Freemium marketing approach has become common among B2C and B2B software providers alike. Whereas most see less 5% of free users switch to paid plans, even a slight improvement in conversion can translate into significant earnings in revenue. The (multi) million dollar question is: how do they do it?
The answer lies in product analytics, which gives teams the ability to ask and answer any number of customer journey questions on an ad hoc basis. Combined with a commitment to test, measure and iterate, this puts data in the driver's seat and helps teams make better decisions about what's in the free tier and what's behind the paywall. Successful businesses make this assessment a continuous exercise.
Often, the truth of product analytics is that actionable information comes from only a fraction of the data, and it can take time to figure out what's going on.
Sweat the little things
A freemium business model is simply a set of interconnected funnels. From leads to engagement, conversion, and retention, understanding each step and making even small optimizations at any stage will have implications for your down funnel. Start by using product analytics to understand the nuances of what works and what doesn't, then double down on the former.
For example, identify specific people who perform well and perform poorly. While the average of overall conversions can be 5%, there can be segments that convert at 10% or 1%. Understanding the difference can shed some light on where to focus. This is where the right analyzes can lead to meaningful results. But if you don't understand , is to improve, you are left with the guesswork. And this is not a modern way of operating.
There is a misconception that of data is the same of data. Let's say you want to jump-start your funnel by buying pay-per-click traffic. You notice a high volume of activity, with numbers increasing at the beginning of the funnel and a sales team busy with calls. However, you learn that the increase in traffic, which seemed so promising at first, translates into very few users converting to paid plans.
This is a story as old as PPC, but in the small percentage that convert, there's a lot to learn about where to focus your efforts: which product features keep users hooked and which ones aren't used. Often, the truth of product analytics is that actionable information comes from only a fraction of the data, and it can take time to figure out what's going on. Engaging users in the free plan is only the first step in the conversion. The test and iteration continue from there.
The fallen and the languished
Within the free tier, users can languish, satisfied with whatever functionality they can access. If your funnel is full of languid users, you've at least solved the adoption problem, so why are they stuck? Without a testing and monitoring approach, you will struggle to understand your users and how they respond, by segment, to changes.
