Freemium models and digital services: When do you pull the ladder up?
If it wasn’t clear enough already, it’s painfully obvious now: if you’re offering a service you expect users to pay for, you need to give them a freemium option to begin with. But you might be losing out if you can't upgrade your freemium base.
Recent research from e-commerce provider Avangate, of 1000 consumers, makes the priorities clear. 97% of users prefer flexible purchasing options when selecting premium online services, while six out of 10 will only subscribe to a service if it has a freemium option.
The reason for this spike is generational – and it’s only going to exacerbate in the coming years. Ed Chuang, chief communications officer at Avangate, believes the percentage of post-millennials demanding a free trial option will be near 80%. The question for brands and marketers now is shifting from getting potential customers to buy, to getting them past the first rung of the ladder. As Avangate chief marketing officer Michael Ni puts it, because of easy discoverability, customers have the power now to demand better models – which is why freemium has become fundamental.
Renew, acquire, activate, upgrade, upsell, cross-sell: it’s a mantra marketing and sales managers need to repeat constantly
“Freemium has become the on-ramp,” Ni tells MarketingTech. “Customers are basically unprofitable until you can actually grow them, or get them to get past that freemium tier. Hence we talk about revenue moments.”
Revenue moments (below) represents every potential opportunity a business loses out on payment. Renew, acquire, activate, upsell, cross-sell, upgrade. It’s a mantra which marketing managers and sales managers ought to repeat to themselves constantly. If a customer uses a product’s freemium push and runs away when that free trial period is over, it’s an obvious revenue moment, but there are hundreds, if not thousands, of others.
Picture credit: Avangate
When a credit card payment is bad, it’s a revenue moment. When a consumer wants to upgrade or downgrade, it’s a revenue moment. When a consumer wants to put their subscription on hold as they go on holiday, it’s a revenue moment. For a large organisation, these don’t get mopped up as often as they should, and could result in 10% to 20% revenue leakage – not insignificant numbers.
“The new generations double expectations,” Ni explains. “They won’t buy unless you give them a freemium model. [If] I start, I know there’s five other [services], so I can keep going with this service as I need to.” This is the key. At which point do you stop giving and start taking? Cloud storage provider Dropbox, for example, offers a free version up to 16 GB – but Microsoft offers unlimited free OneDrive storage to Office 365 subscribers.
Avangate advocates the concept of ‘usage qualified leads’ (UQLs); users who are clearly interested in the product and, through data collection, are very likely to upgrade or expand their usage in the future. Yet it’s safe to say that the sliding scale for freemium services varies by business. Ni offers a hypothetical example of an electronic signature company. Five free signatures per month would be more than enough for Joe Bloggs, but for a salesperson sending out many contracts, they will exceed their limitations pretty quickly.
Be laser focused to get each segment to that first value, then you can move to recurring value and start to upsell and cross-sell
“It’s clearly going to capture that prosumer segment,” Ni says. “That’s really what people are looking for: do you have a big enough prosumer that actually has some business need for [your product], or is it enough that is starts replacing some other tool?”
Freemium is clearly all about getting the user from first value to second value, of recurring value. Yet first value doesn’t have to be a user signing up for a free product. For Avangate, more than 1000 stores got to revenue on its watch. In some cases, ‘first value’ can just be setting up a product catalogue without incurring the wrath – and expenses – of IT. The second value comes when the first cheque arrives. When that starts recurring, then the ideas of where to slide the freemium marker up and down can be examined.
Avangate recommends six strategies for maximising modern digital commerce services: service every moment – acquire, activate, upsell over every touch point; deliver the right model at the right time; iterate at new speeds; recover revenue throughout the commerce lifecycle; go global, or be local in every country; and simplify and scale your operations.
“You have to get to first value,” Ni says. “Be laser focused to get each segment to that first value, then you can move to recurring value, and then start to upsell, cross-sell them. That’s a typical path, and that’s what we see in our customer base as well.”
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