Freemium can help software companies gain users quickly—but what happens when it’s time to scale back or up? Free services must meet users’ basic needs, while also encouraging them to upgrade to the paid version once those basic needs are met. Join Joaquim Lecha, CEO at Typeform, and Christoph Janz, Managing Partner at Point Nine, as they delve into freemium at scale.
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Joaquim Lecha | CEO @Typeform
Christoph Janz | Managing Partner @Point Nine Capital
FULL TRANSCRIPT BELOW
Christoph Janz: All right. Good afternoon everybody. Thank you so much to the SaaStr team for organizing this conference and thank you to Joaquim for joining me on this session.
Joaquim Lecha: Not at all. My pleasure.
Christoph Janz: So really quick, I’m Christoph Janz, one of the partners at Point Nine Capital. We are an early stage VC, mostly focused on SaaS all over Europe and and beyond. And Joaquim is the CEO of of Typeform. I’m assuming that most people in the room, know Typeform, but maybe not all of them. So I’ll let you give a brief introduction.
Joaquim Lecha: Yes. So thank you Christoph. Our firm basically wants to help you, help you create better and more engaging interactions with your communities, audiences, customers. We truly believe that companies nowadays need to stand out. They require information to do a better job and customers, they are not always happy and not always incentivized to provide that information. So we help the professionals in your companies. We give them the superpowers of the developer and the designer. So you can create this online interactions that are amazingly beautiful without any need for codes and without any, let’s say, true design education. So, yeah.
Christoph Janz: Thank you. So let’s talk Freemium. As we’ve just heard, like some of the most successful SaaS companies in the world have been built based on a Freemium model. And I think we’ll talk a bit about like some of the challenges and opportunities related to that in a little bit. But maybe let’s start by looking at the type form follows. So maybe you can walk us a bit little bit through that. Like how many people sign up for a Typeform or for Typeform and create Typeforms on a monthly basis and how many of them use the free plan? And so basically how much does the free plan contribute to the success of Typeform?
Joaquim Lecha: Yeah, so good. Let’s start. So I’m at the top of the funnel. Let’s say I’m reaching our web pages. We have a 1.7 million people on a monthly basis, new unique visitors and 12% – 13% of them. So around 190,000 will sign up and then all of them sign up for free. I mean that’s the by default option. 27% so almost like 55,000 of this people will create and visualize and share a Typeform and also out of the 190,000 that sign up around eh, 3% will actually move on to a paid plan. The interesting maybe behavior also is that the creation of the form, the be solution of a form for 92% of them happens during the first week, but for the payment only 60% happens during the first week. 70% will happen during the first two weeks, and 80% during the first four weeks, but the remaining 20% can take up to let’s say week 48 so it it, there is a long, long tail.
Christoph Janz: and is that the main reason why Typeform has a free basically and eternally free plan to give users the opportunity to play around with Typeform maybe for many months or maybe even a year and then you still have the chance to eventually convert them into a paying customer.
Joaquim Lecha: There are three main advantages. The first one is brand exposure. The second one is customer feedback at scale. And the third one is the creation, the building up of a user ecosystem. We currently have around 4 million registered users that we can over time, let’s say re-engage, talk to them and and let’s see, reactivate and also upsell. In regards to school brand, brand awareness. So right now and like in May, almost 20,000 free users created a forum and that is basically 1.3 – 1.4 forms created by paid users. And these forms generated around 3 million in May, 3 million unique visualizations and they were completed. So there’s lots of exposure. No and also still nowadays, and we are like five years in the market still nowadays, depending on the month, 75 to 80% of the people who sign up, they come from sources that prove that they know our brand.
Joaquim Lecha: So they come like direct. So they go to the URL and they say www.typeform.com or they search in Google or any other place they search for Typeform Quiz or Typeform Forms. So they knew about the brand before signing up. And the people who knew about us, they convert at twice the rate. So the conversion over time was wrong 3%. These customers convert at 6% so I would say that the fact that they know you, that they know us, it’s very positive. It has fueled our growth organically until now. We are currently at 25 million ARR. So in a way I think it, it has plenty of advantages to be honest. Finally, in terms of customer feedback, I mean there, there was a, the basic motivation for the two cofounders to create Typeform was that they thought there was a better way of creating more human interactions. Now more conversational. Like they were looking at this existing forums as the online version of lifeless paper forms. So they are a kind of very proud of the product. And from the start they want people to try it.
