Building a freemium product or service is only the first step.
Once you’ve done the work to build and launch a freemium product, you will have to collect initial market reactions and see how the funnel behaves at each touch point. You will then have to decide whether to optimize the freemium experience, keep it the way it is currently or remove the funnel altogether.
Each funnel has a set of metrics:
- Acquisition.
- Activation.
- Retention and engagement.
- Monetization.
- Expansion.
There are many ways to improve each step so you must consciously reevaluate your strategy to avoid over-investing. There may be situations where unit economics are not yet working, but the increase in conversion required to break even is very small. You may learn that new users find it difficult to activate and move to a paid tier. Or you may find that your users are excited about the free tier and see no reason to upgrade.
What to optimize?
Enabling freemium, especially for established products, can bring organizational and operational challenges even if it adds value to the business.
As described above, you need to analyze how your freemium funnel performs to understand where the biggest problems are.
In general, the main areas of optimization are:
- Limitations that you set on freemium (both on the base use case and advanced features).
- Conversion paths.
- User activation.
- Supporting product changes on freemium.
The first two are primarily to do with monetization, the third is related to retaining free tier users, and the last is a cost you have to bear to support changes to the freemium product.
Limitations
The more data you generate about freemium use, the more ideas you will have about whether you have chosen the restrictions correctly.
There are two types:
- Direct limitations to the basic use case.
- Inclusion (or exclusion) of other features.
The first point is fairly straightforward — it relates to the use case and the extent to which you allow free tier users to engage with the base use case. Experimenting with limitations is a must because you need to find a balance between serving the use case in its simplest form and pushing users to upgrade.
Suppose your model allows unlimited use of the base use case. In this case, you can include limitations such as the ability to invite other users to the account, the experience of collaboration and so on. This is the second type of limitation that you can work on. It is possible to over-engineer freemium by providing access to additional features that make the basic use case “complete” — e.g., analytics, notifications, etc. This is another area where you can experiment.
Conversion paths
Since your free tier users use your product for the basic use case, creating conversion paths that allow them to understand the benefits of your paid plan will be a problem. Should they go through a trial period before paying for your paid solution? Should you ask for their payment information if they want a free trial?
Optimizing freemium products: Challenges and opportunities by Ram Iyer originally published on TechCrunch
