Five Ways To Convert Freemium To Premium

To generate rapid traction for their products, many SAAS providers offer a Freemium plan, which is free access to a truncated version of their full blown software that comes at a price.

By doing so, they expect that users will play around with their software without any risk and upgrade to the premium version in a couple of months.

Alas, this is like the old misconception “Build and they will come” and rarely works in the real world.

I’ve been using many products for years without paying for them e.g. CamScanner, Color Detector, Hootsuite, IrfanView, OneTab, Pixel Ruler, WordPress, etc. I've heard of people who stretch trial periods of software to eternity by signing up for a new trial version from a different email address when the previous trial version reaches its expiration date.

And it's not just my personal experience.

According to anecdotal evidence, paid users comprise only 5% of the customer base of most SAAS vendors, with the remaining 95% staying on the freeemium version forever.

It's not sustainable for most companies to support 100% of their user base with revenues from only 5% of it.

Therefore SAAS vendors are constantly on the look out for ways to convert freemium to premium i.e. upgrade their freemium users to paying customers. Success or failure in this endeavor - more than anything else - separates unicorns from the deadpool members in the SAAS space.

(https://twitter.com/s_ketharaman/status/377440691338899456)

In this two part blog post, I’ll share five best practices for SAAS vendors to convert freemium to premium.

#1. ASK FOR MONEY

I haven’t paid anything for many of the aforementioned products for the simple reason that they never asked me to pay anything. Had they asked, I'd have paid.

The British publisher The Guardian does ask - by inserting a Since you're here banner at the end of every article.

Some cultures might frown down upon the act of asking for money openly but, from personal experience, I can tell you that this approach works - I’ve donated at least thrice to The Guardian in the last one year.

#2. CREATE PINCH POINTS

Here you create a pinch point for a key feature in your freemium version that can be sidestepped by going premium.

Let me use Hootsuite to illustrate this tactic.

As I'm sure you'd all be aware, Twitter, LinkedIn and Facebook don't allow you to schedule posts (with the exception of Facebook Company Page). This is a major pain area for content and social media marketers who need to maintain a consistent frequency of posting but might lack the time or creative juice or both to bat out something at each one of those specified dates and times. By offering the ability to schedule posts into the future, Hootsuite alleviates this pain.

Apart from its basic “write once, post many” paradigm, I signed up for Hootsuite because of its support for Scheduled Posts. At the time, Hootsuite didn't specify how many posts could be scheduled in any of its plans. In practice, freemium users found that they could schedule unlimited number of messages. Which was a great thing.

Then, suddenly, Hootsuite introduced a limit of 30 Scheduled Messages (new name for Scheduled Posts) on the freemium version.

Thirty is a woefully small number for most digital marketing professionals who tend to schedule hundreds of posts - my current count stands at 363. So the limit of 30 scheduled messages caused a “pinch point” and drove many freemium users to upgrade to the paid version of Hootsuite (which has no limit on the number of scheduled messages).

For SAAS vendors who’re a bit queasy with this tactic, it's not as though Hootsuite originally committed unlimited scheduled posts and then reneged on that promise by curtailing the number to 30 messages. By not quantifying the feature originally, it could be argued that Hootsuite left a "placeholder", which it now filled by putting the figure of 30. Secondly, Hootsuite is now informing new users upfront that the freemium version will allow only 30 scheduled messages. Therefore, I don’t see anything unethical about this approach.

#3. INTRODUCE VALUE ADDED FEATURES

If you only have a freemium version, you can package one or two extensions of your basic product as value added features. By charging a nominal fee for them, you'd be able to monetize your product. This is similar to the tactic used by videogames to make money by selling virtual goods e.g. magic potion that bestows extra strength to the player.

Liner is a good example of a SAAS company that uses this technique. Its free product lets users highlight portions of a webpage, get a link, view all their highlights in a single dashboard, and so on.

Content marketing professionals among other power users will find themselves collecting a lot of highlights very soon (I have 650 highlights now). At that point, they’d start craving for a way to search through their past highlights. Enter Liner’s Search. Priced nominally, the add-on helps you retrieve and reuse your past content. I found Liner Search so compelling that I bought it within a few days of onboarding Liner.

