Building a Profitable Business Based on the

Freemium Model www.schulmanthorogood.com

What Will You Get From This Presentation?

Hopefully, An Understanding of the Freemium Business Model (No FREE Lunch)

Why & How It Works

A Few Examples & Things I’ve Learned

Freemium Conversion Events

Monetizing FREE

Should You Do It? What’s Your DNA?

Building a Culture of Measurement

So, What IS Freemium?

Freemium works by offering a basic product or service free of charge (such as software, web services or other) while charging a premium for advanced features, functionality, or related products.

Jarid Lukin coined the term "freemium,“and Fred Wilson adopted it for the business model. HitBox from WebSideStory was one of the first examples and Jarid a good customer.

Monetizing FREE

FREE - Services & Subscription (SugarCRM, JasperSoft, RedHat)

Free TRIAL (SFDC, Traditional Software)

FREEMIUM Subscription, “Reverse Upsell”, Some Ad Supported (Pandora, Compete, Flickr, Chatter, Yammer, Dropbox, RTMilk, YouSendIt, Box, Dropbox, Mailchimp, Xobni, Evernote…)

Sell Premium Content (Paywall WSJ.com, NYT.com)

Social Sites – (Ad / Affiliate Supported – FB, LI)

It Works – But No Cookie Cutter!Branding/WOMM (B2I instead of B2B – Enterprise Penetration)

Increase Reach & Decrease CP Impression

Lead Generation (B2I instead of B2B – Enterprise Penetration)

Measure Direct-Sales Rep vs. Indirect-Online CP Lead / revenue

Measure Free to Sales Leads and Free Trials

Cost Deflection Sales / Support Push Users Online for Purchase/Support

Disruptive

Forces Product & Customer Focus / Rapid Release (30 days)

Measurement / Law of Large Numbers

Overview of Conversion Metrics*

Campaign

Site Visit to: (1-25% Conversion)

Signup Experience to: (50% Conversion – #Fields)

Product Engagement to: (10-20% Conversion)

Increase Re-engagement After 30 Days (Variable Over Time)

Upsell Premium to: (1-5% Conversion)

Variable Over Time

Revenue to: (80-95% Retention)

By Customer, Seat, Revenue

Renewal (MCV, ACV, TCV)

ConversionFunnel

Starting Fresh or Starting Over?Is FREE too expensive?

Creating a free version of your product to be cheap to delivery, easy to support & set up is tough!

Do people really love the offering?

The bar for product quality is actually higher for free products than it is for paid products.

Do you have clear differentiators from your PAID product?

This one is the hardest things to do!

Ten Things I’ve LearnedAll Good Things Happen To a Large Network of Engaged Users!

Invest in People, Process, and Systems

Understand Law of Large/small Numbers

Keep Application, Package and Price Simple

Engage Users – Use Survey and NPR Benchmarks

Build a Community & Love Your Customer

Use Rapid Development Cycles (30 Days or Less)

Price / Package Disruptively (Remember Cable Holidays)

A/B Test Everything

Think Out-Of-The-Box – The Rule is No Rules!

You Have Challenges – Free Is Not For All!

Sales – Will This Potentially Cannibalize Your Revenue Stream? What is Your ASP?

Marketing – Are There Brand Issues – Free Can Cheapen the Brand?

IT – Can We Build a Cost Effective Infrastructure? Processing & Bandwidth.

Finance – Can We Build COGS & LTV Models? Are there External Licensing Fees – Content, APIs, Code? Where Are the Inflection Points & How Much Runway?

Bigger Upfront Investment

Recent Startup Case Studies

InsideView for SalesUbiquitous Deployment Embedded within Major CRMs – Upsell to Professional & Enterprise – Low Churn – 000’s First Year – Great Growth Rates

90% Leads - Marketing Generated In Early Years - High Freemium Contribution (Account Penetration Enterprise Increase); #1 Rated Appexchange Free

2-4% Conversion from Free to Paid

Important to Engage within First 30 Days

InboundWriter

Throttle on Transactions / Time / Data Sources & Functions

Public Freemium Numbers & Takeaways

Absolute Attribution to FREE is Part of the Marketing Mix and Complex – Need Good Infrastructure & Resources

Analysts, Systems, and Processes

BtoB Conversion Rates Higher Than BtoC

Pandora - Conversation to Premium - 1.6 to 1.7% 15/20% of Total Revenue

Evernote (reported) - .5% Conversion 1st Month up to 4% @1yr

LinkedIn – 3% Conversion to Premium 25% Rev

Logmein – 3-4 % Conversion to Premium

The Key - Establishing A Culture of Measurement

COMPANYSCORECARDCOMPANYSCORECARD

ACCOUNTMANAGEMENTACCOUNTMANAGEMENT

PRODUCTMANAGEMENTPRODUCTMANAGEMENT

MARKETINGMARKETING

SALESSALES

ADOPTIONRATE

PENETRATIONRATE

ACCOUNTHEALTH

WEBSITEPERFORMANCE

CAMPAIGNPERFORMANCE

LEADS

PIPELINE/OPS

BOOKINGS

Conversions

Engaged Users

By UsersBy Company

Total Seats# of products

By CustomerBy Company Size

Visits to SiteVisits from CampaignsPages Visited

Leads from CampaignROI for CampaignLeads by Product Type

By Product TypeBy Channel

Product TractionUpsell

Conversion by RepLead SourceLead Status

Number of Deals Created by RepRep Activity Against Pipeline

Value of Deals WonMonthly vs. Quota

Establishing A Culture of

Measurement

COMPANYSCORECARDCOMPANYSCORECARD

ACCOUNTMANAGEMENTACCOUNTMANAGEMENT

PRODUCTMANAGEMENTPRODUCTMANAGEMENT

MARKETINGMARKETING

SALESSALES

ADOPTIONRATE

PENETRATIONRATE

ACCOUNTHEALTH

WEBSITEPERFORMANCE

CAMPAIGNPERFORMANCE

LEADS

PIPELINE/OPS

BOOKINGS

Engaged Users

FREE CONVERSION

By UsersBy Company

Total Seats# of products

By CustomerBy Company Size

Visits to SiteVisits from CampaignsPages Visited

Leads from CampaignROI for CampaignLeads by Product Type

By Product TypeBy Channel

Product TractionUpsell

Conversion by RepLead SourceLead Status

Number of Deals Created by RepRep Activity Against Pipeline

Value of Deals WonMonthly vs. Quota

COMPANY SCORECARD

Description Starting MetricFY10

Goals

Scale Direct Sales

Efficiency

New ACV per Rep

Days to win

Scale Marketing

Effectiveness

Mktg Spend/Inbound Rev

Lead to Opp Conversion Ratio

FREEMIUM FREE CONVERSION

Engaged Users

Retain Customers Seat Renewals >90%