Harshal

May 234 min read

Product-Led Growth To Turn Free SaaS Users Into Profitable Customers

Case Study On Targeted Notification Strategy To Increase Upsell Up To 60%

Ever wondered how to turn your free users into premium revenue-generating customers? You're not alone. It's a big hurdle for many SaaS companies. I applied a product-led growth approach with a B2C SaaS client to increase their premium subscribers. My research and experiments estimate up to a 60% increase in incremental monthly recurring revenue (MRR). Here I share my process and learnings.

I spent 1 hour 42 minutes writing this post.

Multi-layer funnel optimized to fit perfectly.

I originally published this post on www.sparkcreativetechnologies.com on May 23, 2024.

Product Background

My client built a SaaS product used by consumers and businesses to track website changes. The company served a global user base and offered free and premium features. Most users used it for free, and only a small fraction upgraded to premium. I explored a targeted email marketing strategy to increase the conversion of free users to premium subscribers.

Developing The Freemium Funnel Structure

I created a freemium funnel for the client.

Adopted the Top, middle, and bottom-of-funnel stages for a freemium product.

Optimizing Mid-Funnel Conversion Using 3 Questions

I looked at 3 questions for conversion rate optimization (CRO) at the middle-of-the-funnel stage:

Who should we contact?
When should we reach out during their user journey?
What messaging is most effective?

Applying AARM And AARRR Metrics

I used the AARM method and AARRR pirate metrics framework to track and optimize the conversion of a prospect to a free or a paid user:

Signup: The user registers and creates an account, initiating their use of the service.
Activation: The user completes their first task by setting up their first website monitor with our product.
Engagement: The user creates new monitors, indicating habitual use of product features.
(In)Activity: The user uses the app, as evidenced by their status as a Monthly Active User (MAU).
Retention (Churn): The user continues using the product beyond the initial months. They are getting long-term value.

Applying Triage Principles For Targeting Customers

I grouped users to maximize the conversion potential using military triage principles:

Group 1: Users likely to upgrade without intervention.
Group 2: Users who won't upgrade regardless of intervention.
Group 3: Users who might upgrade due to a persuasive intervention.

I walk through my data analysis to identify Group 3 users.

Researching To Target Relevant Customer Segments

I used Google Analytics, Metabase, and Klazify API for the research. I identified correlations between users' behavior and the transition to premium pricing.

Users with corporate emails had a 60% higher conversion rate.

I noticed that users with free emails converted x%, whereas users with corporate emails were 60% more likely to convert to paid users.

I compared the usage patterns of premium users and free users. I saw that some use cases were more prevalent in paid users than free users.

Usage patterns show the most popular free vs premium use cases.

Identifying The Best Time To Encourage Upgrades

I analyzed the right time to encourage users to upgrade from free to premium pricing. My goal was to maximize revenue by targeting “Group 3” users who are more likely to accept promotional discounts. But, I wanted to do this without impacting revenue from our “Group 1” users, who will upgrade even without a discount.

Analyzing conversion probability after the user crosses usage limits.

Next, I wanted to estimate the number of users in our target segment. I looked at the average daily number of users attempting premium-tier tasks while on the free tier.

Building An MVP Process For User Notifications

I built an MVP process with Mautic, lead gen form, spreadsheets, and manual database edits.

MVP process to give targeted discounts and nudges to customers to upgrade. A/B test the nudges.

Building the MVP process included:

Personalized email templates in Mautic; highlight the premium benefits.
A/B testing of the content and process, as seen in the process flowchart.
Using Metabase for SQL queries to identify the target list.
A lead generation form to collect customer information to apply a promotional discount.
Manual database edits to extend the expiry dates for customers’ premium pricing.

Learnings From MVP

In the initial phase, we encountered issues with spam filters. Our learnings included:

Spam filters blocked our initial batch of emails. Our email vendor, Sendgrid, suggested we cool down our email activities and move to a new dedicated IP address.
Instead of creating a new email alias, we need to warm up an email ID for this by emailing known contacts.
We should use an email ID for multiple marketing purposes so that customers recognize it.
We emailed users many months after their sign-ups. Instead, we should start an email drip campaign with new customers with less time between their opt-in and our first email.

Projected Impact: Targeting A Boost In Upgrades

This email campaign will likely boost the conversion of users in the triaged group 3. The number of users in Group 3 was 60% of those in Group 1. This targeted email campaign can increase the total number of upgrades and incremental MRR by up to 60%.

Estimated 60% boost to new MRR using these targeted emails.

This project also showed the client the importance of an email drip campaign and sending marketing emails to their free users.

First-cut Recommendations

If you want to encourage your free users to upgrade to paid users, think of these questions:

What differentiates the usage of free and paid users?
What differentiates the characteristics of free and paid users?
In their lifecycle, when do users upgrade?
Why do users upgrade from free to paid?

Once you have answers to these questions, create a marketing campaign to promote upgrades (or upsell).