Building a Profitable BusinessBased on the Freemium Model www.schulmanthorogood.com May 10, 2011
What Will You Get From This Presentation?Hopefully, An Understanding of the FreemiumBusiness Model (No FREE Lunch) Why & How It Works A Few Examples & Things I’ve Learned Freemium Conversion Events Monetizing FREE Should You Do It? What’s Your DNA? Building a Culture of Measurement
So, What IS Freemium?Freemium works by offering a basic product orservice free of charge (such as software, webservices or other) while charging a premiumfor advanced features, functionality, or relatedproducts.Jarid Lukin coined the term "freemium,“andFred Wilson adopted it for the business model.HitBox from WebSideStory was one of the firstexamples and Jarid a good customer.
It Works – But No Cookie Cutter! Branding/WOMM (B2I instead of B2B – Enterprise Penetration) Increase Reach & Decrease CP Impression Lead Generation (B2I instead of B2B – Enterprise Penetration) Measure Direct-Sales Rep vs. Indirect-Online CP Lead / revenue Measure Free to Sales Leads and Free Trials Cost Deflection Sales / Support Push Users Online for Purchase/Support Disruptive Forces Product & Customer Focus / Rapid Release (30 days) Measurement / Law of Large Numbers
Overview of Conversion Metrics* Campaign Site Visit to: (1-25% Conversion) Conversion Signup Experience to: (50% Conversion – Funnel #Fields) Product Engagement to: (10-20% Conversion) Increase Re-engagement After 30 Days (Variable Over Time) Upsell Premium to: (1-5% Conversion) Variable Over Time Revenue to: (80-95% Retention) By Customer, Seat, Revenue Renewal (MCV, ACV, TCV)
Starting Fresh or Starting Over? Is FREE too expensive? Creating a free version of your product to be cheap to delivery, easy to support & set up is tough! Do people really love the offering? The bar for product quality is actually higher for free products than it is for paid products. Do you have clear differentiators from your PAID product? This one is the hardest things to do!
Ten Things I’ve LearnedAll Good Things Happen To a Large Network of EngagedUsers!Invest in People, Process, and SystemsUnderstand Law of Large/small NumbersKeep Application, Package and Price SimpleEngage Users – Use Survey and NPR BenchmarksBuild a Community & Love Your CustomerUse Rapid Development Cycles (30 Days or Less)Price / Package Disruptively (Remember Cable Holidays)A/B Test EverythingThink Out-Of-The-Box – The Rule is No Rules!
You Have Challenges – Free Is Not For All! Sales – Will This Potentially Cannibalize Your Revenue Stream? What is Your ASP? Marketing – Are There Brand Issues – Free Can Cheapen the Brand? IT – Can We Build a Cost Effective Infrastructure? Processing & Bandwidth. Finance – Can We Build COGS & LTV Models? Are there External Licensing Fees – Content, APIs, Code? Where Are the Inflection Points & How Much Runway? Bigger Upfront Investment
Recent Startup Case StudiesInsideView for Sales Ubiquitous Deployment Embedded within Major CRMs – Upsell to Professional & Enterprise – Low Churn – 000’s First Year – Great Growth Rates 90% Leads - Marketing Generated In Early Years - High Freemium Contribution (Account Penetration Enterprise Increase); #1 Rated Appexchange Free 2-4% Conversion from Free to Paid Important to Engage within First 30 DaysInboundWriter Throttle on Transactions / Time / Data Sources & Functions
Public Freemium Numbers & TakeawaysAbsolute Attribution to FREE is Part of the MarketingMix and Complex – Need Good Infrastructure &Resources Analysts, Systems, and ProcessesBtoB Conversion Rates Higher Than BtoCPandora - Conversation to Premium - 1.6 to 1.7%15/20% of Total RevenueEvernote (reported) - .5% Conversion 1st Month up to 4%@1yrLinkedIn – 3% Conversion to Premium 25% RevLogmein – 3-4 % Conversion to Premium
The Key - Establishing A Culture of Measurement Number of Deals Created by Rep LEADS Rep Activity Against PipelineTotal Seats# of products By Users Conversion by Rep By Company Lead Source PIPELINE/OPS ADOPTION Lead Status RATE PENETRATION RATE Value of Deals Won Monthly vs. Quota SALES BOOKINGS ACCOUNTACCOUNT MANAGEMENTHEALTHBy Customer COMPANY By Product TypeBy Company Size SCORECARD By Channel Conversions WEBSITE PERFORMANCE PRODUCT MANAGEMENTVisits to Site Product TractionVisits from Campaigns MARKETING UpsellPages Visited Leads from Campaign CAMPAIGN ROI for Campaign Engaged Users PERFORMANCE Leads by Product Type
Establishing A Culture of MeasurementTotal Seats LEADS Number of Deals Created by Rep Rep Activity Against Pipeline# of products By Users Conversion by Rep By Company Lead Source PIPELINE/OPS ADOPTION Lead Status RATE PENETRATION RATE COMPANY SCORECARD Value of Deals Won Monthly vs. Quota FY10 Description Starting Metric SALES Goals BOOKINGS ACCOUNT Scale Direct Sales New ACV per RepACCOUNT MANAGEMENTHEALTH Efficiency Days to winBy Customer Scale Marketing COMPANY Mktg Spend/Inbound Rev By Product TypeBy Company Size Effectiveness SCORECARD Lead to Opp Conversion Ratio By Channel Engaged Users WEBSITE PERFORMANCE FREEMIUM FREE CONVERSION PRODUCT Engaged Users MANAGEMENTVisits to Site Product TractionVisits from Campaigns MARKETING UpsellPages Visited Retain Customers Seat Renewals >90% Leads from Campaign CAMPAIGN ROI for Campaign FREE CONVERSION PERFORMANCE Leads by Product Type