With traditional acquisition channels becoming crowded and less effective, Patrick Campbell makes the case for Freemium as an acquisition model. Learn how to use Freemium as an effective growth lever for your business from these slides presented at SaaSFest 2017.

1. Brought to you by
The Case for Freemium
DECEMBER 2017

2. Brought to you by
Freemium and I have a
long and sordid history…

3. Brought to you by

4. Brought to you by
Freemium is an acquisition model.
Not a revenue model.

5. Brought to you by
Freemium is a scalpel, not a sledgehammer.

6. Brought to you by
Your success will hinge on having
some form of free product in the next 10 years.
THE MARKET DEMANDS FREE

7. Brought to you by
Growth density is becoming too great.

8. Channel growth is leveling off.

9. MARKETING CHANNELS ARE PLENTIFUL
Number of Sales & Marketing Channels Utilized
Sales & Marketing channel utilization has expanded rapidly, giving the rise of more opportunities to
acquire customers from numerous different places.
AVERAGE#OFCHANNELSUTILIZED
YEARS AGO
SOURCE: 2017 MARKETING STUDY Brought to you by
0
5
10
15
15 YEARS OLD 10 YEARS OLD 5 YEARS OLD 3 YEARS OLD 1 YEAR OLD TODAY
13.89
13.22
12.43
8.31
4.72
2.31
N = 1168 software founders and executives
N
1168

10. Our CACs are out of control.

11. UNIT ECONOMICS AREN’T WHAT THEY USED TO BE
Customer acquisition cost has increased significantly
Customer acquisition cost has increased significantly over the years due to market saturation of
marketing vying for consumer attention.
BLENDEDCACRELATIVETOFOURYEARSAGO
SOURCE: 2017 CAC STUDY Brought to you by
-18%
0%
18%
35%
53%
70%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today
B2B
B2C
WHEN MEASUREMENT WAS TAKEN
N
743
N = 743 companies

12. Offers level off pretty quickly now

13. GROWTH DENSITY IS BECOMING TOO GREAT
The Life of an Ebook has greatly diminished due to density
Our ebook offers (as an example) are greatly diminished in their effectiveness with a leveling off effect
quicker in their lifecycles
AVERAGE#OFMONTHSACONTENTOFFERISEFFECTIVE
AGE OF OFFER
2017 MARKETING STUDY Brought to you by
0
4
7
5 YEARS OLD 1 YEAR OLD
2.9
6.4
N = 835 ebook offers

14. We’ve responded by getting better…

15. …but all channels die in effectiveness.

17. Freemium circumvents this by
lowering blended CAC

18. GROWTH DENSITY IS BECOMING TOO GREAT
CAC for Free isn’t Growing at the Same Rate as Paid
Customer acquisition cost has increased significantly over the years, but one pocket that’s been
protected a bit have been our free compadres.
BLENDEDCACRELATIVETOFOURYEARSAGO
SOURCE: 2017 CAC STUDY Brought to you by
0%
18%
35%
53%
70%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today
NO FREE
FREEMIUM
WHEN MEASUREMENT WAS TAKEN
N
646
N = 646 companies

19. You essentially have a catalyst with free.

21. Brought to you by
Freemium is a catalyst in lowering
the activation energy for lead velocity.

22. Brought to you by
You “own” the lead.

24. GROWTH DENSITY IS BECOMING TOO GREAT
Retention is noticeably better for freemium products
Net dollar retention is noticeably better for companies utilizing the freemium acquisition strategy,
driven in part by a forcing function for monetization, as well as a better experience.
NETDOLLARRETENTION
SOURCE: 2017 RETENTION STUDY Brought to you by
70%
80%
90%
100%
110%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO Today
NO FREE
FREEMIUM
WHEN MEASUREMENT WAS TAKEN
N
143
N = 143 companies

25. GROWTH DENSITY IS BECOMING TOO GREAT
NPS is greater for companies with freemium products
NPS scores for the paid product is typically better for those companies who have a freemium model of
some sort
AVERAGENPSSCORE
YEARS AGO
SOURCE: 2017 SAAS STUDY
Brought to you by
0
5
10
15
20
25
30
5 YEARS AGO 1 YEAR AGO
23.7
29.9
15.8
24.5
NO FREE FREEMIUM
N = 129 software companies
N
129

26. Brought to you by
SURE, BUT SOME OBJECTIONS

27. Brought to you by
But I don’t have the resources…

28. Brought to you by
…you need to get them if
you don’t want to go up market.

29. The market doesn’t really care that
you don’t have the resources…

30. Product is getting *really* good. Value isn’t.

31. The relative value of features is declining.

32. THE MARKET IS DROPPING OUT BENEATH US
Consumer Willingness to Pay has Declined Over Time
Software willingness to pay has declined significantly over the past few years due to increased options
and higher demands.
WTPAS%OFWTP4YEARSAGO
SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY Brought to you by
0%
30%
60%
90%
120%
5 YEARS AGO 4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY
Core Features
Single Sign On
Integrations
Analytics
WHEN MEASUREMENT WAS TAKEN
N = Varies by line, but minimum of 10,000 customer respondents per line
N
921k

