Buzzgain

Running a freemium product like BuzzGain (or company whose products are sold in the freemium model) is a taxing exercise for every team, but lets focus on marketing and metrics for the sake of this post. In my perspective marketing has to drive the business, so a deep focus on numbers the business cares is important.

First there are 5 metrics that we watch like a hawk.

1. Awareness conversion ratio: This answers the question “How many of your target customers are aware of your offering”? In our case for our first target segment there were 53,000+ possible users (target market) for our first product. Of them through various means we were able to get in front of (or make aware of our product) and getsigned up as users for the free version, about 23,850 in 96 business days. So our awareness conversion ratio is 45% over 96 days or 2.3 per week. What we believe is that the best freemium products (like 37 signals, flickr, but we would love some confirmation) have an awareness conversion ratio of 3-4 per week. If you are trending towards 5 you are doing brilliantly, but then you have to watch your Cost of awarness conversion.

2. Cost of awareness conversion: This answers the question “How much did it cost you to get customers to try your solution?”. This is the total money spent (using all possible sources) to get users to sign up or register for your free version. Since we run on a shoe string budget, we do brilliantly here, with an average of about $1.57 / converted user. How do we do that well? First what we dont do: We dont do Google Adwords, no advertising at all and dont spend much on confererences except if they are webinars. We do lots of blog posts, Search Optimization and participate in social media. Our costs basically are 1 FTE who churns out content, and my work on the blog. To give you some comparisons, if you do an good sized event with a booth the average cost per lead (not the same as awareness, but just a comparison)  will be about $20 – $50.

3. Customer conversion ratio: This answers the question “How many of your free customers wll become paying premium customers?” Of the 23,850 users (registered accounts) we converted 650 to our premium (paid) version over a period of 123 days. That means 2.7% of registered users were “premium users”. Our customer conversion ratio is 0.19.

4. Time to customer conversion: This answers the question – “How long does it take for a customer buy your premium offering?”. First realize you can get average conversion time from time of prospect awareness to the time they became a “paying” customer. That’s mostly useless, (except as a good stat during your board meeting) since it is NOT an operational metric. Its a reporting metric. What you need to do is plot users against conversion as a scatter plot and pick the area with the most conversions. The average of the outliers (both bands) is your time to customer conversion. In our case it was 8.5 days or about 1.7 weeks.

5. Cost per free user: This answers the question “How much is it costing you to keep your “free” version of the product?”. Take your total operational cost – For us its mostly hosting and development. If you know your cost per customer, its easy to then take the total cost for hardware outside of those paying and divide that by total number of free customers. We are trying to determine whether we can include cost of sustaining engineering into our cost per free user