The Importance of Product-Channel Fit in Freemium
Over the past 16 months, at HubSpot, I’ve spent a lot of time working on two problems.
- “How do we scale user growth for our freemium products?”
- “How do we convert those free users into paying customers?”
There are a lot of examples of where companies adopt a freemium model, manage to scale their free user growth, but are unable to turn those users into an acceptable level of profit — Trello and Evernote are examples of companies who had that problem. But this isn’t the most common reason businesses abandon a freemium model.
The most common reason businesses pivot away from a freemium model is the inability to scale free user growth.
A good freemium funnel will convert users to paying customers at about 4%. That’s a low conversion rate and if you want to make it profitable, you need to have scale at the top of your freemium funnel. Getting that scale right is dependent on product-channel fit.
Finding Product-Channel Fit
HubSpot has grown a lot since 2006, and a lot of that growth is the result of organic traffic from Google. Frequently, this is traffic from people who are in ‘passive’ mode — these people are a good fit for our products but are not directly searching for them. Instead, they’re reading informational content on our blog or consuming our different content offers.
A reason Google works so well for us is we’re able to educate those in passive mode about our marketing product and how it can help them to grow their own business. The result is that HubSpot can generate revenue from users who are both in ‘passive’ and ‘buying’ mode, allowing us to continue scaling through Google.
But that product-channel fit breaks down when we try to apply it to our freemium CRM product. First, it’s difficult to convince people who are in a passive mode to try a new CRM, even one that’s free and easy to use. Second, there is less search traffic available for topics related to the CRM.
So our product-channel fit starts to look more like this:
When people are in buying mode for our free CRM product, our most important channels for acquiring new customers will be:
- word of mouth (measured by NPS)
- ranking for keywords where there is buying intent
- appearing on sites that aggregate software reviews for our product.
For people in passive mode we’ll attempt to convert people to another free tool where there is less friction to signup or to join our email list so we can continue to engage and provide value to them until such a time as a % of them move into buying mode. Our most important channels will be:
- attracting people through Google, but it will be for informational keywords, where people are looking for content related to their job and are not directly looking for our software.
- attracting people via social advertising.
The goal is to dominate channels where people are in active buying mode, and for those in passive mode, offer a lower-friction product or content offer.
Looking at Zapier’s Product-Channel Fit
Let’s take another example, Zapier, a product that allows you to connect two different apps easily. They have over 1 million users signed up to their platform. Their product-channel fit might look something like this:
Again, in buying mode, WOM is going to be a big driver of Zapier’s signups. That’s the advantage of having over 1 million people signed up for your product. People talk :) Like HubSpot’s marketing product, Zapier has product-channel fit that works for both users in buying and passive mode.
In buying mode Zapier can rank for content that’s relevant to people searching for integrations between two products:
Or they can rank for tool specific integrations:
Another great opportunity for Zapier is to work with partners. They could promote their product to their partners’ users who are looking for an easy way to integrate that partner’s software with other applications.
Consider how much churn there is for freemium products, I bet there are a lot of cases where that churn would look better if users connected the product to others they’re already using via Zaps.
In passive mode, much like the HubSpot marketing product, Zapier can use the same channels to convert these people into either email subscribers or new accounts. Zapier can educate people on their product and convince a percentage of these to sign-up and try it.
For example, they can create content that ranks for product specific categories in Google and within that content link across to the integrations they have available for each product mentioned.
There are also opportunities for Zapier to do a broader form of comarketing with partners to promote their new integrations to both audiences.
Now for the maybe bucket. It’s always worth considering new channels to test for user growth. Although most of a company’s growth will usually come from a couple of channels, being solely reliant on one can have pretty dire consequences. Take the example of the video sharing app Viddy, at one point it was adding 500k new users per day until a change in Facebook’s algorithm killed their entire business. They may have had product-channel fit, but they never diversified their mix to include at least another one or two channels.
The example I gave for Zapier is Youtube. ‘How to’ content performs well on the platform, and there could be potential for Zapier to tap into this. For example, let’s take Zapiers blog post on ‘project management apps’:
Looking through each of these I found a lot of videos that had thousands of views:
There could be potential to work with users who are creating content on software that Zapier supports to give an overview of the different integrations available for that software and how users could benefit from them.
Making This Work For You
The earlier you consider product-channel fit, the better. The earlier you consider how your product will perform for people in ‘buying’ and ‘passive’ mode the better. Ideally, you should be thinking about product-channel fit as you’re building your product.
Product-channel fit should influence your product development roadmap. You’ll want to prioritize certain features that will help you generate users from a certain channel.
For example, RapGenius launched at a time when there was a lot of competition for searches around different song lyrics on Google. They added features that helped them to dominate this space and quickly scale their user growth. One of those ways involved allowing users to signup for an account and add commentary on what different lyrics meant. It helped to make RapGenius’s content a lot richer than competitors and in turn helped their pages to rank higher in Google.
It’s certainly something that can affect your go to market decisions. Having a product that doesn’t perform well in the ‘passive’ space will mean a higher cost of acquisition as you’ll need to dominate the space for a smaller group of people (those in ‘buying’ mode).
It’s Worth It
Spending time on identifying your product-channel fit can be a really valuable exercise, particularly for new products that you’re bringing to market.
Lack of Product-Channel fit is one of the main reasons your freemium model will fail.
It’s something you should consider when deciding on your go to market, and could save you a lot of future pain in pivoting away from a freemium funnel.
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I hope you found this article beneficial. If you have thoughts or feedback, I would love to hear it in the comments section.