33. -50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
2017 SOFTWARE MARKET SURVEY Brought to you by
WE’RE BUILDING THE WRONG PRODUCT
Calculating the expected impact of product on growth
DEVIATIONFROMMEDIANWTP
RELATIVE PREFERENCE MAGNITUDE
Differentiable Features
High Value/High WTP
Add-Ons
Low Value/High WTP
Core Features
High Value/Low WTP
Trash Land
Low Value/Low WTP

34. -50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
2017 SOFTWARE MARKET SURVEY - N = 5K+ INPUTS FROM 1282 DIRECTOR, VP, OR C-LEVEL PRODUCT LEADERS Brought to you by
WE’RE BUILDING THE WRONG PRODUCT
What we think we're building
DEVIATIONFROMMEDIANWTP
RELATIVE PREFERENCE MAGNITUDE

35. -50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
-0.5 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5
Revenue Drivers
2017 SOFTWARE MARKET SURVEY - N = COMPOSITE DATA FROM 1.2M CUSTOMER INPUTS Brought to you by
WE’RE BUILDING THE WRONG PRODUCT
What we're actually building
DEVIATIONFROMMEDIANWTP
RELATIVE PREFERENCE MAGNITUDE

37. We’re going to “DEMOCRATIZE DATA ANALYTICS”

38. ….f**k it…too hard. We’re going for the C.R.E.A.M.
We’re going to “DEMOCRATIZE DATA ANALYTICS”

39. PROFITWELL
Free financial metrics for
subscription businesses

40. EATING OUR OWN DOG FOOD
Buyer WTP for a SaaS Metrics Products
Customers weren’t willing to pay as much as we thought for a SaaS Metrics solution. This was especially
bad when looking at the multiple between the lower end customers and the upper end customers.
WTPFORASAASMETRICSSOLUTION
SOURCE: 2017 CONSUMER WILLINGESS TO PAY Brought to you by
$0
$75
$150
$225
$300
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+
Upper
Lower
Median
COMPANY’S MRR
N = ~300 companies

41. Brought to you by
Quantified buyer personas are data driven profiles of the
customers you’re targeting or choosing to ignore.
FIRST DRAFT OF YOUR BUYER PERSONAS
Startup Steve
VALUED FEATURES
‣ Price
‣ Design
LEAST VALUED
‣ Actionability
‣ Depth
LIFETIME VALUE $600
WILLINGNESS TO PAY $50/month
CUSTOMER ACQUISITION COST $550
TARGET PERSONA
Miderprise Meredith
VALUED FEATURES
‣ Accuracy
‣ Depth
LEAST VALUED
‣ Price
‣ Design
LIFETIME VALUE $1,500
WILLINGNESS TO PAY $150 - $200/month
CUSTOMER ACQUISITION COST $3,000
POOR PERSONAPOOR PERSONA

42. Brought to you by
Free stacks the marketing and retention paths you need,
depending on the structure of free taken.
PROFITWELL GOING FREE
1
2
3
Low CAC with
constant value
Creates the
Requirement
Path to Share of
Wallet
ProfitWell
Financial metrics for the subscription economy
100% accurate SaaS
metrics for free
integrating 1-click with
your billing system
Central fulcrum to cust
success, sales, finance,
marketing e-team, and
rest of stakeholders
Allows interface to
clearly point to
problems and reinforce
value of paid add-ons

43. Brought to you by
Engineering productivity has never been better.
Find a way to use it or go upmarket.

44. Brought to you by
But what about monetization…

45. “Free erodes the value of my paid product”

46. Maybe.

47. BUT WHAT ABOUT MONETIZATION
WTP for an initial tier has increased pretty dramatically
Despite the pull of free, the willingness to pay for different first tiers of a product have gone up pretty
dramatically, supporting the thesis that free doesn’t erode the brand.
WILLINGNESSTOPAYFORINITIALTIER
YEARS AGO
SOURCE: 2017 SAAS STUDY
Brought to you by
0
167
333
500
667
833
1000
5 YEARS AGO 3 YEARS AGO 1 YEAR AGO
$784
$305
$147
N = 3,192 consumers
N
3,192

48. Brought to you by
SO HOW CAN I USE FREE?

49. Brought to you by
There are many types of free.

50. Faux Free Trial.

53. The Tangential Free.

55. Pool building free.

59. Brought to you by
Freemium is a scalpel, not a sledgehammer.

60. • Not for an early stage startup*
• Not for enterprise companies who have never done the world of subscriptions**
• Needs to be a fully functional product that’s good (Mailchimp free NPS is 55, ProfitWell is 60)
• Requires dedication to the point of conversion above all else
*G or Balfour on your team
**Unless you buy a company with subscription DNA
FREEMIUM IS A SCALPEL, NOT A
SLEDGEHAMMER
Brought to you by
— THECASEFORFREEMIUM

61. Brought to you by
Your success will hinge on having
some form of free product in the next 10 years.
THE MARKET DEMANDS FREE

62. Brought to you by
Q&A