Building Smart Conversion Metrics For Freemium Business Model

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How do you grow from trial to paying users? The freemium business model is popular with many cloud-based companies but depending on company size, the user experience for trial users is different each time. We sat down to discuss smart conversion metrics for the freemium business model with Vik Chaudhary VP of Product Management and Corporate Development from Keynote Systems. Keynote is experimenting with free mobile apps to drive demand and leads for their paid enterprise solutions.


To read the full transcription of the video, click here

It’s important to figure out how deeply your trial users are using your product. Here are some metrics to consider:
– Are they downloading your software?
– Are they registering for your service?
– How often are they logging in to the service?

The ultimate goal is to figure what they are doing within your service and how to get them to upgrade to your paid features. Identifying the right conversion metrics will allow you to more accurately target your users and extend the lifecycle of your relationship with them.

 

Video Transcript:
Hi, my name is Vik Chaudhary and I’m VP of Product Management and Corporate Development at Keynote Systems. At Keynote, what we do is test and monitor the online user experience for companies that are online or have a mobile presence. When you talk about premium business models, there’s really two kinds of premium.

One is if you’ve got a product that’s used by hundreds of thousands or even millions of users. Starbucks is a great product for that. The other one is a product that may be a premium product used by a smaller number of enterprises. We’re talking about maybe tens of thousand of companies using this.

When you have a premium product for the latter, it’s a very different kind of experience that you have to measure. When we talk about premium business models, you really have to think about who is buying your product. On one end, it could be a product like DropBox, which is bought by consumers or by small businesses.

And that could be used by millions of users. On the other side, it could be a product that’s used by tens of thousands of enterprises. So when you think about a premium business model, you really have to think about who’s gonna be buying it and how do you build conversion metrics into the process of going from trial to paying users.

When we start thinking about how do enterprises evaluate and use our products, we really have to go for metrics such as downloading a product, registering for it. But how do they deeply begin to use the product? Are they creating a test script, for example? Are they begging to play back the test script?

How many websites are they testing? How many times are they logging into the product? So as we begin to look at our funnel, we’re really thinking about, what are the users doing here? They’re logging in. They’re logging in many times, they’re creating test scripts, they’re testing their own websites.

Are they coming from existing customers, or are they completely new to Keynote? Those are the kinds of conversion metrics that we think about.

6 Steps to Boost Sales with Freemium or Free Trial Model

theory into practice

Did you notice how business flow has changed in the past years?

Purchasing online became the user’s field where they can check your application, test it and decide to come and go as they wish. No strings attached, no obligations. The new generation users are only paying for what they need and that make SaaS companies busy with making their users happy and increase customer success.
In fact, this is why many SaaS companies offer Free Trial period or even a Freemium version of their product and by that they’re actually telling their users – hey, check me out, I don’t mind, my product is worth it and you’ll be happy with it!

So how can those companies succeed in their new sales model?
Well, I’ve wrote a report, which is based on our recent study on freemium, free trial and pricing of 550 SaaS companies, summarizing 6 action steps on how to increase sales using this models.

If you’re a web-based company, you might find this very interesting.
Download report here

Freemium Friday: Roundup of B2B Freemium News

Freemium

I plan to post every Friday on interesting developments and articles on Freemium in B2B land, but we will see how long I actually keep this up :-)

This week is a good week to start as we just signed up to participate in the first-ever Freemium meetup in San Francisco.  Three B2B Freemium gurus will be presenting:

Drew Banks, our host and head of marketing at Prezi, a cloud-based presentation software service that opens up a new world between whiteboards and slides. Drew will speak about Prezi’s rapid growth (1M users/month!) and profitability success with a Freemium business model.

Chad Heinrich a.k.a. “Freemium Fighter”  is the Marketing Consultant for Avira. He has successfully marketed the Freemium business model in a wide variety of technology companies including his current gig at Avira (with 100M+ users), and previously at Dropbox and Box.net.

