the next cycle of upgrading, apply a code that gives them an exclusive discount.
It all boils down to maintaining customer relationships and customer retention.
10 – Collaborate with influencers
Influencers educate people about your SaaS product and recommend your premium services to them. They can also issue a promotional code that customers can use to receive a little discount on premium sign-up.
Signing up through their affiliate link earns them a commission, as does advertising your product. Marketing your product through them can earn you extra customers. It’s a win-win situation for both parties.
11 – Ask your users to upgrade at the right time
Ask your users to upgrade only when they have received enough value from your product.
As Jack Paxton, co-founder at VYPER, states, “Asking for money too early will scare people off, and asking too late will upset people as they are comfortable using it for free.”
12 – Offer a free trial of your premium services
When the user is satisfied with the freemium version, they might not understand the value of a premium plan. In that case, offer free trials of your paid services for a limited time. Once the user gets the hang of its value, they might not want to give up the added features.
To qualify your leads, letting users experience a paid trial of your premium services works best. This will help you identify the users who are really interested in your premium plans. Your next step is to focus on such users.
13 – Build a good connection with your freemium users
While your users are on the freemium business model, make them feel valued, and give them the best experience possible. If they raise any issues, answer them quickly. Build a personal connection with them through personalized emails. Send an email marketing sequence to convert them to paid subscribers. Give them the most value of your product through interactive walkthroughs.
Place visible cues throughout your user journey to show what they are missing in the freemium version. The goal is to convince them that your product is valuable and push them to purchase a premium plan.
A freemium model is effective only when you analyze your customer’s data. You’ll want to measure your success with metrics like LTV, CAC, and monthly recurring revenue. It’s a lot of effort to make sense of these terms and work on them until you finally get paying customers. We can help you make this process faster and easier. Get in touch with us and optimize your freemium conversion rate with Glance.
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