The Art of Converting Customers from Free to Paid and from Paid to Upgrade

Any SaaS providers offer either free or low-cost basic versions of their software. While a SaaS provider will appreciate every user, fact is, it’s best for the company to maximize the number of users on higher-priced plans. Doing so will increase revenues, which will result in more money to reinvest and ultimately more profits.

Selling to current customers is actually 4X cheaper than acquiring new customers. So if you can encourage people to ditch their free plans in favor of paid plans, and better yet, more expensive “upgrade” plans, you may be able to greatly increase your revenues.

Let’s look at just how you can do that.

1. Optimize the Sign-Up Flow

The first thing you need to do is optimize your sign-up flow. If customers have trouble checking out, they’ll be less likely to sign up for either the paid or free version of your software. While you ultimately want to get customers to sign up for the paid version of your SaaS, getting them hooked on the free edition is still a victory.

Shopping cart abandonment is a major threat for SaaS companies.

Unfortunately, shopping cart abandonment rates average nearly 80 percent, so many people are adding products and services to their cart, but aren’t pulling the trigger. One reason people abandon their cart is that the checkout process is convoluted. So you need to make it crazy simple and ideally frictionless.

You can also use the sign-up flow to promote the paid and upgrade versions of your software. Gently remind customers how much value signing up for the paid version of the software provides.

At PayKickstart, we allow our clients to use order bumps right in the cart so they can more easily monetize the checkout process. Our customers have reported a 30% increase in Average Order Value after using the order bump feature!

2. Personalize the OnBoarding Experience

You’ll stand a better chance of converting customers to paid plans if your software is “sticky”. A sticky SaaS adds a lot of value to customers and makes their job easier. Further, a sticky SaaS will be used regularly and ideally on a day-to-day basis. The more often a customer uses your SaaS, the more likely they’ll become stuck to it.

One way you can increase a product’s stickiness is to personalize the onboarding experience. Instead of just dropping a setup tutorial on your customers, sit down and figure out what their exact needs are and how they can most benefit from your products and services. Then, teach them about your product and specific features.

You’re quite likely the world’s leading expert on your own software. You know all of the features, tricks, and uses for it. Your new customers, on the other hand, won’t have nearly as much knowledge and may skip over features and uses that they would benefit from. By personalizing the onboarding experience, you can avoid this and make your product more sticky.

3. Stepping Up the Upgrade Ladder

A well thought out upgrade ladder is vital.

Many SaaS companies offer tiered pricing plans. When customers pay more, they get access to more features and value. This is often called the “value ladder” or “upgrade ladder”, and the company’s goal is to get as many people to move up the ladder as possible. Optimizing your upgrade ladder can be very effective but also requires a lot of thought.

Let’s take a deep dive into PayKickstart’s plan selection and look at how our value ladder works.

PayKickstart’s basic shopping cart starts at just $29 per month with zero percent transaction fees. This makes our cart one of the cheapest on the market (many carts charge transaction fees, which can quickly add up). However, there are some limitations. First, you can only sell 5 products with our basic plan. We also don’t provide certain marketing tools, such as our order bump feature.

For many small or new businesses, 5 products are enough. However, successful companies will often add more products as they grow. Once our customers outgrow the basic plan, they can sign up for a professional plan for $99 per month. This plan allows customers to list as many products as they want, and features many useful marketing tools, such as our powerful affiliate center.

After talking with some of our most successful clients, we realized that as companies grow even larger, they often have even more need for data. That’s why we offer a $149 premium plan that features many advanced data features, such as demographics and the ability to publish surveys.

Point is, we first figured out what our different customers needed given their size. We knew small companies would be operating on a tight budget but also recognized that they would likely only be selling a small number of products. Hence our basic plan.

We also recognized that larger companies could spend more but would need to be able to sell more products. Further, advanced marketing tools, user management, APIs, and other features could also be used to appeal to our bigger customers.

So while figuring out how to price our products, we considered how online companies grow and how their needs change. We decided to offer one very affordable plan that would appeal to emerging companies, while also offering more feature-rich plans that would appeal to larger companies. This way, we could naturally move customers up the upgrade ladder.

One of the best ways to increase the likelihood of a customer upgrading is to build it right into your pricing plan by charging per user, per contact, or per thousand dollars in revenue earned. You’re essentially just charging for the usage of the product, and the more they use it and gain from it, the more essential your product becomes to them. As they grow their business, your business grows as well.

When the feature that you’re charging on a per-usage basis becomes essential to their business growth, it’s a no-brainer and practically a “requirement” for them to upgrade and start paying you more.

4. Overcoming the Dreaded Cancellation

Even after you do all of the above, some customers are going to cancel. Don’t take it personally, cancellations are a fact of life. And some customers who sign up for a paid plan may end up ending their subscription. Instead of dwelling on lost customers, focus on the customers who stick around.

Keep in mind that companies that offer freemium signups and then try to convert customers to paid plans often report conversion rates of just 1-4 percent. So if you’re converting say a tenth of your “free” customers to paid plans, you’re actually doing fantastic.

The best practice is to be able to monitor whether or not a customer is likely to cancel or not. The easiest way to do this is to monitor if your customer is no longer using the product or service.

For the customers who ask to cancel voluntarily, it’s so important to gather more information as to “why” they want to cancel.

Below is an example of our customer cancellation system, where depending on the reason the select for canceling, we will try to overcome their objection and save the customer.

Even if the cancellation system fails to save the customer, at least you now have more information as to why the canceled. This can allow for opportunities to reactivate those canceled customers at a later date.

For example, for the customers who said the product was missing functionality, you could send them an update when new features are live.

If they found the product difficult to use, you could notify those past customers when you have improved the user experience.

If cost was an issue, you can contact them if you add or change your pricing model.

And this process leads me into my next point…

5. Listening to Your Best (and Worst) Customers

Finally, another very important thing we learned was listening to all of our customers, including our best and worst. Just as you’re among the world’s leading experts regarding your SaaS, your customers are experts when it comes to understanding their own needs.

When a customer complains, listen. Even if the complaints don’t seem legitimate at first, the customer might have a valid point. Sometimes, it can be hard to step away from your own software and see the flaws, but there’s no such thing as a perfect SaaS.

Of course, you should also listen to your best customers and especially ones who champion your product. For them, your SaaS is almost certainly very sticky and adds a lot of value. Why do these customers find so much value but others don’t?

By finding answers, you may be able to increase value for your other customers. And as you do, you can optimize onboarding, tweak your upgrade ladder, and otherwise convert more customers from free to upgrade.

So in order to understand where your product falls short and excels, make sure you listen to your best and worst customers!

Final Thoughts

While you need to increase your free to paid conversions, the best way to scale a business is to keep those paid customers and just as important, increase your expansion revenue (i.e. sell more to your existing customers with upgrades and addons).

Once you perfect that, growth in your business becomes inevitable.