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Written by Leah Messenger SaaS Specialist
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20 Sep 2021  |  Growth

How to succeed with a freemium model in SaaS

5 minute read

If you’re a SaaS business that’s considering introducing a freemium plan, here are five areas for you to double down on to see its success.

Freemium is a popular model in the SaaS industry, as we’ve previously explored . It’s a model typically used by SaaS businesses pursuing a product-led growth strategy as a means of improving user acquisition, customer conversion, account expansion, and retention. 

If you’re considering introducing a freemium plan, here are five areas for you to double down on.

1) Prove your product value from the start 

You want to provide a solution that becomes indispensable to all your users, whether they are freemium or paying customers. Make it easy for your users to realize the value of your product by providing a smooth onboarding experience that includes signposting, and support docs to make sure they don’t miss any key features - even if they’re on a restricted plan. 

Top this off by framing your packages in the clearest way possible. For freemium, you have to showcase the value of your product to an extent that they want to know and experience more of what you can offer. This is where willingness to pay creeps in - what can you hold back on in your freemium offering that they can’t resist?

Usage-based pricing , for example, sees users bumped from free to paid-for plans when they reach a user threshold. 

2) Make it easy for your customers to upgrade

Make sure the upgrading process is as seamless as possible. Whether that means training and engaging your sales team on upselling or making the self-serve upgrade as simple as possible, it’s important to recognize that a rocky upgrade can quickly make your prospective customers question converting.

This is where the right revenue infrastructure is essential. From your checkout, payments, and subscription management, right through to your buyer support and tracking – a seamless customer journey requires each of these elements to work together. 

Rebecca, our Product Manager of Subscribe , has this to say: “Ideally you want to give your customers a way to manage their subscriptions on their own. So whether they want to upgrade, downgrade, if they want to have add-ons on their subscriptions, or even if they want to cancel, give them an easy way to do these things”. For more top tips on how to manage subscriptions to improve your churn rate, check out this video .

3) Retain your converted freemium customers

After they’ve converted, you want to retain these customers. To do this, you need to keep them satisfied with the product and ultimately, avoid them churning - whether voluntarily or involuntarily. It’s true, churn is a fact of life for all businesses but you want to keep that conversion rate high and the churn rate low. 

Make sure you’re keeping track of your churn rate and Monthly Recurring Revenue so you can tell what’s working well, and what isn’t when it comes to both customer satisfaction and your payment processes (no one likes unnecessary payment failures ). More on those metrics in a bit.

Another pointer is to offer those customers that are looking to cancel the opportunity to pause and downgrade their subscription. Make this process simple for the customer, this way you can keep their payment details in the system so they can upgrade super easily.

4) Make the most of your user base

If you’re doing a good job at proving your product’s value, then you’ll have happy customers - why not make the most of that positivity? Feedback, word of mouth, and testimonials are all great ways of optimizing your product and price plan to acquire new customers to your freemium version, and eventually converting them. 

Listen to your customers and get them to help spread the news about how much businesses value your product, whether they are using the freemium or paid version of your product. 

Look at Zoom as an example. Where would we be without it these days? Sharing (your Zoom link) is caring. With almost all their features available for free, this app has been downloaded onto desktops and mobile devices all around the world with zero hesitation.

5) Track and analyze your success

We’ve mentioned churn and MRR already, but those aren’t the only metrics you need to keep your eye on. Figuring out how well freemium is working for your business requires a number of metrics. 

Here are the key ones to keep tabs on:

1) Daily active users (DAU) : Letting you know how frequently freemium customers are using your product - something that is essential when you aren’t charging initially for a service.

2) Monthly active users (MAU) : Giving you a longer timespan to judge how often customers are using your product, but also whether they are having a lasting, valuable experience.

3) Key feature stickiness: By finding out what customers perceive to be the core of your product or what is essential to them, you can both build on the most popular areas of your business and come up with a freemium plan to suit that, and boost your conversions.

4) Conversion rate : Measuring the success of this campaign by charting the number of freemium subscribers that have converted into active subscribers, eg. twenty customers go freemium, and five convert to a paid tier by the end of the month, giving a conversion rate of 25%.

5) Customer churn : Calculating the rate at which your customers are cancelling their subscriptions - for more on how to calculate your churn rate (and reduce it), check out our guide .

6) Monthly Recurring Revenue (MRR): A necessary metric for subscription and SaaS businesses, MRR calculates all of your recurring revenue on a monthly basis. Oh, and we’ve got a guide for this one too

7) Customer acquisition cost (CAC) : Assessing the effectiveness of your freemium model versus how much it costs to acquire new customers, to see if it’s a worthwhile route for your business to be taking.

Are you tracking the right growth metrics? Find out here with our helpful guide to SaaS metrics.

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