October 30, 2013

Freemium is a "little black dress"

There are so many benefits of a Software-as-a-Service (SaaS) subscription model that I'm not surprised that it's become the darling of the start-up set. And now even Enterprise software is moving in this direction.

The most attractive business benefit of SaaS is the predictability of revenue -- and in today's business environment, that is nothing to sneeze at.

The secret to SaaS success.

Adding freemium to SaaS can be the secret ingredient that has a key business benefit: improved marketing investment ROI. And as a marketing leader, isn't this our holy grail?

Freemium is when you give away (free) some valuable part of your paid-for (premium) product. Free + Premium = Freemium.

Freemium as a category includes limited-time free trials. However, in my experience, it is when you offer a persistent free experience that the most significant marketing efficiencies are achieved. Why? Because with a persistent free product your existing customers become marketing agents for your product. And that allows you to amplify the investment you made to originally acquire that user.

Let's do the math: freemium ROI is real.

Let's say you invest $1,000 to acquire a new customer with a lifetime value of $2,500. That's already an ROI to be proud of. Now if that customer were able to bring you two other customers over his lifetime, your Cost Per Acquisition (CPA) is now $300 for each of those customers, for a total lifetime value of $7,500.  Wouldn't your CFO love to hear that?

Of course there isn't just one thing you need to do in order to successfully execute a freemium business strategy. In an earlier post I likened managing a freemium business to flying a plane because marketers must actively watch and calibrate many different 'dials' up and down the funnel, all at once. But one of the most important things you can to do is to build the product experience in a way that takes advantage of social behaviors.

Successful deployment takes advantage of social behaviors.

Your product must be built to take advantage of the social, viral behaviors inherent in the problem your product solves. Social behaviors aren't just what happens on Facebook or Pinterest, and viral doesn't just apply to grumpy cat videos. Social happens any time one person shares an experience with another person.

Take a business meeting, for instance. I would bet that your first thought about meetings isn't that they are "social" or "viral". But, think again. When I am organizing a business meeting with you, I am inviting you to interact with me around a relevant, common interest. During that interaction, content -- in the form of written notes or whiteboard photos -- are created and shared. Guess what? All that is social behavior. If you are thinking about freemium, you need to take a fresh look at the problem your product addresses and think about how the relevant social aspects can be enhanced.

To be clear, I am not advocating social "lip service". It is not simply adding like or share buttons into the product experience. The product experience needs to remain true to the need it is addressing and the experience should facilitate the social behaviors already occurring around that need.

Take that dress out of the closet.

Freemium and SaaS may be the current "flavor of the month" but success with this model still comes down to an understanding of the customer need and creating an end-to-end experience -- from marketing through product -- that meets that need and delights the customer. For me, Freemium is like the "little black dress" -- a classic, just being rediscovered.