Startups · Entrepreneurship

From freemium to premium. How can I increase conversions?

Jan Asimov Marketing Manager at Startups

September 14th, 2016

Currently I am operating a platform where we offer free services but for an additional fee we give you a premium where you gain more access to stuff. Our current conversion is at 10%. Is that type of conversion high? What kind of techniques do you recommend to increase the people becoming paying customers?

Sam McAfee Building better technology leaders and teams

September 14th, 2016

It's a little vague to say "more stuff". Perhaps you can elaborate?

Is it more quantitatively, as in 1GB of space, more if you pay (eg. the paid value is the same type as the free value, just more). Or is it qualitatively a different thing, as in more features that more useful (eg. the paid stuff is qualitatively different than the free stuff).

If it's the quantitative scenario, the amount of stuff desired by customers that pushes them over the threshold to paid can be balanced against the minimal amount of free stuff that is still useful. I converted to Evernote paid after a few years because of a storage limit. I was invested in it enough (and the switching costs high enough) that it was worth it. But it took me two years to convert. And many users just never do because they use it differently than I do.

There is probably a profile of your users that will convert. Find out who they are and get more of them.

If it's the qualitative scenario, the paid version is solving a different problem for the customer than the free version, and one that is painful enough to pay for. I used Buffer for business for a while because I need to manage many accounts and the reports were important. When I left that job, I reverted back to free to run my own stuff.

If you have a different feature set for free, make sure some part of it leverages network effects. You're paying those users essentially, so it's part of your Cost of Acquisition for the paid users. Make sure you consider that in your numbers.

There is no shortcut to simply finding out what your users really value, and testing different conversion mechanisms to convert them.

- Are you using drip email campaigns?

- Do you have explainer videos?

- Do you offer free upgrades with a time limit?

- Do the free users have a real reason to convert? What is the "Job to be done" of the paid version, how are they solving it now, and how is yours better than that?

Peter Baltaxe Consultant, product leader, serial entrepreneur

September 15th, 2016

For many product/service categories in the freemium model a 10% conversion to paid is pretty good.  I generally agree with Sam's comments.   Spend some time understanding your paying customers.  Did they come in from a different marketing channel or message?  Does their usage pattern on your product look distinctly different from the free users?  That is an indication that they are solving a different problem or have a different need, in which case you can be more targeted in your marketing efforts going forward.

As a general rule, what I have seen with SaaS products is that if a customer engaged in the more advanced features they were much more likely to pay.  No rocket science there.  You want to make it easy for your users to initially engage in the product, invest in the product (upload data, set preferences, etc.), and then expose them to the advanced features.  That can be done through UI, email, etc.

Testing is a great way to optimize your conversion.  You can do this with limited time offers around price, storage, etc.  e.g. Sign up for paid this week and it's only $20/mo instead of $25.  You'll need a system for tracking which offers users have accpeted.


September 15th, 2016

I just finished reading a great book called “Monetizing innovation” which I highly recommend to you too. In the book, the author suggests if too many people are happy with your freemium, it means you are giving too much value away in the freemium account. So you may want to move some features to the premium service for the new users.

Paul Mobley, MBA

September 15th, 2016

It all depends on scale and your overall business model. Did you know that only 3% of Pandora customers pay the minimal monthly fee to avoid ads? So your 10% conversion might be high but it all depends on your offering and/or market segment. You either have two business models or you have a funnel. For Pandora they monetize their non-paying customers by selling ads and presenting them to them. It is unknown (for us non insiders) if they make more or less off of paid customers or ad sponsored customers.

Instead of focusing on how to increase conversions maybe you should focus more on increasing your overall customer base. However, without knowing the expected conversions or cost per customer it's difficult to know if that is a positive or negative outcome.