The document discusses the freemium business model in Software as a Service (SaaS) and outlines key components for success, including maintaining low customer acquisition costs (CAC) and high lifetime value (LTV). It emphasizes the importance of creating a sticky, viral, and touchless product that encourages user engagement and referral. Successful examples like Dropbox and Evernote are used to illustrate these principles along with strategies for user acquisition, activation, retention, and monetization.

1. Software as a Services
and the
Quest for Freemium
What it takes to be
Sticky, Viral and Touchless

2. What makes Freemium work
• Free:
Lower friction = faster traction
• Sticky:
Grows more valuable the more its used.
• Viral:
Ecstatic customers + Incentives to share with
friends.
• Touchless:
Guide users to become customers

3. For Freemium to work
Low CAC High LTV
Source: David Skok, Matrix Partners

4. Why Free?
• It Optimizes spread,
• Creates large footprint,
• Fast decisions
Examples:
– Started with free = Freshbooks, Dropbox,
Evernote.
– Added Free = MailChimp
Source: David Skok, Matrix Partners

5. When is Freemium a good fit?
Source Matt Brezina, Xobni

6. Free- Caveats
• Product is the salesperson
• So you have Absolutes:
– Ease of set up
– Ease of use
– Clear instruction
– Fast proof product works
Source: David Skok, Matrix Partners

7. Sticky
• Create a product that has a great long-term
retention rate;
• Make something whose value increases over
time; (Evernote)
• Hang on to older users by introducing new
features (Evernote, Xobni, GIST)
Source: Phil Libin, EverNote

8. Sticky- Example by Cohort : Evernote
35000
30000
25000
20000
# Users
15000
Convert %
10000 # Customers
5000
0
Month Month Month Month Month
Month 1 Month 6 12 18 24 30 36
Oldest cohort now 20% paid
Source: Phil Libin, EverNote

9. Viral
• Give users better tools to spread the love
• Referral program w/ 2-sided incentive
(paypal, dropbox)
• Surveys, split tests, landing page/signup
flow optimizations, encourage
sharing  big wins
• Big investment in analytics
• Test, measure, repeat
Source: Drew Houston, Dropbox

10. Viral- Example DropBox
DropBox User Growth
4500000
4000000 4,000,000
3500000
3000000
2500000
2000000
Est users
1500000
1000000
500000 100,000
0
Dropbox grew from 100,000 to 4,000,000 users in 15 month.
Roughly 25% CAGR, Sustaining 17% CAGR over the last 9 Mo.
Source: Drew Houston, Dropbox

11. Touchless
• Move customers from trial to purchase
without needing a sales force.
• Customers like to sell themselves
• Use a simpler sub-set of your
product/service, then upsell
• Easier to upsell an existing customer
(Evernote, 37signals, Dropbox, Xobni, Freshbo
oks, ProOnGo, ConstantContact, etc)

12. Higher LTV - Monitization
• Recurring Revenue
• Scalable pricing
• Upsell
• Product line extensions
• Lead gen for 3rd parties (API-platform)

13. A Working Freemium Business Model
Source: David Skok, Matrix Partners

14. Early Success Metrics
• Visitor-to-trial conversion rate. it indicates if target audience is interested in the
product and the ability to communicate the value of the product.
• Trial-to-paying-account conversion rate. If people pay for product, that's the best
sign that we're delivering real value to them. Higher conversion = lower CAC.
• Engagement and retention of early users. look at usage metrics such as daily or
weekly logins and various application- specific metrics to see if product is really
used by customer.
• Enthusiasm of your early users. These early VIP users are a strong signal that
product is solving a real pain and hence a strong indicator of product/market fit
(which is the basis for low CAC and high CLTV).
• Team. Smart, dedicated, talented and results-driven. Excel at product. ”Get"
modern SaaS –consumerized business applications that are powerful yet easy-to-
use and can be sold online using a low-touch sales model.
It’s in the DNA of the founder team.
Source: Christoph Janz, Point 9 Ventures

15. The Process: 5-Step Model - AARRR
SEO Campaigns,
Social SEM PR Contests Biz
Networks
Blogs Affiliate Dev
Apps & s Direct, T
Widgets Email el, TV
Domains
ACQUISITION
Viral
Loops
Homepage / Emails &
Landing Page widgets
Emails &
Alerts
Product Affiliates, C
Features ontests
Blogs, RSS, Ne
ws Feeds
System Events &
Ads, Lead Biz Dev
Time-based
Features Gen, Subscriptio
ns, ECommerce
Website.com
Source: David McClure, 500Hats

