Mastering Freemium: Crucial Benchmarks

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You've got the questions

and we have the data.

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Each week, we dive deep on benchmarks

of the subscription economy that

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you just can't

get anywhere else.

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This is the ProfitWell Report.

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Hey, Patrick.

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It's Heaton and Ralph, and

we've got a question for you.

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If I'm starting a SaaS business

today and I'm considering

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freemium, what's the

latest and greatest data?

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What's the latest and greatest

information that I need to know

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right now before I start?

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Oh, freemium. I have been on

both sides of this debate.

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So to answer Heaton's question,

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we'll dig into the data from

nearly six thousand different

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subscription companies

across b to b and b to c,

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as well as roughly three

hundred thousand different

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willingness to pay data points.

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So let's jump in.

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It's important to note that

freemium is an acquisition

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model, not a revenue model.

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So this is a measured strategy

to unlock lower CAC and

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increase your top of the funnel.

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CAC is increasing across the board with

b to b and b to c

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CAC up nearly fifty percent

compared to five years ago as

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marketing density

continues to increase.

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That being said, CAC amongst freemium

companies is actually only up twenty five

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to thirty percent

versus five years ago.

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The diminishing returns of

traditional free offers like

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free ebooks or white papers give

us a look into this phenomenon.

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Note that the life of an

ebook has dropped from being

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effective for roughly six

months to now only being

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effective for less

than a quarter.

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This is happening even though

the quality of content as we

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saw in a previous study

continues to increase.

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Essentially, free

products are becoming give

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you

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an

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opportunity

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to nurture give you an

opportunity to nurture that

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lead into perpetuity.

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Free has actually become more

effective than non free alternatives.

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Retention is fifteen percent

better on an absolute basis for

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those companies utilizing

the freemium model.

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NPS is roughly fifty percent

better for those companies

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utilizing freemium,

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and the previous objection of

a free plan eroding value is

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actually softening with the

willingness to pay for an initial tier,

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growing from a floor of roughly

a hundred and fifty dollars

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five years ago to close to

a thousand dollars today.

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So should you jump on

the free bandwagon?

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Probably. Yeah.

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Although, while the data does

suggest some serious benefits,

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you should keep in mind

that freemium is a scalpel,

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not a sledgehammer.

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We've seen the most effective

freemium plans come when a

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company has been around for a

few years and figured out their

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unit economics before opening up

the top of the funnel with free.

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We wrote more on this in our

hundred plus page research

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study on freemium entitled

the freemium manifesto,

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which you can find below.

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But that's all for now.

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If you want us to dig further

into this data or any other

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data out there, ship me an email or

video to p c at profit well dot com.

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Let's also be sure to thank

Heaton for sparking this

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research by clicking the

tweet in the link below,

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and we'll have more

data for you next week.

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This episode of the ProfitWell

Report is brought to you by

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AppCues.

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