I've found similar value added features in FlightRadarPro (aeronautical charts), WordPress (VIP), et al.

And eagerly look forward to finding them in other products like Disqus.

(https://twitter.com/GTM360/status/1008321839670718464)

#4. MAKE IT EASY TO UPGRADE

This point should be obvious but it bears repeating because there are still many companies who seem to forget it.

I wanted to watch the Portugal v. Spain football match at the World Cup. Because the only TV in my house was not available at the time, I headed over to SonyLIV, the licensed provider of live streams for FIFA World Cup 2018. The website offered a five-minute delayed stream for free ("freemium") and the live stream for a fee ("premium"). I first checked out the freemium version. After watching it for a few minutes, I was reasonably happy with the streaming quality. I then decided to upgrade to the premium version.

What followed was a very painful experience.

The site didn’t allow purchase in guest mode. The registration form asked for too much information like gender, date of birth, zip code, etc. On top of that, it had a reCAPTCHA that was terribly hard to decipher.

Somehow, I managed to crack it and clicked the DONE button at the end of the page. Nothing happened. I tried a few more times. Then I got an error message saying the reCAPTCHA had expired. I was told to crack another reCAPTCHA.

Normally, I'd have bailed out of the website at this stage. On this instance, I went ahead only because of my love of soccer.

After cracking the second reCAPTCHA, I reached the checkout page. The price was garbled. I saw multiple payment options. I selected PayZapp and clicked the PROCEED TO PAY button. On the next screen, I was expecting to enter my PayZapp PIN number. Instead, I saw a repeat of all modes of payment - except PayZapp.

Duh?

Once again, driven by my passion for the game, I went ahead.

I selected credit card and hit the PAY button. Nothing happened.

Friction finally overcame passion and I abandoned my attempt to upgrade to SonyLIV's premium version.

While Sony’s is the most egregious example of a company that makes it difficult to upgrade to its premium version, it’s by no means the only one. When I point out the friction in their purchase journey, many companies uniformly say "security". While it's not to be taken lightly, roughly half of these guys have a wrong notion of security and the other half needs to realize that security doesn't pay their bills. Besides, when was the last time you had to enter your DOB or crack a reCAPTCHA while buying something from the Amazons and the Cleartrips and the Ubers of the world?

UPDATE: I gave it one more shot and, on this occasion, I was able to complete my upgrade successfully. On the previous occasions that I faced problems, I remember the website listing 6-7 payment methods e.g. Credit Card / Debit Card, PayTM, UPI, PayZapp, etc. On this occasion, I saw only the first two options. My preferred option, PayZapp, was missing. I guess there was something wrong with the PayZapp payment gateway and after removing it, the website started behaving properly.

#5. OUTPLACE

While trying to upgrade your freemium users to your paid version, you’ll lose some of your users. That’s an inevitable consequence of the fact that some people are time rich and will always be prepared to look around for free alternatives.

Back in the day, SAAS companies tried to lock-in their customers by storing their data in non-portable proprietary formats. In today's world of social media-amplified outrage, such sharp practices could tarnish a company's reputation in no time. Besides, even SAAS giants are now letting their users export their data to industry standard formats like CSV. So smaller players can't afford to be politically incorrect.

Good news is, there are many perfectly fair ways to minimize churn during the transition from freemium to premium. They include attractive upgrade offers, freemium backdoor and other techniques described in my blog post entitled Five Ways To Win Back Lost SaaS Customers.

After doing all this, if you're still left with any residual leavers, you can outplace them to vendors of similar products in return for a referral fee. In the past, this used to be the standard operating procedure of companies that were shutting down but, nowadays, I've come across even successful companies resorting to this tactic while shedding their freemium users.

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We've seen five tactics for converting freemium users to paying customers.

At first blush, some of them might appear unethical. Once you get past that stage after finding out that they're used by a number of reputed companies, you'd notice that some of them can generate recurring revenues whereas others will only yield onetime fees; some of them might be easy to implement in your product whereas others might be hard; and so on.

Ergo, there's no one size that fits all companies.

Each SAAS provider will want to work out the approach that optimizes revenue, ease of execution and adherence to moral compass in its specific context.