The adoption of the freemium pricing strategy has accelerated recently. For a SaaS product, offering a freemium option is a great way to lower the barrier to getting a user into your product’s funnel — even more so than a free trial.
To the end user, seeing a freemium plan means that they won’t have to stop using the product at the end of a trial period. This provides the sense of security that they need to use the product effortlessly.
And while all this sounds great in theory, in practice it creates new problems for the team. With a growing number of users, your support costs might increase.
Depending on the type of product, your infrastructure costs might also go up. And while costs going up isn’t bad in itself, increasing costs while accumulating free users does drive your product and company towards a cliff.
So, what’s the best way to solve this problem? It’s to figure out the steps that convert free users to paid.
Let’s dive right in.
Understand why people pay for your tool
Before attempting to convert free users to paid, you must first truly understand why your existing users pay for your tool.
If your company hasn’t already surveyed its users, then you should create a small one to circulate within a key segment. The survey doesn’t necessarily have to be a Google Form. It could be a simple email. Better yet, do a 1:1 call with them to extract qualitative insights.
The sole purpose of the survey is to understand why people pay for your tool. You can include questions of a similar tone depending on the specifics of your SaaS product, but like every good survey, follow the KISS principle. Some questions could be:
- What is the value you derive from our tool?
- What is your favorite feature in our tool, and why?
- If our tool didn’t exist tomorrow, how would you solve the problem?
Segregate your survey results by the paid plan that your users are subscribed to. This will help you differentiate the value of certain features for specific types of users, in case your product gates sets of features behind different plans.
Identify free users deriving similar value as your paid users
Once you have identified the top features that your paid users value, it’s time to dive into analytics and find similar behavior in your free users.
Let’s look at an example. Check out Mixpanel’s pricing page. Certain features are gated based on the pricing plan. From looking at usage analytics of free users and understanding the value derived by paying users, one could deduce that users that have strong usage of Flows, Funnels, and Retention features are more likely to benefit from the features under “Advanced analysis” such as Impact or Signal.
To take an example closer to home, I applied this thought process to DelightChat’s analytics needs. While we signed up for the free plan, we quickly saw the value in switching to the Growth to unlock the Impact feature, which allows us to observe causal relationships between feature launches and user behavior.
Once DelightChat starts seeing a higher volume of users, we would strongly consider switching to the Enterprise plan just to unlock the Signal feature, if nothing else.
And so, Mixpanel’s team might be able to convince free users to upgrade by showing them the added value they can unlock.
The right metric for tracking free to paid conversions
While the most obvious metric to track is free-to-paid users’ conversion rate, that’s an overall metric that doesn’t reveal what’s happening under the hood. What does a 4% free-to-paid conversion rate tell you beyond acting as an overall health indicator?
Instead, you want to track free_user_segment_1-to-paid conversion rates after you have identified the segments of your free users who are likely to benefit from upgrading to a paid plan.
In this case, if you have identified your user segment and value derived correctly, 100% of those free users should convert to paid. And therefore your benchmark for success becomes very easy. You only need to ask one question: What % of that 100% free_user_segment_1 converted to paid?
Create a strategy to convert your free users to paid
The final piece of the puzzle is to create the right strategy to convert your free users.
Here are five ways you can go about it:
1. Nurture your free users by explaining the benefits of paid features
Your free users need to know what they are missing out on. And the most straightforward way to let them know is by telling them directly.
You could send a single email or a series of nurture emails educating a user about paid features and their benefits. This can even be automated. Whenever a free user enters a segment that indicates they are likely to convert, they will automatically enter a drip email sequence.
2. Share positive stories and accounts from paying users
Social proof goes a long way toward establishing trust and credibility. Instead of educating your free users about features and benefits, you can take it a step further and let your paying users do the talking and convincing.
Capture the answers to your paid users survey described earlier in this post, and use them as a testimonial to convince your free users to upgrade their plan.
3. Unlock paid features for a limited time
Talking about benefits is good. Social proof is great. But you know what’s the most unbeatable experience? Letting your users experience the benefits for themselves.
You can unlock certain paid features for a limited time, or perhaps offer limited usage. This allows your free users to experience the benefits for themselves, and those benefits become the strongest push for your users to upgrade and continue deriving those benefits.
When deciding the time or usage limits for paid features, keep in mind that you want to be generous enough for your free users to experience all the gains, but not so much so that they no longer have a valid reason to upgrade.
4. Craft a compelling offer
Nurturing and demonstrating value propositions are by themselves giant steps towards converting free users into paid. But why stop there?
The rule of thumb here is to create a simple offer that compels free users who have experienced or understood the additional value they can unlock.
Make an offer that your users cannot refuse. That may be something as simple as 20% off for the first three months, or perhaps 50% off the first month of the paid plan. You could try what Ahrefs has done, which is offering a 7-day trial for $7.
I would go ahead and suggest trying a $1/week trial, simply because it truly lowers the barrier. It also gets free users through the door in setting up their payment details, which is one less friction point towards converting.
You could also add a personal touch to your offer. Perhaps the coupon code that unlocks the offer is the name of the user? This way, you get to delight the users a bit more than usual.
5. Sprinkle in a sense of urgency
A great offer is one part. The second is creating a time limitation. This instills urgency in the user to try out the paid plan “before the offer expires.”
Here’s Headspace offering a 40% discount on their yearly plans. To get users to act quickly, the offer has a time-limitation after which it expires.
When the results are so-so
Despite trying all the steps in this guide, it’s possible that you may not find any meaningful lift in free-to-paid conversions. If that’s the case, you’ll want to identify the biggest reasons quickly. There are two main possibilities:
- The free plan is too generous, and therefore leaves users with insufficient motivation or need to upgrade to a paid plan. In this case, you need to look at your free and paid plan structure in more detail and find out the right usage limits and features to gate behind the paid plans.
- The free plan is attracting the wrong kind of users who are not at all likely candidates for using the paid features. In this case, you should look closely at where you are acquiring these users, and the messaging in your marketing collateral and website copy that attracts such users. Changing those will help you attract the right set of users, i.e. your target audience.
Outside of those scenarios, converting free users to paid need not be rocket science.
The framework presented in this article should give you clear steps for:
- Understanding why your users pay for your tool
- Identifying free users who might benefit from paid features
- Tracking the right metrics for conversions
- Implementing a strategy to convert the targeted free users to paid
In general, be respectful of your users, understand how to add meaningful value to their lives, and then present that value desirably and compellingly. You got this!
About the Author
Preetam Nath is the co-founder and CEO of DelightChat, a customer support tool tailored for e-commerce. Apart from building DelightChat, he spends his weekends writing for his personal blog on topics related to living a better life and building a SaaS business.