(Editor’s note: Ivan Koon is CEO of YouSendIt. He submitted this story to VentureBeat.)
As startups seek to gain an edge in today’s economic climate, the freemium business model has been gaining strength. Certainly it makes sense to to charge for your premium offerings, but the true success of a business often lies in how many customers it can convert from free to paid users.
Typically, the conversion rate of a company ranges from 2 – 3 percent. It’s possible to goose that number a bit higher though. Here are a few ways to do that:
Give enough away for free to gain customer insights: Free trials are the best testing grounds of product usage – and freemium offers that are not time bound provide an even richer wealth of customer insight.
Take the time to understand your users’ habits before starting up paid options. How frequently do your customers use your service each month? High frequency users have different use cases and needs than others – understanding their needs drives usage and will open doors for opportunities to pay.
Align conversion offers around the features that drive repeat usage: Understanding what keeps your users coming back will reveal the features and/or benefits of your product that customers are willing to pay for. In order to do that, you need to identify and tier the key features and benefits of your product that adds value to repeat visits.
If you can strike a balance between creating just the right amount of offerings and establishing the need for additional services, which encourages users to switch to a paid service, you can successfully increase your conversion rate by a significant percentage.
Don’t monetize too quickly: Build a large audience first, then monetize. One of the most common mistakes companies make is to attempt to monetize their free user base before they have built an audience. Understand that as soon as you monetize, some of your loyal free customers will disappear. Your free user base will also see an immediate drop. There is no way around that. Monetization always causes friction.
What’s the solution? Set a goal. Take, for example, a goal to reach five million users in one year, 10 million users in three years and 20 million users in five years. You should then aim to grow your free user base well beyond your goal so that you still hit it, despite the introduction of a paid service that will naturally reduce traffic to your service.
Keep in mind that the people you lose during the conversion process are people who didn’t value your service in the first place.
Understand demand: Once you have established an audience, understand its usage patterns and see what product features and benefits trigger free users to pay and convert. You can use this information to purchase the keywords and phrases in search that capture those features and benefits for both branded, non-branded, and broad-match searches.
Constantly aligning customer triggers to purchase to total search query demand will provide visibility and boost search awareness. Keeping track of query volume and trends will also give you insight to understand shifting customer search patterns, so that you can align your products and services as that evolves.
Keep it simple: Monetize while customers are in the flow of using your service. Don’t ask them to leave the flow to subscribe to your premium service because some of them will drop off, jeopardizing your monetization opportunity. Remember that your end-goal should be to make your customers’ work lives easier. If they equate your product with something that gets the job done, it’s much easier to convert them.
VB’s research team is studying mobile user acquisition: Chime in here, and we’ll share the results.