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Who doesn’t love free stuff? The practice of giving away a sample for free is a popular tactic that’s often used to introduce new customers to a product or service. But there are pros and cons to these “freemium” offers. TSIA researched how freemium offers perform for technology and services organizations, and we uncovered strategies to help you succeed with freemium offers.

The Basics of Freemium

Freemium is a free offering of software, support, or services that companies provide to lure in customers with the hope and intent of converting them from free to fee. Freemium is not a new concept and has been around for several decades.

In the B2B sales model, there are many forms of free trial offerings. They can range from technology companies offering a limited (freemium) version of their software application to a full version of an application, for a limited time.

If the application has a low level of technical difficulty, then typically the offering provides enough capability to demonstrate the partial value but may fall short of giving 100% of the desired outcome. The hope is that the end-user(s) will upgrade from the free version to the fee version.

Another type of freemium offering is one with a higher level of difficulty that will be offered for free with the hope that the customer will pay for short-term or long-term training, technical consulting, and/or business consulting.

In light of the economic challenges introduced by the global pandemic of 2020, many technology companies are leveraging freemium as a value-added marketing and sales vehicle to help increase their pipeline of prospects of new customer logo acquisitions.

When freemium is executed and managed well, customers are introduced to the supplier’s technology, methodology, best practices, and alerted to how they will be supported as customers. This insider view can help the freemium customer decide if they want to be a customer to the technology supplier.

Bite-Sized Research Insights

At the beginning of January 2021, TSIA launched a freemium quick poll survey to glean key information about freemium and the role customer success plays in supporting freemium customers. The freemium research revealed that 55% of technology suppliers are now invested in providing freemium offerings.

When the data surpasses 50%, TSIA considers it a common trend. So the efforts of the industry to create a freemium offering demonstrate a strong signal to the market that freemium investments and offerings are a common effort worthy of investments.

However, while corporate investments in freemium are being made in technology and architecture, the research data reveals clearly that investments in organizational structure and execution are lacking.

Over- and Under-Investments of Freemium

Companies must be ever mindful of the saying “that which is given away for free is perceived to have little to no value.” When creating value in a freemium offering, there has to be the right balance that the customer can get some value but not enough that the entire engagement is free. If everything is free, then that sets an expectation.

When there is not the right balance of value and fee or free, the conversion rates from free to fee reflect it. For instance, the vast majority of freemium offerings have a poor conversion rate. 61% of the industry surveyed had a success rate of converting less than 15% of freemium customers.

Additionally, when asked about conversion rates, many organizations reached back and asked TSIA to consider lowering the 0-15% scale into multiple categories that would scale even lower to reflect a smaller conversion rate. The reduced rate sends a signal to the industry revealing many areas that require improvements.

First, the investments in freemium can be sizable and significant for some organizations but can be very inexpensive and cost-effective for other organizations since freemium ranges the scale from B2B and B2C company offerings.

For many organizations, their investments reveal they are under-invested when conversion rates are this low. If one were to look at the customer touch to conversion ratio, there is a strong likelihood that the customer engagement is digital and potentially lacking the right human touch balance that could transform the customer experience to support conversion to a paid service.

In other instances, the human touch experience with the freemium customer can be significant enough that there is no reason to convert to pay for something when the value is received for free. Many possibilities are prompting such a poor conversion rate from free to fee but the overwhelming truth is a predominance of a lack of organizational structure.

Lacking Charters of Freemium Ownership

The data from the TSIA freemium quick poll reveals that charters of organizational ownership have not been established. The majority of Customer Success organizations have one or more charters which include adoption, expansion, and retention.

Currently, the charter of adoption is the largest and most common charter across customer success at 84%. With the motions of adoption come some basic efforts and activities associated with an adoption framework.

There are two perspectives of the motions of adoption that include the external perspective, which is the customer’s point of view, and the internal perspective, which is the technology suppliers' point of view. Technology suppliers are eager to get their freemium offering to the market but the structure of ownership and execution in the majority of the industry has not been well defined.

On one hand, the technology supplier wants to secure an income stream from the customer leveraging the freemium offering and the focus is primarily conversion from free to fee. However, that conversion is a lagging indicator that is predicated on the customer receiving a measurable amount of value from the technology supplier which could be in the form of adoption by consumption or adoption by the outcome. In either case, when the value the customer perceived is not received, the likelihood of conversion is significantly diminished.

In a Nutshell

The technology providers of the freemium and trial SaaS industry are desperately looking for freemium order, structure, best practices, and recommendations on how to properly manage freemium customers. Ownership, structure, order, frameworks, and best practices that are established and known in Customer Success are not being applied when engaging freemium customers.

TSIA will be providing a research paper in the spring of 2021 which will go into more detail about the research conducted and subsequent strategies to help provide structure for the freemium models going forward.

Learn More at TSIA Interact

Explore more Customer Success topics like this at the TSIA Interact virtual conference, taking place May 4-6, 2021. Join your colleagues as we dive deep into trends and innovations in Customer Success and the technology and services industries. Register today.

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Stephen Fulkerson

About Author Stephen Fulkerson

Stephen Fulkerson is the vice president of customer success research for TSIA. Prior to joining TSIA, he served as the vice president of customer success at both Upland Software and Alert Logic. Stephen has over 25+ years of experience working in technology companies and has been a leader in professional services, technical account management, and business development for APAC and LATAM operations. Stephen started his career in Customer Success in 2004 and he has spent the bulk of his technical career-building Customer Success organizations and finds this work the most rewarding for both serving the customer and the company.

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