Explains the key drivers for a Freemium software offering with measured examples of companies that have accomplished it. Such as Dropbox, EverNote, Freshbooks, and others.

1. Software as a Services
and the
Quest for Freemium
What it takes to be
Sticky, Viral and Touchless

2. What makes Freemium work
• Free:
Lower friction = faster traction
• Sticky:
Grows more valuable the more its used.
• Viral:
Ecstatic customers + Incentives to share with
friends.
• Touchless:
Guide users to become customers

3. For Freemium to work
Low CAC High LTV
Source: David Skok, Matrix Partners

4. Why Free?
• It Optimizes spread,
• Creates large footprint,
• Fast decisions
Examples:
– Started with free = Freshbooks, Dropbox,
Evernote.
– Added Free = MailChimp
Source: David Skok, Matrix Partners

5. When is Freemium a good fit?
Source Matt Brezina, Xobni

6. Free- Caveats
• Product is the salesperson
• So you have Absolutes:
– Ease of set up
– Ease of use
– Clear instruction
– Fast proof product works
Source: David Skok, Matrix Partners

7. Sticky
• Create a product that has a great long-term
retention rate;
• Make something whose value increases over
time; (Evernote)
• Hang on to older users by introducing new
features (Evernote, Xobni, GIST)
Source: Phil Libin, EverNote

8. Sticky- Example by Cohort : Evernote
35000
30000
25000
20000
# Users
15000
Convert %
10000 # Customers
5000
0
Month Month Month Month Month
Month 1 Month 6 12 18 24 30 36
Oldest cohort now 20% paid
Source: Phil Libin, EverNote

9. Viral
• Give users better tools to spread the love
• Referral program w/ 2-sided incentive
(paypal, dropbox)
• Surveys, split tests, landing page/signup
flow optimizations, encourage
sharing  big wins
• Big investment in analytics
• Test, measure, repeat
Source: Drew Houston, Dropbox

10. Viral- Example DropBox
DropBox User Growth
4500000
4000000 4,000,000
3500000
3000000
2500000
2000000
Est users
1500000
1000000
500000 100,000
0
Dropbox grew from 100,000 to 4,000,000 users in 15 month.
Roughly 25% CAGR, Sustaining 17% CAGR over the last 9 Mo.
Source: Drew Houston, Dropbox

11. Touchless
• Move customers from trial to purchase
without needing a sales force.
• Customers like to sell themselves
• Use a simpler sub-set of your
product/service, then upsell
• Easier to upsell an existing customer
(Evernote, 37signals, Dropbox, Xobni, Freshbo
oks, ProOnGo, ConstantContact, etc)

12. Higher LTV - Monitization
• Recurring Revenue
• Scalable pricing
• Upsell
• Product line extensions
• Lead gen for 3rd parties (API-platform)

13. A Working Freemium Business Model
Source: David Skok, Matrix Partners

14. Early Success Metrics
• Visitor-to-trial conversion rate. it indicates if target audience is interested in the
product and the ability to communicate the value of the product.
• Trial-to-paying-account conversion rate. If people pay for product, that's the best
sign that we're delivering real value to them. Higher conversion = lower CAC.
• Engagement and retention of early users. look at usage metrics such as daily or
weekly logins and various application- specific metrics to see if product is really
used by customer.
• Enthusiasm of your early users. These early VIP users are a strong signal that
product is solving a real pain and hence a strong indicator of product/market fit
(which is the basis for low CAC and high CLTV).
• Team. Smart, dedicated, talented and results-driven. Excel at product. ”Get"
modern SaaS –consumerized business applications that are powerful yet easy-to-
use and can be sold online using a low-touch sales model.
It’s in the DNA of the founder team.
Source: Christoph Janz, Point 9 Ventures

15. The Process: 5-Step Model - AARRR
SEO Campaigns,
Social SEM PR Contests Biz
Networks
Blogs Affiliate Dev
Apps & s Direct, T
Widgets Email el, TV
Domains
ACQUISITION
Viral
Loops
Homepage / Emails &
Landing Page widgets
Emails &
Alerts
Product Affiliates, C
Features ontests
Blogs, RSS, Ne
ws Feeds
System Events &
Ads, Lead Biz Dev
Time-based
Features Gen, Subscriptio
ns, ECommerce
Website.com
Source: David McClure, 500Hats

16. Sample Conversion Metrics
Stage Conversion Status Conv. Est. Value
% (*not* cost)
Acquisition Visitors -> Site/Widget/Landing Page 60% $.05
(2+ pages, 10+ sec, 1+ clicks = don’t abandon)
Activation “Happy” 1st Visit; Usage/Signup 15% $.25
(clicks/time/pages, email/profile reg, feature usage)
Retention Users Come Back; Multiple Visits 5% $1
(1-3x visits/mo; email/feed open rate / CTR)
Referral Users Refer Others 1% $5
(cust sat >=8; viral K factor > 1; )
Revenue Users Pay / Generate $$$ 2% $50
(first txn, break-even, target profitability)
Source: David McClure, 500Hats

