The Key To Freemium Subscription Conversion

I’ve been analyzing a number of subscription services over the past year, primarily those following the freemium business model. The ones who seem to have the most success not only solve a problem but also seem to have something else in common: each one offers multiple ways to ram your head against the pay wall.

To simplify, I’m going to focus on a handful of freemium services. Freemium, if you are not aware, are products that offer some functionality for free and more if you pay. Examples include Evernote, Flickr, and 37signals’ products. To different extents, each service offers functionality for free and then gives you multiple methods where that free service isn’t enough and paying becomes the likely option.

Evernote offers more for free than most services. You can create and upload way more for free than 99.9% of people would ever use each month, for instance, and gives you access to that information everywhere. Given that you’d think Evernote would have a low conversion rate. But it’s actually really high: over 20% of active users (those who use the service at least once per month). Why do people upgrade? Bigger uploads, better security, offline access, history of note changes, collaboration options, better search and  faster image recognition. And those are just feature reasons. Evernote CEO Phil Libin claims that the primary reason is because customers want to know the company will be around long-term. That’s eight reasons — and I didn’t list them all — for a customer to pay. Each customer only needs one reason to upgrade. Evernote ensures most customers will eventually run into one of them.

Flickr has an upload limit for free, or rather it has a limit of how many of your uploaded photos you can see. The Pro account adds unlimited photos, larger sized photos, more videos, HD videos, more groupings, high res images, ability to download uploaded images and statistics. Again, Flickr offers nine or more ways for a customer to hit a wall and need to upgrade.

As a third example look at 37signals’ Highrise. Highrise revolves its various price points around four or five key features including number of users, amount of storage, number of deals, number of contacts, etc. Again, multiple ways to run into a wall and need to pay.

In contrast, let’s look at a product like Cheddar. Cheddar is a subscription-based to do app for iOS and Mac that is for sale right now. According to the sales site, Cheddar has a 2.55% conversion rate, fairly anemic and, given his numbers, not enough to make it a full-time job. Cheddar offers one reason to upgrade: unlimited lists. That’s it. That means 97% of customers are more than happy with one or two lists, which is what you get for free. There is nothing else to get these folks to pay.

There is more than this required to make a subscription service work but getting people to convert partly means giving customers more than one excuse to do so.

4 thoughts on “The Key To Freemium Subscription Conversion

  1. Good analysis Elia. Initially I wasn’t sure how you were using the phrase “hit a wall.” Seemed negative. Overall, you are saying that the successful companies are smart about providing incentives to pay. I’m guessing Cheddar thought just one reason would be easier to understand than say, 5-9 reasons. Either way, I think of it as a continuous seduction. First seduce the user to engage for free and then incrementally seduce them to pay!

  2. Have you studied or read the infamous Mailchimp blogs around Freemium? Good stuff. Lastly, the only modification I would add is assuming hitting 1 or the 8 triggers the upgrade. I suspect it’s when users start bumping into the 3rd or 4th it moves from nuisance factor to real impediment and out comes the credit card. So maybe the beauty of the balancing act is having 8 – 10 reason to upgrade but realizing that if just 1 of those really forces an upgrade behavior it’ll feel like a bait and switch vs a genuine freemium offering.

    • I hadn’t contemplated that perspective. Bait-and-switch might be the wrong phrase but I get your sentiment. If it is only one thing I think pretty hard about whether I want to pay or not, whether the money is worth it. If I was to run into more than one then the value I receive for my monthly or annual payment feels more in line with my expectations. The credit card likely comes out at issue 1 but the customer may not feel as good about it as if they ran into 3 or 4 triggers.

      On Wed, Jan 16, 2013 at 12:22 PM, Elia Insider

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