The document outlines the freemium business model in SaaS, discussing its principles, analytics, and strategies for retention, engagement, monetization, and growth. It highlights concepts like the Bertrand Paradox, Handicap Principle, and the importance of understanding user value to enhance product fit. The document emphasizes the need for analytics tools and metrics to optimize user engagement and lifetime value.

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Freemium Concept
Marvin
Finance
Agate Studio

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Freemium Concept and Analytics to Drive Revenue in SaaS Business
TDS – 18 Oktober 2014
Lee Marvin- lee.marvin@agategames.com

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Let’s discuss about these
1.Freemium Concept
–Brief Definition
–Bertrand Paradox: Why Freemium flourishes in SaaS
–Handicap Principle: The Motivation of Buying Virtual Goods
–The Curve: Bringing Superfans to your product
2.Freemium Analytics
–Retention: Is your product already in market fit?
–Engagement: What feature is matters to your users?
–Monetization: Give users what they truly value
–Growth: Scale up your product’s impact

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FREEMIUM CONCEPT

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Brief Definition
•Freemium Business Model
–Business model which provides a vast category of offering products/services from price point 0 to any price point that customers truly value.

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Example of Freemium Business Model (part1)
•From this (free install):
•To this:

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Example of Freemium Business Model (part2)
•Crowdfunding Act (Axent Wear):
The Real Products
Wallpaper
Bundling Products
Custom Color
Custom Design

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Bertrand Paradox: Why Freemium flourishes in SaaS
Joseph Louis François Bertrand French Mathematician 1822-1900
Bertrand Paradox:
•Imagine 2 businesses compete each other to maximize their profit by taking competitor market share
•These businesses will reduce their price to do so until price = cost to produce 1 good
•This should happen if 2 businesses have:
•Identical product
•No product differentiation in branding effort
•Identical cost of production
•Identical RnD process
•Identical Distribution Cost
•Identical Production Capacity Constraint
Those bolded lines are possible in SaaS Business.
While cost to produce 1 good is virtually start at Price Point 0.00  Free

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Handicap Principle: The Motivation of Buying Virtual Goods
•Why male peacock have extravagant tail?
•Why Antler have horns bigger than their head?
•Why luxury cars still exist regardless of their functionality?

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Handicap Principle: The Motivation of Buying Virtual Goods (cont’d)
•Proposed by Biologist Amotz Zahavi in 1975
–Living creatures do/have useless biological properties regarding for survival functionality
–The purpose of properties are to find the best mate therefore keeping the species in the best shape as possible
The concept of to find the best mate as possible in human society blur the “value” of things. Virtual Goods give human vast choices of perceive value in its society.

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The Curve: Bringing Superfans to your product
•So how to offer the value that humans want?
•Meet The Curve, consist of 3 mindsets:
–Find your audience for your product/ product market fit
–Use tools to figure out what they truly value
–Let them spend anything form little to LOTS

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FREEMIUM ANALYTICS
The Tools to Figure Out What Customers Truly Value

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Retention: Is your product already in market fit?
• Measure % Returning users overtime
• Best practice is by using cohort analysis

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Retention: Is your product already in market fit?
•End product of Retention is LifeTime Of users
•Which is: 퐴푣푒푟푎푔푒 푃푙푎푦푒푟 퐿푖푓푒푡푖푚푒= 1 퐶푕푢푟푛
•To calculate Average Player Lifetime, we use the slope of retention graph of each cohort
•If later cohort retention rate > early cohort retention rate, then your product is approaching product market fit

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Engagement: What feature is matters the most to your users?
•Net Promoter Score
–Proposed by Bain & Company consultant, Fred Reichheld.
–Gives high level of user engagement level
•How to:

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Engagement: What feature is matters the most to your users?
•Session metrics
–Track how frequent and how long users use specific features

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Engagement: What feature is matters the most to your users?
•Onboarding Funnel
–Does your product intuitively easy to use?
–Which feature people find hard to understand?

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Monetization: Give users what they truly value
• Conversion Rate:
– Tracking how many active
users pay for the product
• Product Conversion:
– What product is being
sold

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Monetization: Give users what they truly value
•ARPU & ARPPU:
–Show Average Revenue per Users and Average Revenue per Paying Users

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Monetization: Give users what they truly value
•Combining previous metric with cohort analysis:

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Monetization: Give users what they truly value
•End product of monetization should be LTV: Life time Value of users: Formula:
•퐿푇푉=퐴푅푃푈×퐴푣푒푟푎푔푒 푃푙푎푦푒푟 퐿푖푓푒푡푖푚푒
•LTV shows how much money the users will contribute to the product.

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Growth: Scale up your product’s impact
•Growth indicates inviting new users to the product and get higher scale of product
1.Cross Promotion
–Use other product to gain users
2.Paid Marketing
–User advertising channel to acquire users
–Important Metrics: CPA (Cost per 1 Acquisition)
–Make sure CPA < LTV so that users from paid marketing will pay off in the product later

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Growth: Scale up your product’s impact
•Virality

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Growth: Scale up your product’s impact
•Virality in Cohorts
–Virality can bring new users from origin cohort (first order)
–First order cohort can invite other new users (second order) and so on.
–Thus for accuracy and simplicity, number users can invite should be limited to n- order

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Growth: Scale up your product’s impact
•Virality in Time period

26. Thank You
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