The 7 Deadly Sins of SaaS Marketing – Gluttony
Sin number two is gluttony. Stop caring about how many users you have. Focus on the smaller, but much more profitable meal – how many paying users you have. Freemium is hot, but it’s not the ideal model for every SaaS business. If it is the wrong model for your company it can really limit your growth. Freemium is kind of like the restaurant with the complimentary bread basket or salad bar–when customers fill up on the free stuff, they’re likely to spend less on appetizers, dessert, or even their main course.
It is far more expensive to acquire paying customers than it is to gain new, free users. But, if you do focus your customer acquisition efforts on paying customers, the money used will definitely lead to an increase in revenue. What is most important for you at this stage of your business development–more customers, or more revenue? The answer is probably both. So you might not want to completely rule out the bread basket at your early stages
The Cost of Freemium
Consider this about your company before deciding to go the freemium route: know your conversion rates from free users to paying users, your revenue, ROI and profitability.
You want your MRR to grow with your customers, as they grow in their businesses and/or find they are utilizing the product more.
If you are considering freemium your service should be as easy as possible for the customer to understand and learn to use to avoid additional training and service costs. It should match your customer’s value expectations, and allow you to increase that value over time as your product improves and your customers grow.
Think about where your product is viral-worthy. That is, is there a huge possible audience in your market and big potential following? Would it pay for you to have thousands of unpaying customers to support the small percentage of users that would buy your product?
For freemium to be successful you need to aim for at least a 10% conversion rate from free users to paying customers. If your conversion rates are less, it may be too expensive for you to support your free users, which will prevent you from making the money you need to grow your business and improve your services.
But freemium rarely leads to major conversion rate increases from free users to paying customers. The model primarily creates negative product positions, increased costs, and business stagnation. If you are supporting many non-paying customers, this can cut into your cash reserves very quickly and eliminate room for further growth and development. Non-paying users often need more support than your premium customers, which can also cost you further resources for service improvements and more customer acquisition.
If you do try freemium, you need to have a clear path towards upgrading for your non-paying users. You can charge users when they need more storage space, or when they decide they want to use your service without the interruption of advertisements. Make sure the benefits and the reasons for their upgrade to paid are very clear to your user. Focus on this same clarity in showing the distinction between free and paid plans. Show your users the value in paying more, making your premium options more interesting.
If your free users aren’t going to become paid customers, they need to be helping you acquire even more, and ideally paid, customers through word of mouth, referrals, or reviews.
If you aren’t seeing the expected results in terms of acquisition, you may have to consider a different pricing strategy.
Leveraging Data to Sway Users Into Customers
If you are still acquiring new leads, but realize the users that signed up for your free service are not going to convert to paying customers, don’t lose hope yet. You can still find a way to make a return on these users, through monetizing their use of your system. By monitoring their behavior, or incorporating cross-selling and advertising, your free users can become a source of income. If you can’t monetize these users at all, it’s probably best to stop supporting free users.
Although we love free, as customers what we may love even more is exceptional customer service. Customers want to be valued and to receive help with their issues and questions as quickly as possible. 70% of buying experiences are based on how customers feel they are treated–so customer service is essential.
If you have too many free users, this may prevent improving customer service for your paying customers. You can adopt a support for everyone approach that some SaaS companies have great success with, but only if that would be affordable and manageable for your company.
Think more about what you will be offering your premium clients paying for different courses in their delicious meal, beyond the empty calories of your free breadbasket. Maybe you can offer them a higher level of customer service, attention, and commitment from your developers. Your users may desire to upgrade just for the better care you can provide them as a premium customer.
If you are still offering the free bread and lettuce, make sure your users aren’t filling up so much that they don’t buy an appetizer or even an entree. If they don’t feel the need to upgrade your plan and are happy with the limited options your free plan provides them, they won’t grow or help you grow your business.
With your free users, it may cost too much to maintain and support their service. You may find that the cost of development and support for free users is cutting into your resources for premium user product development. If you are giving your service away for free, users may also think that your resources are of no value to you, and as a result, your product has no value either.
Remember, the freemium bread basket is an acquisition model, not a revenue model. With CAC up nearly 70% over the last five years, companies are resorting to giving their product away for free to bring build more traction.
If you do offer a version of your product for free, this may lead to undervaluing your services. After trying a free version, your users will have higher expectations for the paid version, which might not meet their hopes. This can lead to negative feedback and bouncing customers who are frustrated with the limitations in your free version and lack of benefits in your paid version.
If you clearly show the benefits of each premium level, however, your customers will see the value in your service, and understand where their money is going. Where people see value they don’t mind spending money.