Joaquim Lecha: Nowadays, 70% of the customer tickets come from free users and we treat this as a golden nuggets. No. So they, they suggest new things. They encourage us and they also complain about things. So it is important to, to have …let’s say a lot of people trying your product and telling you how you can improve it.
Christoph Janz: So that, that’s interesting because I think many people would consider the customer support tickets, which they get from non-paying customers. A burden, like on the negative side of the pros and cons of doing Freemium. It’s interesting that you bring this up as a positive because it gives you, it seems to be giving you time from so much useful feedback.
Joaquim Lecha: Absolutely. I mean is it better that they don’t give you any feedback? No. And if they take their time to give you feedback, don’t they deserve an answer. So in a way, I guess everybody has to make a calculation … for us and mostly it’s CS costs. We can also have a bit of server IT-related costs as well to serve the free users. But currently on a monthly basis is around $130,000 which is like 7% – 8% of our total monthly cost. So it’s okay for us. It’s not that much. And the positives is again this lots of feedback in addition to that, like all these forums, I mean at the beginning this changes actually know over time the importance of these things relatively change over time. So at the beginning we didn’t know. They didn’t know I was not there. I am relatively new in the company, but at the beginning they didn’t know what people would do with this product.
Joaquim Lecha: So by letting people use it, you can observe what they do with things to be useful for them. Now. So again, having free users … it has a cost, but on the other hand, like you, you can learn so much more about how people use your product, why they use it, what problems they encounter. And also you can start collecting best practices. Now is this type of form for like feedback collection better than that one because the completion rate is higher and why is that? And then you can over time start telling everybody and giving like advice to everybody. Like, hey, maybe you should do it like this. It’s better if it’s shorter and all of that customer feedback through tickets, but also customer feedback through and behavioral analysis now of data analysis of their behaviors is so valuable we think.
Christoph Janz: And how do you feel about the cannibalization of the paid plans, which is maybe one of the biggest concerns of anybody considering a Freemium model? Like how many paying customers will I lose by offering a free plan or if you already have a Freemium plan, you may be wondering how much more could I make if I didn’t give away so much value for free. I’m like, we have a sense for how much we’re losing by doing that. And maybe also how, how did you try to find the right limitations of the free plan to give people enough so they can like kick the tires but at the same time also have plenty of features to upsell.
Joaquim Lecha: There’s a lot of science that we still haven’t applied to this and I think this is becoming more and more important in, in let’s say in the next stage. You know, so I would say that in the first stage like $0 ARR to maybe $5 million you want to get the product out, you one to know a lot about, you know the users and the feedback of, of these customers. And then when you are maybe beyond 5 or beyond 10 you’re start to like enjoying the benefits of the brand and the brand exposure and the fact that people know you. And even like you at our current stage we are more and more thinking about our 4 million registered users, how we reengage them and, and how we, let’s say from a more scientific way, you know, we can upsell them in a way that is always a good deal in a way where they can, you know, through the functionality of the product we can prove them that they obtained this value and that they can upgrade and pay this price and half a nice gap in between.
Joaquim Lecha: So we, we are not, let’s say perfect at that. What we are doing also is talking to a lot of companies. So we are happy to share information and so on because it makes us realize, you know, so you know other companies, how many of their total registered users in Dropbox or in Spotify or are currently customers now. And when you realize that we have 53,000 customers out of 4 million registered users and other companies have maybe 3%, 6% or even above 10% conversion rates. That gives us some like food for thought. No. So it’s, yeah, something we have to really do.
Christoph Janz: I know maybe we can come up with a few criteria which might help people who might be in the audience and thinking about whether or not they should go for Freemium. Maybe we can find some criteria that help with that decision. Obviously it’s always individual, but I think what I’m hearing from you and what obviously also make sense is that a strong argument in favor of Freemium is if there is variety in the product like Dropbox and Typeform and MailChimp. So then obviously you have disadvantage off giving it into the hands of lots of users and they will lead to referrals. And so on. Then another one that you pointed out is that your costs are pretty low, so meaning the costs of supporting all these free users is not killing you, I think, and I kind of heard another one is that you are attracting the right users. So there is an upgrade path. Like even if somebody doesn’t convert within the first 30 days, 60 days he or she or the company might still convert in like years later. So you’re not attracting the wrong people because otherwise it be basically wouldn’t.
