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Patrick Campbell - The Case for Freemium
The document argues that the freemium model is essential for customer acquisition in a saturated market and can lower customer acquisition costs through free offerings. It highlights the importance of net dollar retention and customer engagement for companies using freemium strategies, showing better results compared to those without. Additionally, the document emphasizes that consumer willingness to pay has declined, necessitating companies to adapt their products and marketing approaches to remain competitive.
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Patrick Campbell - The Case for Freemium
- 1. Brought to youby The Case for Freemium DECEMBER 2017
- 2. Brought to youby Freemium and I have a long and sordid history…
- 3.
- 4. Brought to youby Freemium is an acquisition model. Not a revenue model.
- 5. Brought to youby Freemium is a scalpel, not a sledgehammer.
- 6. Brought to youby Your success will hinge on having some form of free product in the next 10 years. THE MARKET DEMANDS FREE
- 7. Brought to youby Growth density is becoming too great.
- 8. Channel growth isleveling off.
- 9. MARKETING CHANNELS AREPLENTIFUL Number of Sales & Marketing Channels Utilized Sales & Marketing channel utilization has expanded rapidly, giving the rise of more opportunities to acquire customers from numerous different places. AVERAGE#OFCHANNELSUTILIZED YEARS AGO SOURCE: 2017 MARKETING STUDY Brought to you by 0 5 10 15 15 YEARS OLD 10 YEARS OLD 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD TODAY 13.89 13.22 12.43 8.31 4.72 2.31 N = 1168 software founders and executives N 1168
- 10. Our CACs areout of control.
- 11. UNIT ECONOMICS AREN’TWHAT THEY USED TO BE Customer acquisition cost has increased significantly Customer acquisition cost has increased significantly over the years due to market saturation of marketing vying for consumer attention. BLENDEDCACRELATIVETOFOURYEARSAGO SOURCE: 2017 CAC STUDY Brought to you by -18% 0% 18% 35% 53% 70% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today B2B B2C WHEN MEASUREMENT WAS TAKEN N 743 N = 743 companies
- 12. Offers level offpretty quickly now
- 13. GROWTH DENSITY ISBECOMING TOO GREAT The Life of an Ebook has greatly diminished due to density Our ebook offers (as an example) are greatly diminished in their effectiveness with a leveling off effect quicker in their lifecycles AVERAGE#OFMONTHSACONTENTOFFERISEFFECTIVE AGE OF OFFER 2017 MARKETING STUDY Brought to you by 0 4 7 5 YEARS OLD 1 YEAR OLD 2.9 6.4 N = 835 ebook offers
- 14. We’ve responded bygetting better…
- 15. …but all channelsdie in effectiveness.
- 17. Freemium circumvents thisby lowering blended CAC
- 18. GROWTH DENSITY ISBECOMING TOO GREAT CAC for Free isn’t Growing at the Same Rate as Paid Customer acquisition cost has increased significantly over the years, but one pocket that’s been protected a bit have been our free compadres. BLENDEDCACRELATIVETOFOURYEARSAGO SOURCE: 2017 CAC STUDY Brought to you by 0% 18% 35% 53% 70% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today NO FREE FREEMIUM WHEN MEASUREMENT WAS TAKEN N 646 N = 646 companies
- 19. You essentially havea catalyst with free.
- 21. Brought to youby Freemium is a catalyst in lowering the activation energy for lead velocity.
- 22. Brought to youby You “own” the lead.
- 24. GROWTH DENSITY ISBECOMING TOO GREAT Retention is noticeably better for freemium products Net dollar retention is noticeably better for companies utilizing the freemium acquisition strategy, driven in part by a forcing function for monetization, as well as a better experience. NETDOLLARRETENTION SOURCE: 2017 RETENTION STUDY Brought to you by 70% 80% 90% 100% 110% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today NO FREE FREEMIUM WHEN MEASUREMENT WAS TAKEN N 143 N = 143 companies
- 25. GROWTH DENSITY ISBECOMING TOO GREAT NPS is greater for companies with freemium products NPS scores for the paid product is typically better for those companies who have a freemium model of some sort AVERAGENPSSCORE YEARS AGO SOURCE: 2017 SAAS STUDY Brought to you by 0 5 10 15 20 25 30 5 YEARS AGO 1 YEAR AGO 23.7 29.9 15.8 24.5 NO FREE FREEMIUM N = 129 software companies N 129
- 26. Brought to youby SURE, BUT SOME OBJECTIONS
- 27. Brought to youby But I don’t have the resources…
- 28. Brought to youby …you need to get them if you don’t want to go up market.
- 29. The market doesn’treally care that you don’t have the resources…
- 30. Product is getting*really* good. Value isn’t.
- 31. The relative valueof features is declining.