Todd Wilkinson is the Co-founder & CEO at WordWatch, a cloud-based app for small businesses that manages AdWords, automatically delivering optimal ROI for Google AdWords PPC advertising.

More information on the meetup here.

In B2B Freemium news these two caught my eye:

A Forbes article on Box.net Freemium model: it doesn’t go into much depth, but quotes Box’s initial Freemium conversion at 8% with little sales effort. However also mentions that now Box is hiring up to 200 sales reps: apparently enterprise sales needs a push and a shove even if you are Box.

SAP owned SuccessFactors announced a Freemium version of it’s Jam product (a Salesforce.com Chatter competitor). For now the product is only free to customers, but Dmitri Krakovsky, SuccessFactors VP of global product management, said (when asked if the company is planning to extend the freemium model to non-SuccessFactors customers): “Yes, for sure. We’re always thinking about making it a very broad tool.”

How Zendesk and CloudBees Increase their User Engagement

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Yesterday, the SandHill Magazine have published an article about Managing Challenges of Onboarding SaaS Customers and Converting from Free Software Trials where 2 of the very popular app services providers – Zendesk and CloudBees, were quoted about their success in increasing engagement level and therefore their free to paid conversion rate.

Both companies, who are using the Totango technology, managed to increase their visibility on what their users are doing in their application and therefore optimize communication with them to make sure they’re gaining value out of their product.

Many app services in the SaaS industry lack that visibility. This problem is especially in onboarding new customers and in converting free trial users into paying customers.

“Understanding user behavior is critical to success in the XaaS model”, states Sacha Labouray, founder and CEO of CloudBees.

Zack Urlocker, COO of Zendesk is happy that this solution exists and therefore saves the time on self development: “Rather than trying to build the technology to do this in house, we love the fact that Totango has already figured this out, giving us tremendous insight into what is going on with our users during that trial period.”

Zendesk’s goal was to increase customer engagement for their 30 days trial users and increase the free to paid conversion that way:
“We changed how people experience sending and receiving customer service tickets during the trial. Totango helped us figure out ways to try different approaches to highlight key features which and see ones got the most usage” says Urlocker.

Since Zendesk has massive amount of daily downloads and thousands of customers, they needed visibility into who to focus on in order to gain the most success and Totango is helping them to achieve that and thus increase their conversion rates.

Similarly, CloudBees needed to understand, in real time, how developers in its freemium model use their platform. “We need to see where they start using specific services and using multiple services,” says Labouray. “Before implementing Totango, we tried using analytics to track user behaviors. It gave us overall trends but no insight into what specific teams or specific users within a team or group are doing on our platform. You don’t know what you don’t know. Totango showed us what we didn’t know. We’re using those insights in working a lot of services and reaching out to our users.”

He says they had a big “aha” moment when Totango revealed an unexpected spike in usage all of a sudden. They then realized there is often a lag between when customers sign up for the freemium model and when they actually get ready to use it.

Creating value for customers is the most important activity for retaining customers longer, so all customer-facing teams need to align around that objective. With the right data, you can get real insights into which customers are likely to convert from free to the paid model as well as where those customers come from, their overall lifetime value and the customer acquisition cost and with all of that information, you can build an effective marketing/sales model!

We want to help ensure our customers not only improve their communications with their users but also gain the ability to drive to monetization and unified value-creating goals for acquiring and retaining customers.

 

What about you – have you tried our service yet?
Signup now for our free trial!


Zack Urlocker is chief operating officer at Zendesk and heads up Sales, Marketing, Business Development and Support. Zack came to Zendesk from MySQL, where he was Executive VP of Products. Besides building the business model for MySQL, he helped grow revenues to more than $100 million annually. He has more than 20 years of experience in the software industry and has held executive management positions at Active Software, webMethods and Borland.

Sacha-Labourey-CloudBeesSacha Labourey is founder and CEO of CloudBees. In 2001, Sacha joined Marc Fleury’s JBoss project as a core contributor and implemented JBoss’ original clustering features. In 2003, Sacha founded the European headquarters for JBoss and in 2005 he was appointed CTO. After the acquisition of JBoss by Red Hat, Sacha became co-General Manager of Red Hat’s middleware division until leaving in 2009 to eventually start CloudBees.