Joaquim Lecha: I wouldn’t say I like we have identified and clustered 13 different use cases and let’s say also group them in five customer segments are our customer needs and, and I wouldn’t say that every customer who comes to us or every user, free user who comes to us and organically or through viral channels and so is our ideal customer. No, it’s true that our tool is very versatile. So we have people who have actually built businesses or who have covered many different areas of information gathering in, in their company, looking outwards, looking inwards and so on. Because the product is very versatile, so it attracts a lot of users. That doesn’t mean that all of them are the ideal customer, but it was important to us to understand to have this kind of Swiss Army Knife and then it’s a decision of the company to decide, okay, let’s focus more on these. Like we are happy to have them all and not blocking any use, let’s say. But, but in any case, if we want to let’s say favor or help or give further value and therefore develop more functionality in a specific area, then it’s our choice. No. Yeah, but not all of them are ideal customer, but all of them are welcomed, of course.
Christoph Janz: … and not all of them have to be at, right. Basically when you have a free offering, you’re opening the floodgates and we’ll get lots of lots of users. Not all of them are the right ones, which is okay, as long as you can serve them at low cost and as long as you know which ones, how to identify the, like the better ones that I have. A higher propensity to pay in your sales process or a customer support or customer success process, which I think is still relatively early on for Typeform because everything is still like so much product and self service driven.
Joaquim Lecha: Yes. I mean we’ve done a lot of things but there’s everything to do still. No. So, and, and I would say that having them, having all these users is not worse than not having them know. And if some of them are, let’s say not the current definition of ideal customer today, it’s because we haven’t told them. We haven’t taught them. Like there’s 13 use cases. So people use us on average for two of these use cases. So one of the ideas that we are implementing is more personalized onboardings so you are looking for a quiz. So we are gonna help you build that quiz and give you templates and so on, but why shouldn’t you be interested in other, so we are adding personalized onboarding too across discovery, right? So that we can suggest you like other eCommerce’s do as well. You know like you like this book, why don’t you buy this book or other people who bought this book bought this book as well, so you can maybe eventually, and this is for next year when we have the experience and I can share more data about it, but maybe you can turn a non ideal customer into an ideal customer.
Christoph Janz: Yeah, yup. Right. Maybe let’s quickly talk about the K factor or viral coefficient, which is kind of like the Holy Grail of like companies with a viral loop usually, usually once with a Freemium model. Basically, if you haven’t heard about the concept, it tells you how many new users do you get from every existing users and if that number is above one, you’ll basically soon have every person on the planet in your user base. So it’s a bit theoretical, but there are a few companies like, I know a Skype, WhatsApp, … probably not that many Facebook, maybe in the early days that had a, had an a viral factor above one. I think even if it’s significantly below one, that means it can be a huge contributor to your growth. Can you maybe explain a bit how you look at that and how you try to measure it? Also knowing that a lot of the referrals actually happen not directly by somebody clicking on a link, but by somebody hearing about type from a maybe then Googling Typeform or something. So I’m, I don’t know to what extent it’s actually trackable.
Joaquim Lecha: A trackability, multi touch, first touch. All these things are relatively complex and, but to a certain extent, where we do we is we stick to what is true and then you can always assume there is a, let’s say an app site to that or something else to that. In the end. What I would say also is that beyond data, you have to fill it. It has to be, there in the business now, but going to the data, what we do is free users and the lowest price plan, which is called pro, when you create a form and share it, this form will show in a couple of places, eh, the powered by Typeform. And then people who have responded that a Typeform, some of the people who have responded that type firm, we’ll click on this and this is the initial of our viral, no. How many of this go into the a webpage? How many of these sign up? No. So we calculate it by saying how many during this week were exposed and clicked on that powered by and how many of them actually sign up and this within the next seven days since they clicked on that. So we only take seven days and we only take the powered by, which is in a couple or three places in our, let’s say forums, right? These today it’s .25 so every four people who would seat and complete respond to a form, one of them will actually do a signup. It’s quite restrictive. Yeah, we’ve been tracking this since May, 2016 so it’s not been forever. We, we’ve seen a relatively positive trend so it started at a bit lower than that. But I guess that as the company like becomes bigger and bigger and people are repeatedly exposed and then there is also let’s say a slightly bigger trend to click there and, … see what type firm can do for you know.
