Much SaaSian ink has been spilled on listing the merits and demerits of freemium, on assessing its grand successes and its glaring failures. Yet, as with other new and complicated subjects, the unknowns haven’t entirely let up.

It’s one thing to learn that a free edition is worth experimenting with, quite another to figure out what goes into it.

One thing to admit that all teams must, in the end, enable the product, painstakingly another to arrive at an org structure that facilitates that.

What we’re left (or blessed?) with, though, unlike other domains where people deal with new and complicated subjects, is a community that never lets up.

Different SaaS teams insistent on learning better with a steady drip of inquiries and on returning to share their results. Taking particularly different paths to arrive at, not universal answers, but something profoundly better — questions that can help others reframe and reconstruct their own paths to answers.

HubSpot’s is (and has long been) one such team.

And Kieran Flanagan, their VP of Marketing, who also owns their product-led funnel, is perhaps one of the most ardent inquirers of the quarks and neutrinos that make freemium work.

In this conversation, he talks about:

Here goes:

Q: Tell us about the origins of freemium at HubSpot.

Kieran: So HubSpot was a company that had a marketing product and we went to market through inbound marketing where we generated leads, qualified those leads through marketing automation, had MQLs, and this was really successful.

And when we wanted to launch CRM and then sales products there’s a couple of reasons why Freemium seemed like a good option.

First of all, there’s this belief within HubSpot, one of the things, the founders are very good at, is spotting trends. Spotting the ways in which people change. Because the reason inbound marketing was so successful was because the way that people wanted to buy online kind of changed.

They wanted to do more of the research themselves. And if you go to, Google Trends and look at, even just type in “how-to,” it’s pretty interesting just to see the trend for people searching how-to, as more and more people self-educate. I think that’s why inbound marketing works so well.

And the other trend we started to see was, if you drive that forward the way that people wanted to try and use software, it’s going to be more like B2C2B2B.

Like people wanted to feel in control of the purchase path and that means actually consuming the stuff for themselves. Extracting some value to see if it’s right for them. And, then, deciding to pay you money once they’ve made that decision.

And the other reason we thought that Freemium was a good option for a CRM, is because when you go into different markets, there’s different ways you can go to market. And in a saturated market where there’s a lot of competition and CRM is like one of those markets. One of the ways you can differentiate yourself is by the way you give the product to that market.

There are very few companies doing Freemium. So it’s a really good disruptor. You can kind of disrupt the market by doing something new. And create a lot of attention within that market.

So those two things combined.

The fact that we feel that the user behavior is going to change over time, more people are going to be comfortable with trying your software for free, upgrading for free, and then interacting with you, in terms of how they want to interact with you that could be via phone, via live chat, via email.

And then the other trend that we were going into a saturated market, so the disruptive model was good for us. We had an entirely new go-to-market within that space, none of the competitors were trying to do it. You start to see that some of those have started to add freemium as an option. I think that’s when you know, you’ve kind of made an impact.

Indeed, knowing where the market’s at is so important. An example that I share internally a lot is that whenever people associate HubSpot and “Inbound” together, it’s that they didn’t magically arrive at this singular thing.

They’d seen, not just this one big wave but multiple sub-waves like blogging, internet marketing, and social media marketing, which were rising during the mid-to-late 2000s, and HubSpot recognized that “Inbound” served as a fine umbrella for all of them.

And freemium is a natural fit with inbound because the philosophy behind inbound is that people want to buy products on their own terms. That means researching your products. Interacting with you, how they buy the product. I think that’s what freemium allows people to do.

It puts more of that purchase experience within the consumer’s control. So they’re controlling more of that experience themselves. And what we’ve noticed is that when people self-educate through the product and self-qualify through the product, they actually convert into customers at a far higher rate than if they had just downloaded content or even spoken to our sales reps.

So what we saw was, if we reached out to someone who had downloaded our content, talking about the product, versus someone just going through the product motion themselves using the free product that they would actually close at a far higher rate by qualifying themselves. Not even having that sales-person needing to do that qualification part.

So the sales conversation changes in freemium, in that, it’s more of a consulting sale, in that, that person already knows your product, has already experienced the product.

All you’re trying to do is make sure it fits the questions they may have, and help them get set up and help them be more successful. We are not having to explain to them the value of it. Because you have user onboarding to that job for you.

Given that this model remains something that a lot of people want to get trying at least and understand how all its components work, I feel there’s a lot of attention being paid to how free-to-paid conversions work, not enough to what actually goes into making a free product, distinguishing what is free and what is paid, how have you tackled those questions?

I think there are two parts to that.

If I was a company today and I was thinking through what would make me choose freemium, it’s part of what we discussed which is, you would want to assess how that fits within the market. Because there are certain products, and certain marketplaces where if you build a freemium product, it would be a mismatch with how your consumers want to buy your tool.

