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Patrick Campbell - The Case for Freemium

Patrick Campbell - The Case for Freemium

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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.

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.

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Patrick Campbell - The Case for Freemium

  1. 1. Brought to you by The Case for Freemium DECEMBER 2017
  2. 2. Brought to you by Freemium and I have a long and sordid history…
  3. 3. Brought to you by
  4. 4. Brought to you by Freemium is an acquisition model. Not a revenue model.
  5. 5. Brought to you by Freemium is a scalpel, not a sledgehammer.
  6. 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. 7. Brought to you by Growth density is becoming too great.
  8. 8. Channel growth is leveling off.
  9. 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. 10. Our CACs are out of control.
  11. 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. 12. Offers level off pretty quickly now
  13. 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. 14. We’ve responded by getting better…
  15. 15. …but all channels die in effectiveness.
  16. 16. Freemium circumvents this by lowering blended CAC
  17. 17. 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
  18. 18. You essentially have a catalyst with free.
  19. 19. Brought to you by Freemium is a catalyst in lowering the activation energy for lead velocity.
  20. 20. Brought to you by You “own” the lead.
  21. 21. 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
  22. 22. 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
  23. 23. Brought to you by SURE, BUT SOME OBJECTIONS
  24. 24. Brought to you by But I don’t have the resources…
  25. 25. Brought to you by …you need to get them if you don’t want to go up market.
  26. 26. The market doesn’t really care that you don’t have the resources…
  27. 27. Product is getting *really* good. Value isn’t.
  28. 28. The relative value of features is declining.
  29. 29. 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
  30. 30. -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
  31. 31. -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
  32. 32. -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
  33. 33. We’re going to “DEMOCRATIZE DATA ANALYTICS”
  34. 34. ….f**k it…too hard. We’re going for the C.R.E.A.M. We’re going to “DEMOCRATIZE DATA ANALYTICS”
  35. 35. PROFITWELL Free financial metrics for subscription businesses
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. Brought to you by Engineering productivity has never been better. Find a way to use it or go upmarket.
  40. 40. Brought to you by But what about monetization…
  41. 41. “Free erodes the value of my paid product”
  42. 42. Maybe.
  43. 43. 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
  44. 44. Brought to you by SO HOW CAN I USE FREE?
  45. 45. Brought to you by There are many types of free.
  46. 46. Faux Free Trial.
  47. 47. The Tangential Free.
  48. 48. Pool building free.
  49. 49. Brought to you by Freemium is a scalpel, not a sledgehammer.
  50. 50. • 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
  51. 51. Brought to you by Your success will hinge on having some form of free product in the next 10 years. THE MARKET DEMANDS FREE
  52. 52. Brought to you by Q&A

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