Christoph Janz: Can you share any of the like tactics that you’ve been using or that you are still using to increase the like the con, the various conversion rates along the funnel to put it that way, like the initial like up to activation or activation to paid or like sign up to creation and publishing of a Typeform, because I know that this has been quite a journey with lots and lots of iterations to get it to the point where it is and its up to you. How much of that you want to share here in this …
Joaquim Lecha: Yeah. So I think that that we’d have plenty of work to do in this area. Also there is a big concept like time to value, right? And we defined time to value in the following way. So basically time to value is you have created, visualize, submitted and obtain five responses for your Typeform. In this journey there is a part that we can control very well, which is the part where you actually create digitalize and share. But there is a part that we do not control well basically because we cannot help you obtain more responses. So we, if you create a quiz for lead generation for instance, which is something that do quite well to attract attention and, and you invest, let’s say $250 a month in a Google search to bring, let’s say traffic to that quiz, you can have the best form and, and the most personnel, the most, you know, conversational, the most unbranded form. And you will still get a small number of fleets, right? Depending on the cost per lead. But if you invest ten thousand fifty thousand or 100,000 a month, then you will get a lot and you will really experience the value of having that better interaction. So there is an element that we can not control, but what we do is two things. Mainly the first part is care, especially about the part that we control. Is the creating process a clear easy, are we guiding you well enough? Are we suggesting you elements, other tools you could integrate with that will give you additional value and how long does it take? No. So for instance, as I was saying like a 92% of the people who sign up, let’s say today we’ll be creating, visualizing and sharing a form in the next seven days. So that’s maybe we can still improve that and we will work for it. But that’s not bad. And in that part we try to do a as well as possible. And when we talk about value, that’s also let’s say our integrations, partnership strategies, know where we try to let’s say increase the core product value of our partner’s product, but also increase our products, core product value. And in the end the main objective is to benefit the the customer who is using our products, combination of our products. And altogether we, we give them a better experience, more volume. And so this let’s say integrations and also time to value and working through these. This is important. I myself come from the mobile gaming industry and if you download any game you can see how well thought is the onboarding process. You know, so like step by step and this funnel is very, very optimized. No, we are not like that but, but this is kind of a concept. No. How you help your customer get further and get closer to value as soon as possible.
Christoph Janz: Yeah. And how about that step that really triggers that are relative like this call to action on the form that I don’t know, millions people every year every month. See, I think this was initially like years ago, it was powered by Typeform and then a bit later it became a real CTA, like get your own type from our creative form like this, which I think was really driving the like the referrals from that page up. Is that something that you plan to continue to iterate on and did you get any like, like do people generally like it or do they, are there a lot of people who want to get rid of the Typefrom branding or maybe they’re even proud of the from branding. Can you talk a bit about that?
Joaquim Lecha: There is a certain tension in it. No, so we want to provide our customers with the possibility of really creating a truly on brand experience and that means their own brand. Also, we believe that there are so many companies in the world offering things and they need to stand out and they’re, the way to stand out is, is by being different by, by let’s say, having a different brand that stands up for, for something now. And in a way customers today, they don’t just want a one off transaction. They want to buy in, in those, you know, ideals and mission of the company represented by the brand, the brand values and so on. So in the higher end, I mean we have this three euros paid plan and then we have another one which is 70 hours a month paid plan. If you take the annual plan, it’s a 20% cheaper in the higher plan. We, we didn’t include our brand, so it’s a full, full branded experience for, for our customers. So in a way this has worked, we will continue working in, you know, like slight changes in the copy, in the position of the copy. This kind of things actually matter, you know, details matter. We will continue doing that. And, and it’s not only let’s say, I think what we, what we also experienced in going beyond the powered by is that our product and the result of our product, which is this best interaction possible, that the whole thing is like, Oh, this is Typeform. Maybe it’s not Typeform branded, but … this is Typeform no… And yes, free users create 3 million, obtain 3 million submissions a month, but paid users today they obtain around 20 million submissions, completed unique submissions a month. So some of them will not be Typeform branded, but it’s Typeform experience.
Christoph Janz: Thank you. So I think we have only 12 seconds left. So last question with a very hard answer. What’s the most hilarious Typeform that you think was ever created?
Joaquim Lecha: Oh, so people can actually become very, very creative in one Christmas time. At the Christmas time, I think it was two years ago, somebody decided to get rid of reindeers and to propose Lamas. So distributed type firms to people where you could create your own best Christmas Lama instead of a reindeer. But we have had people doing almost like Japanese classes or quizzes. And to test your knowledge about Harry Potter, or, I mean, there’s lots of very creative things.
Christoph Janz: Yeah. All right. Thank you very much. Everybody take your magic.