Freemium business model: a most dangerous experiment

Freemium business model: a most dangerous experiment - image shows someone using its laptop with a blue background

Back in 2015, our company had one of the most determining pivots in its history: we decided to remove our freemium business model and become a premium only product.

It is by no means an overstatement to say that this decision saved our company, and allowed us to reach the point where we are now. The crudest example is that of Bunkr, a somewhat similar, competitor product based out of France, that took the Freemium approach and ended up going out of business after a few months.

Related Read: Bunkr acquisition: the reality of presentation software

Our revenue focus allowed us to be profitable, to spend more money on product and growth strategies without depending directly on further rounds of funding.

Well, we are now considering the option of opening our product once again, and have started a few experiments and case studies to understand the real potential of a freemium business model, and how it could reshape our business in the months to come.

Freemium vs. Premium: the pivot that saved our company

Back in 2015, we were part of the 500 Startups accelerator. One of the first lessons we learned was how useless user engagement data is unless it's either,
a) in the millions of users per month
b) directly connected to revenue

When we got accepted into 500 Startups, there was a free version of Slidebean. You were allowed to present and share your presentations freely and would only have to pay for advanced design features or download offline copies.

Related read: How we got accepted into 500 Startups

This model brought us around $1,000 worth of Monthly Recurring Revenue (subscriptions) that came from approximately 150 paid accounts. At that point, our pricing plans cost about $5/mo.

We quickly learned that this model and pricing was going to be unsustainable to grow the company. Any paid ad campaign we ran on Google Adwords, Facebook ads- would bring sign-ups at the cost of ~$100 per customer. This meant that we needed that customer to stay in the platform for 20 months just to break even on what we paid to bring them in.

Virality and organic reach were some of the core metrics we tracked. We measured, for example, how many sign-ups and referrals would come per active users, assuming that the act of presenting or sharing a beautifully designed Slidebean deck, would have an impact on the amount of traffic we brought in.

Still, the user base was still too small, and we didn't have a way to quickly grow it because, again, the cost of bringing new active or paid users was too high.

With a few thousand active users on a free account, and only a few hundred users with a paid account, there was no way we were going to raise money to keep the company moving, so we decided to lock Slidebean up, and make it a purely paid, premium product.

Our first breakthrough here was coming up with a super premium plan, that we priced at $159 per year, without offering the possibility of a monthly subscription. The conversion rate to the $5/mo plan vs. the $159/yr plan was not that different, but we made up to 20x more revenue with the annual option.

We eventually experimented with plans at $19/mo, $29/mo and even $49/mo, and we were able to convert hundreds of customers with this pricing. In a matter of 12 months, our company went from $1,000/mo to $16,000/mo in monthly revenue, and this exciting traction allowed us to raise our first round of funding.

So let me rephrase what I said: unless you have millions of active users and exponential growth in your free or freemium business, you'll need to focus on revenue if you want to get investors excited.

This decision to block out our app and close the doors to thousands of potential users of our product, not only allowed us to stay alive but made us focus on the people who wanted and appreciated our product. When you have a majority of free users, you'll inevitably waste time attending to their needs, without knowing if they'll eventually become your customers.

You can read more on that story here: A tale of two pivots.

Brand awareness and organic traffic

Building an organic audience to our website and our platform has been the most massive, challenging and expensive task our marketing team has worked on, but it's also been one of the most rewarding experiences.

As of July 2018, the Slidebean marketing site (made up of our blogs, presentation templates gallery and landing pages) has over 100,000 organic monthly visitors: these are 100,000 people that ran a search on Google and ended up in our website.

Saying this is 'free traffic' is not entirely accurate: we've spent months of effort and hundreds of thousands of dollars on marketing our site, bringing awareness to our brand and establishing as an authority on many topics that our customers are interested in reading. The reward is, however, that the effort we put over the course of two years now gives us this permanent source of traffic with little maintenance effort, allowing the team to focus on building a bigger audience on top of that.

Every month, we get over 15,000 sign-ups to Slidebean coming exclusively from this organic traffic, which translates into hundreds of thousands of dollars of revenue. If it weren't for this fantastic, gigantic user base, we wouldn't ever consider the option to re-enable a free plan in our presentation software.

The freemium business model opportunity

Across all channels, Slidebean gets as of today around 30,000 email leads per month, either via sign-ups or content downloads. However, our conversion rate to a paid account is in the range of 3%.

30,000 people show real interest in our product every month, enough interest to give us their email address. However, only about 900 of them become our customers and are able to make presentations, share them or show them in front of an audience.

While our pricing has dropped from the $29/mo we charged back in 2016, it's still understandable that a majority of users are not willing to pay a subscription to use an online presentation tool, especially with so many PowerPoint alternatives available in the market. In our case, this is 29,000 people that could help raise massive awareness about our platform but are going to 'waste.'

What if every month we added 29,000 active customers to Slidebean, instead of 900? How much more traffic would we bring? To how many more people would we expose our brand?

Balancing growth

Undoubtedly, more active users will translate into more brand awareness and more traffic to the site; however, releasing some of our features and allowing anyone to use them without having a paid account will also, most certainly, reduce our conversion rate.

In the simplest of charts, we expect organic traffic to go up, and the conversion rate to go down. Period.

A very basic chart

  • Conversion Rate
  • Organic Traffic

The question is, how much will that net? In order to keep the company growing, for every percentage point in conversion rate drop, we need an equal or higher percentage increase in the number of sign-ups.

Our approach to testing

There's no easy way to test this. If we release it site-wide and the numbers don't balance out, we risk dropping our revenue and getting into financial trouble (remember, we run a profitable operation and there's a delicate balance).

Also, while the conversion rate drop will likely occur immediately after we release features to the free accounts, the increase in the number of sign-ups might take weeks or months to be noticeable.

Finally, it's hard to pull the plug on this experiment. If we become a freemium tool, get a boost in sign-ups because of it and then fall back to a premium platform, we'll likely upset a lot of people. When we made that change the first time we only had a few hundred monthly sign-ups, and still got some angry letters.

After much deliberation, we decided to make this test geographically. Starting today, we'll make Slidebean free in specific regions and begin gathering data on these KPIs:

  • - Conversion rate (expected drop)
  • - Cancellations (expected increase)
  • - Organic traffic (expected increase)
  • - Monthly and Weekly active users (expected increase)
  • - Correlation between MAU/WAU and new organic traffic
  • - NPS Score (expected increase)

In order to keep the test contained, we won't be releasing the full list of countries that are part of the experiment but rest assured, if yours is, you'll be hearing from us.

I'll keep you posted on these results. Leave any questions in the comments, or let us know if you have any other insights from your own experience.

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