Presenting – the SaaS Resource Center

Resource Center Screen Shot

This week we’ve added a section into our website which I believe would add value to the SaaS Community – I present our SaaS Resource Center!

The Resource Center is a place where we update the most important/informative/valuable articles on 7 of the hot categories that are most current these days in the SaaS industry and I believe this knowledge base would assist many beginners as well as veterans in this industry to learn on new trends in their fields.

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Here are the categories the Resource Center approaches:

  1. SaaS Best Practices – Will consist our latest SaaS business models and SaaS best practices and is updated with the hottest topics facing SaaS software and Cloud app vendors today.
  2. SaaS Sales Tips – B2B sales tips on different sales models such as low touch or zero touch, sales metrics and the best practices to build the ultimate sales machine.
  3. Lifecycle Marketing – Drive the usage and adoption of your application and maximize customer lifetime value. Nurture existing customers based on their specific needs and wants and their use of your application.
  4. Customer Analytics – Perform customer, conversion, cohort, funnel, usage or churn analysis. Discover how big data and customer intelligence can increase SaaS revenues.
  5. Free Trial & Freemium – Free trial tips, benchmarks and best practices and the way to optimize trial conversion and freemium conversion.
  6. Customer Engagement – Increasing customer/user engagement and customer lifetime value and reduce churn through lifecycle marketing and other techniques.
  7. Customer Retention – New strategies to increase customer lifetime value and reduce churn for SaaS businesses, how to identify customers at risk and how to implement customer retention strategies.

If there is a topic that we haven’t addressed and you think is worth mentioning, please don’t hesitate to comment on this post with the subject and we promise to consider it.

Also, if you’d like to guest-post in one of our categories, please feel free to contact me through this form and I’ll get back to you as soon as possible.

Cheers,
–Guy

Freemium, Free Trial and Pricing Models in 550 SaaS Companies

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The way that enterprise products are being bought and sold is changing rapidly. Customers are increasingly demanding instant access to all information about your product, including pricing and a Freemium or free trial version of your application. We call this trend the consumerization of B2B sales.

Totango recently conducted a research studying the Freemium, free trial and pricing practices of 550 Software-as-a-Service (SaaS) companies.

Infographics-Main Conclusions from our 550 SaaS Businesses Research

 

Click to Tweet this Infographics

2012 Year of Freemium Business Model in B2C and B2B

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It started in gaming – 57 out of top 100 app store games are freemiums.
huge companies like Zynga, Electronic Arts and Capcom or from startups like the makers of 2011 Nimblebit (Tiny Tower) and Spry Fox (Triple Town), the free-to-play model is attracting players, making money and, in some cases at least, making good, enjoyable games – it looks like Freemium has won!

Freemium apps to continue flourishing in 2012 (IntoMobile)

Freemium apps are obviously working both for consumers and developers/publishers, and the trend will continue in 2012. Already of the top-ranked 250 iOS apps across all categories, an average of 88% are free to download, monetized with advertising and in-app purchases. In that sense, the research company says that at this time next year in certain categories all relevant iOS apps will be free
>> Read more

Other big consumer apps like Evernote already freemium or moving there like LogMeIn, which is an interesting case because they were already successful:

LogMeIn Remote Control iOS App Goes Freemium (TechCrunch)

The once paid — and quite expensive app is now migrating to a freemium model. That said, users who paid for LogMeIn Ignition won’t have to cough up the dough for a LogMeIn Pro subscription, but they will get the added premium features including HD remote control (and HD streaming) from their computers to their iOS devices
>> Read more

We can see this trend spreading also to the B2B market:

Yammer’s Freemium Model Creates a Viral Effect Inside Companies (CIO)