16. Sample Conversion Metrics
Stage Conversion Status Conv. Est. Value
% (*not* cost)
Acquisition Visitors -> Site/Widget/Landing Page 60% $.05
(2+ pages, 10+ sec, 1+ clicks = don’t abandon)
Activation “Happy” 1st Visit; Usage/Signup 15% $.25
(clicks/time/pages, email/profile reg, feature usage)
Retention Users Come Back; Multiple Visits 5% $1
(1-3x visits/mo; email/feed open rate / CTR)
Referral Users Refer Others 1% $5
(cust sat >=8; viral K factor > 1; )
Revenue Users Pay / Generate $$$ 2% $50
(first txn, break-even, target profitability)
Source: David McClure, 500Hats

17. Step 1: Acquisition
Users come to the site/app from various channels:
• Affiliate
– Develop affiliate program, create rewards scheme
– Identify target affiliates
• Apps & Widgets
– Create widget to embed in other websites, facebook, outlook, email
– Build API for others to build on top of, encourage open development, create revenue sharing model
• Biz Dev
– Identify and calling/networking with target industries e.g. Jones Lang
– Channel partnerships
• Blog
– Create original blog content
– Share useful content relevant to target users e.g. Hubspot
– Create video sand podcasts
– Share features e.g. wibiya, facebook like, twitter tweet, google +1, linkedin share, stumble upon,
• Campaigns & Contests
– Running online contests, giving away gifts
– Hackathons and local events
– Going to tech events
• Advertising
– TV, Radio, Print
– Online paid adverting e.g. Google Adwords, Facebook Ads, industry, online publications

18. Step 1: Acquisition Contd…
Users come to the site/app from various channels:
• Domains
– Registers multiple domains focused on specific elements
• Email
– Obtain targeted email lists, send out emails
– Pay email marketing firms e.g. constantcontact
• PR
– Press releases
– Placement on sites like Yahoo News, Google News
– Mentions on tech websites e.g. techcrunch, mashable, gigaom
– Communication and relationship with journalists
– Communication and relationships with tech bloggers, magazine writers,
– Develop a PR package to download
– Paid PR
• SEM & SEO
– Find most relevant and popular terms and embed in website
– Get linked/mentioned on other websites
– Create backend tools e.g. web analytics, log file analyzing
• Social Networks
– Facebook, twitter, google plus pages
Metrics to Track by source:
– Youtube - Quantity(#)
– Startup blogs and networks e.g. builtinchicago.org - Cost ($)
– Tapping into MBA network
- Conversion (%)

19. Step 2: Activation
Users enjoy 1st visit i.e. “happy” experience
• Homepage/Landing Page
– Conduct A/B testing of UI, impact of various of
colors, placements and UI
– Track page views, clicks, time spent on site
– Keep page clean and simple
– Set activation goal e.g. get emails
• Product Features
– Test success of different product features
– Iterate fast
– Provide incentives and encourage call to action
Metrics to Track by source:
- Pages per visit
- Time on site
- Conversion (%)

20. Step 3: Retention
Users comeback to visit site multiple times:
• Emails & Alerts
– Lifecycle emails e.g. 3 day, 1 week, 1 month
– Status emails e.g. best of week/month
– Event based emails “something happened”
– Easy to unsubscribe
– Easy to read emails (Important info in subject, small body)
• Blogs, News Feeds, Twitter Feeds
– Track Impressions
– Track commentary
• System Events & Time-based Features
– Release features with maturity /demand of customers
– Release features around events Metrics to Track:
• Cohort Analysis - Source
– Conduct cohort analysis - Quantity
(dist. of visits over time, rate of delay, customer lifecycle)- Conversions
- Visitor Loyalty
- Session Length

21. Step 4: Referral
Users like product enough to refer others:
• Viral Loops
– Create incentive for sharing e.g. rewards
– Create same-side networking effect so users benefit from inviting
others
– Make sharing easy
– Track viral growth(Growth factor = X*Y*Z where X = % of users who
invite others, y = avg number of people invited, Z = % users who
accepted invitation). Track growth of different channels
• Emails, Widgets & Social
– Make it easy for users to invite others from app/web
– Penetrate a specific customer segment with widgets
– Build API for others to build on top of, encourage open development
• Affiliates, Contests
– Ads, Affiliates, Cross-promote app with other developers

22. Step 5: Revenues
Users conduct some monetization behavior:
• Revenue
– Freemium Model – figure out optimal model, price
– Subscription/Recurring Transactions
– Create API for other developments, profit sharing
– Track profitability: Lifetime value > Cost per acquisition + Cost of
service (paying & free)
– Build profitability model
• Biz Dev
– Create channel partnerships
– Form alliances versus competing
– Target tech savvy users/early adopters initially
– Target industries and functions

23. Thanks 
• Want more info?
– Kelly Schwedland
– 219-405-5723
– kellys@abdus.com
• Sections of slidedeck taken from:
Dave Mcclure’s http://slideshare.net/dmc500hats 500.co (@DaveMcClure)
David Skok http://www.slideshare.net/DavidSkok http://www.forentrepreneurs.com/ (@BostonVC)