As the Software-As-A-Service (SaaS) model continues to gain popularity, converting free users to paid users has become an increasingly hot topic. I can’t say I’m surprised; it’s a tricky issue nearly every SaaS company deals with on a regular basis. Because the subscription model typically has a freemium approach, the conversion rates is one of the inherent hurdles software companies deal with.
Commonly referred to as conversion ratios, free to paid conversions occur when a user migrates from the free version of your service to the paid version or one of the several tiers of paid access. This is a standard issue associated with freemium, more than any other model.
Price to Value
The trick here is to manage a delicate balance. For the free users, there is still an operating cost incurred. This often comes out of the pockets of the paid users, which subsequently drums up the price for the full access. Consumption of the free service will continue to inflate the price. This vicious inflated cycle needs to be overcome. The first thing to do isn’t actually part of conversion, but it’s related and I’ll show you why. The first step is to offload the overhead, even partially, off the paid consumers.
How should you go about this?
In my opinion, the solution is to partially rely on advertisements in the free version. You can actually take the liberty of being slightly annoying with them too, just don’t go overboard.
Depending on users and pricing, this could even make the free system turn a small profit. The SaaS company can also boast the premium service as having an ad-free feature.
The added revenue will mitigate the burden of increasing the subscription cost. First, this will first serve to make the price less foreboding to a converting potential customer. Second, the paid program, now boasting more robust functionality as well as the removal of all the annoying ads will yield a lot more conversions.
But, let’s take this even further, because that’s all just an act of wise balancing.
Flexible Pricing Incentives
You can proactively encourage conversion by using pricing incentives. Every so often, offer users the option to convert and lock in a lower price for a set time. LinkedIn is a great example of incentive pricing with their premium services.
Another example is offering users a month free or a cheaper price by paying in yearly increments, instead of monthly. These little fringe benefits add up, and believe it or not, it doesn’t take anything more valuable for most people to bite.
Incentivization can be reinforced by rewarding long term customers with recurring benefits. Make this visible to the potential customers; It will encourage further conversion. Use these benefits to maintain a customer base in order to combat churn, another one of the great SaaS obstacles.
Visible ROI and Usability
Another common, and easily fixable, problem with many SaaS companies is their lack of simple usability. A clunky user interface combined with the lack of intuitive features makes the software hard to navigate and use successfully.
The purpose of the free trial is for users to be blown away by the features so the software becomes a necessity. Either solving a common pain point, extreme convenience, and/or easily visible ROI – the user needs to instantly realize the value of the software.
Highlighting certain features or providing a quick tutorial for new users could provide exponential returns. At WalkMe we’ve helped several SaaS companies convert users to paid subscriptions and introduce new features by supply simple walkthroughs.
Conversions are never going to be a guarantee. However, balancing your free accounts, and limiting them in a passive way to encourage, is going to tip the odds in your favor. There will always be people who just don’t want to pay for things, so don’t expect 100% conversions. Increasing the conversation ratios even a few percentage points will continue to help your bottom line and bring continued business.
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