Yammer, who was picked by Apple as 2011 top app, also has a freemium business model, which creates a viral effect inside a company that can spread like wildfire. Once the business value has been proven, organizations can choose to purchase Yammer for the entire organization. By having employees validate whether a product works or not prior to the sale, the company can see if it will be of value to the company. Evangelizing a product is a powerful force, more powerful than ads or sales pitches
>> Read more

Jive Gets Boost Following Billion-Dollar Cloud Deals (Bloomberg)

It’s interesting to see how Jive, who’s Yammer’s competitors which sells mostly to corporate clients and is using a high-touch sales model, had also come up with an offering of cloud services to reduce their client’s operational costs. It seems to be that the cloud advantages and business potential has found its way to all types of businesses – some of the world’s biggest technology companies, including Microsoft Corp., Hewlett-Packard Co. and International Business Machines Corp., are moving to the so-called cloud, where customers can save money by renting software delivered over the Web and accessing it anywhere, instead of installing it on their own machines.
>> Read more

However, we should also keep in mind, that for freemium to work it needs to engage users! In order to succeed, a business first priority should be in adding value to users and not earning money.

Matt Gilman, pocketgamer.biz writer said: “The biggest issue for me, in mobile gaming, is the concept of freemium vs premium. It’s hard to discuss it without using the term ‘ethical’ but in a recent conversation with Applifier CEO Jussi Laakkonen, he pointed out to me that what we should be really talking about is ‘fun’.

At the moment, people are making a lot of money, and it’s hard to pinpoint many freemium titles that would deliver ‘fun’ to traditional gamers through a freemium model. Hence, 2012 needs to be the year that freemium truly delivers fun, not derivative rehashed versions of financially successful twaddle, but legitimate gameplay to be proud of.
And of course you need to put compelling offers for upgrade or in app purchase in front of engaged users if and when they have fun”
>> Read more

CloudBees Use case – Automate Customer Engagement with Totango

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“For the first time, we have visibility into what our users are doing on our platform and can interact with them based on usage.”
Sacha Labourey, CEO, CloudBees Inc.

Those of you who’ve read my posts before probably know how I preach for customer success and customer value, especially in the zero-touch and low-touch sales models, where your success is actually your user’s success.

This week I’ve interviewed Sacha Labourey, the CEO of CloudBees Inc. Cloudbees is running a freemium business model with zero-low touch sales which is based on pure customer success and is using Totango for their performance measurement and level of engagement with their service.

Sacha Labourey-CloudBeesWho are you and what do you do?
My name is Sacha Labourey and I am the founder and CEO of CloudBees. CloudBees provides a Java Platform as a Service (PaaS) for enterprises and software developers.

What is your business model?
Our business model is based on the usage of our platform for the building and running of Java applications. We also utilize a freemium business model to enable developers to try our platform for free while they become familiar with many of our core platform services and their value.

What is your sales model?
We strive for a zero touch or a very low touch selling model.

What problem or problems are you solving with Totango?
We are using Totango to gain visibility into user activities and to automate customer engagement, especially via e-mail for now. Instead of nurturing our user database based on a fixed timeline, we personalize content based on their actual usage of our product. Depending on how they are (or are not) using specific features we may be able to offer helpful tips via e-mail.

How did you do this?
We monitor how developers are using our platform. Based on their actual usage of the product, we send helpful e-mails. We have integrated Totango with Salesforce.com and our e-mail marketing system to automatically send the right e-mail to the right users at the right time. The goal is to make our users more successful with the CloudBees Platform. If our trial users are successful they will hit the paid tier of our service at some point. In this sense the interests of the customer and of CloudBees are completely aligned.

What results did you achieve so far?
We have been able to see how our users are using our platform and engage with our trial users providing them with information to ensure their success with CloudBees.

Who was responsible for the Totango implementation and how long did it take?
This integration was all very easy to perform. It took us a few days of work (over a few weeks time) to establish an initial monitoring of our platform and an integration with Salesforce.com. It took us a few more weeks of ramp-up to define how we wanted to best leverage the collected information to automate our interaction with our users and customers.”

