Freemium benchmarks

By Patrick Campbell
Summary

Main Takeaways:

  • Companies using freemium have 50% lower CAC.  
  • Net revenue retention is 15% higher for freemium companies. 
  • NPS is nearly double for freemium companies. 
  • Willingness to pay for tiers above freemium have increased over 500%.  

Deeper insights into freemium

To answer Hiten's question, we'll dig into the data from nearly 6,000 companies across both B2B and B2C, as well as roughly 300,000 willingness to pay data points. Let's jump in. 

No obligation ask: Click to tweet and thank Hiten for prompting this research (you can edit before sharing). 

Freemium is an acquisition model

Freemium is an acquisition model, not a revenue model, so this is a measured strategy to unlock lower CAC and the top of your funnel.

CAC is increasing across the board with B2B and B2C CAC up nearly 50% compared to a few years ago as marketing density continues to increase.

cacincreasinghitenshah.jpeg

That being said, CAC for freemium companies is only 25-30% higher than 5 years ago:

freecacpaidcachitenshah.jpeg

Content effectiveness is trending down
Diminishing returns of traditional free offers like free ebooks or white papers give us a look into this phenomenon. Note that the life of an ebook has dropped from being effective for roughly 6 months to now only being effective for less than a quarter. This is happening even though the quality of content as we saw in a previous study continues to increase. 

ebooklifehitenshah.jpeg

Essentially, free products are becoming "premium ebooks" where the goal is to lower the activation energy required to start a relationship with a lead and push them to a purchase, as well as give you an opportunity to nurture that lead into perpetuity.

Free is positively affecting key business metrics

Free has actually become more effective than non-free alternatives. Retention is 15% better on an absolute basis for those companies utilizing the freemium strategy:

retentionfreemiumhitenshah-compressor.jpeg

NPS is roughly 50% better for those companies utilizing freemium:

npsfreemiumhitenshah.jpeg

And the previous objection of a free plan eroding value is actually softening with the willingness to pay for an initial tier growing from a floor of roughly $150 five years ago to close to $1,000 today.

willingnesstopayfreemiumhitenshah.jpeg

Freemium is a scalpel, not a sledgehammer

So should you jump on the free bandwagon? Probably. Although, while the data suggests some serious benefits, you should keep in mind that freemium is a scalpel, not a sledgehammer. We've seen the most effective freemium plans come when a company has been around for a few years and figured out their unit economics before opening the top of the funnel with free. 

That's all for this week. We look forward to bringing you more data and insights about the subscription economy next week. 

*** If you missed our previous episodes you can find them here: ***

Episode 1: Churn Benchmarks

Episode 2: CAC Benchmarks

Episode 3: Pricing Benchmarks

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Patrick Campbell

SaaS Economist

Find Patrick Campbell on twitter or linkedin

  
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