Recently, I had a dialogue with a colleague in Silicon Valley who asked me about my experiences with B2B Freemiums as she thought through new distribution models for her product. It made me reflect for a moment about some of my more recent experiences about giving away an aspect of my product in the hope of getting more revenue.
Let’s assume we can tie the Freemium to actual revenue production – meaning the systems are built to track and trend that soon to be customer activity from download of software to close of revenue. With no systems in place, you may as well nix a Freemium strategy in terms of measuring its success!
In my experience, a large majority of my inbound unqualified inquiries (meaning people with interest in my product offer) came from the Freemium offer, although the product offer itself had more B2C characteristics than a traditional B2B sale. My conversion rate was in line with industry rates that appear to range from 1% to 13% depending on the source. Here are 5 examples I dug up that could be considered a B2B benchmark for Freemiums:
- Evernote 5.6% conversion rate on their two year user cohort, but note that the conversion rate on new users is much lower, likely SMB or consumer users.
- Logmein 3.8% conversion rate, likely SMB users.
- Heroku 1-2% ratio of paid-to-free users when it was about 50,000 apps in size
- MailChimp –13% of users paying. Having competed against MailChimp, their users are likely SMB and consumers.
So let’s say you had 2,000 inquiries/month, of which 2.5% used a Freemium at an average sales price of $10k/month – $500k/month revenue = $6M/yr on a very reduced customer acquisition cost if customers are able to buy via the web.
So that’s pure math…but let’s ask 4 key questions as you develop your B2B Freemium strategy:
1. Will your buying entity see value in a freemium?
Companies are not as price sensitive as individuals. How large is your average selling price and your buying entity? In the examples above, I do not have clear average revenue metrics, but by experience, an upper limit of value was in the $30k/yr range or lower – which may be in line with many cloud based applications.
2. Can you get away with low acquisition and support costs? Meaning, no support!
3. Can you use the freemium as a low cost inquiry or cost of acquisition vs. traditional means? If one were to look at customer acquisition costs, sales cold calling is very expensive/ineffective, targeted marketing less expensive, freemium is the least expensive.
4. Companies do not virally spread a freemium offering and word of mouth is key. How will you get others to talk about your freemium outside your community? Freemium is all about scale, so you’ll need to assess the potential customer segment size for such an offer.
I think it is definitely worth testing the Freemium concept in a B2B environment.
What has your B2B Freemium experience been?