Did you look at other, similar, services? If so, what did you like about Totango?
We considered building some of these capabilities into our platform, but decided against it. We know our requirements in this area will continuously grow and strategically prefer to rely on a partner like Totango for ongoing enhancements, as well as industry best practices.

 

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Best of 2011: SaaS Sales Models Tips

Tip - theory into practice

Are you running a B2B sales or inside sales organization?
Do you have a freemium or free trial in your service?
Are you considering a low or zero touch sales model to increase velocity of your sales funnel?

These modern sales models are somewhat evolutionary as the official enterprise sales model is just not the customers first choice anymore.

Today, in my last “Best of 2011″ post series, I’ve gathered all the videos and posts from which you could learn about low and zero touch sales models and about free trial and freemium best practices so you could go ahead and build your ultimate sales machine!

Low Touch Sales and Zero Touch Sales Tips

Free Trial and Freemium Best Practices

>>Read other posts in this series<<

10 Tips for B2B Sales in the Subscription Economy

Subscribe

The subscription-based economy is thriving.  Netflix’s well-known model (and subsequent public relations mess in changing it), and the recent announcements from Google and Apple have set it in stone.

The subscription model, like many of the B2B sales models in the SaaS industry, is all about the customers – listen to your customers and have your service to comply and you’re on the right direction!

Here are 10 tips that can assist subscription based companies to get by in the industry:

1. Keep it simple

Ease of use is a key aspect of the subscription economy.  Subscribers want the one-stop shop, and their attention will not be kept easily.  Frustration, which might lead to churn, can be easily ensues if they can’t find what they want or need.

2. Customize to the consumer

Bob’s business is not the same as Mary’s.  Can you offer flexible payment options (weekly, monthly, annually)?  Family versus individual?  Basic versus premium?

3. Curate

More is better, but more can also be overwhelming.  Netflix’s popularity is in part because it offers customized selections based on its subscribers’ viewing history.  If the subscriber never, ever watches foreign language films, they don’t want to have to scroll through them to get to the good stuff.

4. Make it social

Can your subscribers see what others think of this product?  Can they easily share it through social media?  Social media has the power to sweep many others and help in distribute your message – and it’s free, so you might as well use in your business favor.

5. Offer continuing value

Make sure your offers will always consist of an added value. Can some ancillary information help your subscribers?  Partner with other companies that add value.  Also, what new thing can you offer?  Can you surprise them with how good it will be?

6. Keep it open

Remember what we said about the ancillary market?  Is your forum open enough to allow add-ons?  Don’t keep things so proprietary that spontaneous creation is stifled.  Think of Flickr, for example – would it help or hurt their business to team with a photo editing application?  It would help, of course, and they’ve allowed just that.

7. Give it away

If you still haven’t done so, consider  using a free-trial or freemium model for your product. Subscription economy is likely to be ruled by the free-to-join.  For example, you can make your overall platform free and have advertising, add-ons or premium offerings in order to make it profitable.  Think Facebook – free to join, but not likely to go broke anytime soon.

8. Don’t charge for that which was once free

How would you like to have nearly 9000 pages of complaints about your new pricing structure?  That’s what Netflix got for their announcement that they were nearly doubling their prices, removing services their subscribers had gotten used to having included, and offering no additional value in the exchange.  Calling it a great deal just added fuel to the fire.  (If you can’t give it free, keep it as low as possible!)

9. Keep the customer relationship as thy first priority

With the Netflix debacle, it’s not just about the pricing.  Their customers felt personally betrayed.  If you succeed in accomplishing a real relationship with your subscribers, where they recommend your service not for incentives but because they’re real fans, the worst thing you can do is spoil that relationship in a “money grab.”  Nurture your relationship.  Keep customers in mind as you consider changes.  Get feedback on proposed changes.  Don’t sell their information to spammers or let slimy advertisers in.  Business is more personal than ever.

10. Enjoy

Customers in the subscription economy are more savvy than ever.  They can tell if you honestly love your own offerings or if you’re just using sales tactics.  Let you enthusiasm shine through and it would be a win-win situation!