17. Step 1: Acquisition
Users come to the site/app from various channels:
• Affiliate
– Develop affiliate program, create rewards scheme
– Identify target affiliates
• Apps & Widgets
– Create widget to embed in other websites, facebook, outlook, email
– Build API for others to build on top of, encourage open development, create revenue sharing model
• Biz Dev
– Identify and calling/networking with target industries e.g. Jones Lang
– Channel partnerships
• Blog
– Create original blog content
– Share useful content relevant to target users e.g. Hubspot
– Create video sand podcasts
– Share features e.g. wibiya, facebook like, twitter tweet, google +1, linkedin share, stumble upon,
• Campaigns & Contests
– Running online contests, giving away gifts
– Hackathons and local events
– Going to tech events
• Advertising
– TV, Radio, Print
– Online paid adverting e.g. Google Adwords, Facebook Ads, industry, online publications

18. Step 1: Acquisition Contd…
Users come to the site/app from various channels:
• Domains
– Registers multiple domains focused on specific elements
• Email
– Obtain targeted email lists, send out emails
– Pay email marketing firms e.g. constantcontact
• PR
– Press releases
– Placement on sites like Yahoo News, Google News
– Mentions on tech websites e.g. techcrunch, mashable, gigaom
– Communication and relationship with journalists
– Communication and relationships with tech bloggers, magazine writers,
– Develop a PR package to download
– Paid PR
• SEM & SEO
– Find most relevant and popular terms and embed in website
– Get linked/mentioned on other websites
– Create backend tools e.g. web analytics, log file analyzing
• Social Networks
– Facebook, twitter, google plus pages
Metrics to Track by source:
– Youtube - Quantity(#)
– Startup blogs and networks e.g. builtinchicago.org - Cost ($)
– Tapping into MBA network
- Conversion (%)

19. Step 2: Activation
Users enjoy 1st visit i.e. “happy” experience
• Homepage/Landing Page
– Conduct A/B testing of UI, impact of various of
colors, placements and UI
– Track page views, clicks, time spent on site
– Keep page clean and simple
– Set activation goal e.g. get emails
• Product Features
– Test success of different product features
– Iterate fast
– Provide incentives and encourage call to action
Metrics to Track by source:
- Pages per visit
- Time on site
- Conversion (%)

20. Step 3: Retention
Users comeback to visit site multiple times:
• Emails & Alerts
– Lifecycle emails e.g. 3 day, 1 week, 1 month
– Status emails e.g. best of week/month
– Event based emails “something happened”
– Easy to unsubscribe
– Easy to read emails (Important info in subject, small body)
• Blogs, News Feeds, Twitter Feeds
– Track Impressions
– Track commentary
• System Events & Time-based Features
– Release features with maturity /demand of customers
– Release features around events Metrics to Track:
• Cohort Analysis - Source
– Conduct cohort analysis - Quantity
(dist. of visits over time, rate of delay, customer lifecycle)- Conversions
- Visitor Loyalty
- Session Length

21. Step 4: Referral
Users like product enough to refer others:
• Viral Loops
– Create incentive for sharing e.g. rewards
– Create same-side networking effect so users benefit from inviting
others
– Make sharing easy
– Track viral growth(Growth factor = X*Y*Z where X = % of users who
invite others, y = avg number of people invited, Z = % users who
accepted invitation). Track growth of different channels
• Emails, Widgets & Social
– Make it easy for users to invite others from app/web
– Penetrate a specific customer segment with widgets
– Build API for others to build on top of, encourage open development
• Affiliates, Contests
– Ads, Affiliates, Cross-promote app with other developers

22. Step 5: Revenues
Users conduct some monetization behavior:
• Revenue
– Freemium Model – figure out optimal model, price
– Subscription/Recurring Transactions
– Create API for other developments, profit sharing
– Track profitability: Lifetime value > Cost per acquisition + Cost of
service (paying & free)
– Build profitability model
• Biz Dev
– Create channel partnerships
– Form alliances versus competing
– Target tech savvy users/early adopters initially
– Target industries and functions

23. Thanks 
• Want more info?
– Kelly Schwedland
– 219-405-5723
– kellys@abdus.com
• Sections of slidedeck taken from:
Dave Mcclure’s http://slideshare.net/dmc500hats 500.co (@DaveMcClure)
David Skok http://www.slideshare.net/DavidSkok http://www.forentrepreneurs.com/ (@BostonVC)