Too Few of My Freemium Users Are Converting To Paying Customers
Let’s say you have an online product with both a free version (a freemium version) and a paid version. Maybe it’s a paid subscription (monthly or yearly) or maybe it’s a fixed price for access.
The freemium version includes a number of features, and the paid version includes more features.
But your freemium users aren’t converting to paid customers. Not enough of them are signing up to the paid version.
That’s the situation that Amr Kafina was in a couple years ago. In a thread on the Indie Hackers forum, he shares that he had an app with over 20k users, but struggled with converting them to a paid subscription.
Amr writes (emphasis mine):
Around a year ago, I launched an app called Life Calendar that went on to reach the front page of Product Hunt and get featured on Lifehacker. The app has been a great success, people loved it, and now has more than 20k users. Unfortunately, only a tiny fraction of users convert (around 0.3%), and I’m struggling with figuring out the reason.
The app runs on a freemium model - the base functionality is free, with some extra stuff available for a yearly or monthly subscription. I’ve been experimenting with the price for a while now, bouncing around from an initial price of $20 a year all the way down to $3 a year, but conversions are mostly the same.
What am I doing wrong? Am I overcharging, or perhaps a subscription based model isn’t the best choice? Maybe this is the norm for lifestyle apps like this?
It’d be easy to fall into the excuse that the whole lifestyle category isn’t profitable or that consumer products are hard (they are harder to sell than business-to-business products), but there’s something else here.
Amr has a big number of users. 20k! That’s a large enough number to try some experiments. And he did, by tweaking the price.
He could continue experimenting, or, instead, he could do something else with the people that converted to a paid subscription. After all, even at a 0.3% conversion rate, that still means there were 60 people who paid for the upgrade.
In the forum thread, Courtland Allen replied to Amr with this spot-on advice (again, emphasis mine):
As tempting as it may be to turn various knobs and hope for a change, I think the better approach is to build up your understanding of your users so you can make deliberate, informed decisions.
Start by talking to your paying customers. Set a goal of speaking with 25 of them one on one. If you can, get them on the phone. Chat is a distant second. Email is the worst option. You want a back-and-forth where it’s easy for them to say what they feel.
Exactly! Then Courtland adds:
Who are these people and why did they pay? Hopefully you’ll start to see some patterns. Then you can tweak your features and marketing to appeal to people who fit that pattern.
And if you don’t see a pattern, that’s important information, too. It means your app doesn’t have a target customer. A few apps can get away with being general purpose (Facebook, Google, etc.), but the vast majority of successful businesses target specific customers. So you may have to pivot a bit to find a group whose problem your app can solve.
Who Are My Customers, Anyway?
Courtland recommends figuring out the target customer of Amr’s app. At this point, for a general purpose, lifestyle app like Life Calendar, a target customer will be hard to pin down. People of different kinds will pull in the app into their life for different reasons. For different jobs they’ve got to have done.
So what you can do is figure out what the target situation is, when the app is pulled into the life of the person.
Not the Customer. The Situation
What happened right before the purchase of your app? What were the circumstances which led up to the paid upgrade? Did the customer go for the free version for a while before they deciding to pay for it, or did they straight up buy it? Of course, this will vary from customer to customer, so here are more questions to dig further:
- Was there an important moment which occurred, pushing people to start journaling their life weeks at a time?
- Have they been deliberating about the purchase decision a little bit before going for the purchase?
- Had they tried something else before?
- What hesitations did they have about the purchase?
- How much time did it take for them to make the decision?
These questions are meant to be an interview checklist. They’re not, however, the questions to ask during the interview itself. For those, you want to steer clear of questions that ask the customer to analyze or make conclusions, but rather, you want to ask questions that bring the customer to recount the purchase story.
Asking the right questions will get the person to recall, in vivid detail, the moments preceding the purchase, so you can get to the real mix of emotional and rational motivations. It takes practice. If it helps, you can preface the interview by saying that you’re asking questions as if you’re writing a movie script of the purchase story. That’s the kind of mindset to be in when interviewing for the purchase story.
So talk to your paid customers. Five to ten interviews should be enough. Concentrate on the purchase story to dig out the real motivations and get situational anecdotes. You’ll likely find some surprising patterns that way, and at the very least, some juicy anecdotes for your marketing copy.
Even if you don’t have a freemium version of your product, this also applies if you’ve got anything else that’s free and helps your sales effort, like if you have a newsletter.
Stay Sharp!
If you’d like to experience what a purchase story interview feels like, send me a note and we’ll set up a call
—
Pascal Laliberté
@pascallaliberte