- 32. THE MARKET ISDROPPING OUT BENEATH US Consumer Willingness to Pay has Declined Over Time Software willingness to pay has declined significantly over the past few years due to increased options and higher demands. WTPAS%OFWTP4YEARSAGO SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY Brought to you by 0% 30% 60% 90% 120% 5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY Core Features Single Sign On Integrations Analytics WHEN MEASUREMENT WAS TAKEN N = Varies by line, but minimum of 10,000 customer respondents per line N 921k
- 33. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY Brought to you by WE’RE BUILDING THE WRONG PRODUCT Calculating the expected impact of product on growth DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE Differentiable Features High Value/High WTP Add-Ons Low Value/High WTP Core Features High Value/Low WTP Trash Land Low Value/Low WTP
- 34. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY - N = 5K+ INPUTS FROM 1282 DIRECTOR, VP, OR C-LEVEL PRODUCT LEADERS Brought to you by WE’RE BUILDING THE WRONG PRODUCT What we think we're building DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE
- 35. -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -0.5 -0.4 -0.3-0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 Revenue Drivers 2017 SOFTWARE MARKET SURVEY - N = COMPOSITE DATA FROM 1.2M CUSTOMER INPUTS Brought to you by WE’RE BUILDING THE WRONG PRODUCT What we're actually building DEVIATIONFROMMEDIANWTP RELATIVE PREFERENCE MAGNITUDE
- 37. We’re going to“DEMOCRATIZE DATA ANALYTICS”
- 38. ….f**k it…too hard.We’re going for the C.R.E.A.M. We’re going to “DEMOCRATIZE DATA ANALYTICS”
- 39. PROFITWELL Free financial metricsfor subscription businesses
- 40. EATING OUR OWNDOG FOOD Buyer WTP for a SaaS Metrics Products Customers weren’t willing to pay as much as we thought for a SaaS Metrics solution. This was especially bad when looking at the multiple between the lower end customers and the upper end customers. WTPFORASAASMETRICSSOLUTION SOURCE: 2017 CONSUMER WILLINGESS TO PAY Brought to you by $0 $75 $150 $225 $300 $0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+ Upper Lower Median COMPANY’S MRR N = ~300 companies
- 41. Brought to youby Quantified buyer personas are data driven profiles of the customers you’re targeting or choosing to ignore. FIRST DRAFT OF YOUR BUYER PERSONAS Startup Steve VALUED FEATURES ‣ Price ‣ Design LEAST VALUED ‣ Actionability ‣ Depth LIFETIME VALUE $600 WILLINGNESS TO PAY $50/month CUSTOMER ACQUISITION COST $550 TARGET PERSONA Miderprise Meredith VALUED FEATURES ‣ Accuracy ‣ Depth LEAST VALUED ‣ Price ‣ Design LIFETIME VALUE $1,500 WILLINGNESS TO PAY $150 - $200/month CUSTOMER ACQUISITION COST $3,000 POOR PERSONAPOOR PERSONA
- 42. Brought to youby Free stacks the marketing and retention paths you need, depending on the structure of free taken. PROFITWELL GOING FREE 1 2 3 Low CAC with constant value Creates the Requirement Path to Share of Wallet ProfitWell Financial metrics for the subscription economy 100% accurate SaaS metrics for free integrating 1-click with your billing system Central fulcrum to cust success, sales, finance, marketing e-team, and rest of stakeholders Allows interface to clearly point to problems and reinforce value of paid add-ons
- 43. Brought to youby Engineering productivity has never been better. Find a way to use it or go upmarket.
- 44. Brought to youby But what about monetization…
- 45. “Free erodes thevalue of my paid product”
- 46.
- 47. BUT WHAT ABOUTMONETIZATION WTP for an initial tier has increased pretty dramatically Despite the pull of free, the willingness to pay for different first tiers of a product have gone up pretty dramatically, supporting the thesis that free doesn’t erode the brand. WILLINGNESSTOPAYFORINITIALTIER YEARS AGO SOURCE: 2017 SAAS STUDY Brought to you by 0 167 333 500 667 833 1000 5 YEARS AGO 3 YEARS AGO 1 YEAR AGO $784 $305 $147 N = 3,192 consumers N 3,192
- 48. Brought to youby SO HOW CAN I USE FREE?
- 49. Brought to youby There are many types of free.
- 50.
- 53.
- 55.
- 59. Brought to youby Freemium is a scalpel, not a sledgehammer.
- 60. • Not foran early stage startup* • Not for enterprise companies who have never done the world of subscriptions** • Needs to be a fully functional product that’s good (Mailchimp free NPS is 55, ProfitWell is 60) • Requires dedication to the point of conversion above all else *G or Balfour on your team **Unless you buy a company with subscription DNA FREEMIUM IS A SCALPEL, NOT A SLEDGEHAMMER Brought to you by — THECASEFORFREEMIUM
- 61. Brought to youby Your success will hinge on having some form of free product in the next 10 years. THE MARKET DEMANDS FREE
- 62. Brought to youby Q&A