Many subscription-based businesses offer light or trial versions of their products for free, the industry term for this type of offering is freemium. Freemiums are typically feature-complete products aimed at immediately impressing users, or stripped-down product versions built to lure users past the subscription paywall. Ultimately, there are a plethora of different ways for organizations to price, market, configure, and distribute their free trial offers, however, no such combination has been able to compensate for the low conversion rates seen with freemiums.
The average conversion rate for freemium products hovers around 1%, and if an organization is able to realize greater than 5% conversion the results are considered exceptional. However, there are outliers to these statistics — Spotify is a famed example boasting an extraordinary conversion rate of over 25%. While most businesses are converting 1 out of 100 free trial users into paying subscribers, Spotify has managed to convert 1 in every 4. In 2010 Spotify was converting an already impressive 7% of its free users, yet through optimizing its product delivery model Spotify was able to identify high-impact engagement levers for its customer base that catapulted conversion rates even higher. While not every subscription service may be able to convert a quarter of their freemium customers, Spotify demonstrates how implementation of the freemium model is the key to realizing success. With so many factors at play, subscription-based businesses need to regularly optimize their implementation strategy to maximize conversion rates while also mitigating risk. The risk of cost of delivery exceeding ROI makes it imperative to augment freemium offerings through a solid data-driven strategy.
AI is able to predict which of your free trial users will convert to a paying subscription. Your product usage data, customer engagement logs, 3rd party market research and other relevant assets can be analyzed in tandem to identify the most significant drivers of conversion and churn. Machine learning becomes more and more powerful as an algorithm ‘learns’ from new data (i.e. historical examples of converted/churned customers) and freemium strategies often coincide with a desire to rapidly acquire new users. By providing your sales team with the top drivers of conversion for each unique lead, they will be able to understand which leads they should personally reach out to, and what pitch will resonate with them most to maximize the likelihood of a sale.