So it’s just that certain products do not fit freemium. As the way the consumers want to buy that product is through talking to you, or through a demo, so you have to have really good knowledge of your consumers and try to figure out if this go-to-market fit for the way people want to purchase your product.

The other thing that we think about at HubSpot is that we’re kind of committed to freemium. Which means you should be able to experience all of our tools, to some degree, before you have to pay us money.

So what we kind of really, implemented is a trigger based upgrade. What we call a PQL. Which is that all of our tools, in some ways you can use for free, between the free and the starter tier. And the only difference would be you’ll have limitations on how much you can use a feature within the freemium product.

So when we’re trying to think through how is this a good free feature, it’s more around what amount of this feature should we give away for free.

So that the user can get some amount of value, and then, what amount should we start to put in the starter package versus the package just above free, that will cause those people to upgrade. And so we have a good way to qualify those people and see that they are a better fit for the next tier.

I think that most of the features that we put into free, have limitations on them. And that’s more around “what is the limitation” versus “is this a good feature for free or not?”

And you have different monikers for identifying the different kinds of triggers that lead to those PQLs.

Yes, when we first started building this out, we had a couple of types of PQLs. We had trigger based PQLs which is, “hey, you can use this feature for a certain amount of time,” and then after that you had to pay some amount of money to get the rest of it.

We had locked PQLs, which is when you went into the platform you would see certain features with a locked symbol. When you clicked them, you’d get to a landing page within the app, so you had to actually slide upward, talk to a salesperson to upgrade to unlock those features.

And then we had these things called product-usage based PQLs, and they came about when we had the right demographics and the right usage, like your product usage would suggest you had a good fit for one of the paid products, we would connect you to a salesperson even if you hadn’t triggered one of the other PQLs.

What we’ve done over time is, actually gone towards what we call, like today we have evolved this model, and we have this one time which is hand-raisers.

And hand-raisers are basically, you’ve hit a trigger and you can raise your hand through a live chat to connect with a sales rep. The way you do that is that you can click a button and their calendar will appear in the app, and you can book time on the calendar to talk about the next package you’re interested in.

And that’s kind of where we’ve simplified that model. And everything within the app is like how do we create more hand-raisers, people reaching out to us to talk about upgrading to our paid packages which for a business is a great position to be in, right? You’re not having to consistently reach out to other people.

Great. For those who understand that a market is over-served, just like the CRM market and see that it’s possible for them to get a sizable group that’s keen on the same functionalities but not all of them.

Would you, then go and look at competitors and say, I’m going to make these key features free and somehow pick a few features that are paid. How do you think these calculations would come about, how do user research and competitive research work together when you’re making such decisions?

I think that’s a great question because it’s really complicated to decide on those things. You could go into a market and you could be really aggressive and say “within my competitors what is the feature that most users find value from and I can commoditize that feature by giving that away for free.”

However, the trouble with doing that is that maybe you’d never earn money. Because that’s the one thing the users want and you’re just giving it for free, and hoping to get them to upgrade.

And a really good example of that I always use, probably should stop using because I feel bad but if you think about an Evernote user or if you’ve ever met a typical Evernote user.

Evernote’s a typical example of a company that commoditized a paid experience into freemium. Like they just gave away this entire application that allowed you to store all this notes and do all these cool things. And they gave away so much for free that it was very difficult for anyone to know why they should upgrade to a paid plan.

Most Evernote users you meet are using it free. And they actually say “why would I upgrade if I don’t even know if they have a paid plan, or what’s in their paid plan.”

And they’ve got better over time, but that’s a good example of a company that really gave away too much for free. And then it’s been really difficult for them to monetize. Because once you give away so much for free, it’s actually hard then to ever charge for it.

So Evernote tried to charge for storage, something they used to give away for free, and they got a huge backlash from the community.

So if I was going into a new market, and I was thinking about freemium, I would think about what is the most value I could give away that would allow users to see some amount of value with the freemium product, that would make it shareable to their colleagues.

Like it’s value enough that I would tell another person at work about it or I would tell someone in my network about it. But it’s not so valuable that I have no reason to upgrade.

You really need to nail your monetization points. And be very clear on what is the value in the paid tier. And that the free users will encounter that kind of barrier at some point, that they will kind of be forced to upgrade to get that next kind of tier of value.

This has all been done.

So there are so many great examples of companies that have done this. Like Dropbox, I know, we always talk about the same examples. But their model is so clean, in that, you get some amount of free storage, and for more free storage you have to upgrade.

And there value is the storage, so if we can be really clear about what is the value for free users. Is it a value that’s shareable. And that a good portion of users will use the product to an extent that they’ll be forced to upgrade, that’s the thing that you have to think through.

In terms like, how do you establish that, there are actual models to figure out what your users are actually ready to pay for. The nearest name for me, Brian Balfour on his Reforge program, he probably have some on his blog. The Westendorp survey that you can do and survey your users.

We did this in HubSpot to try to figure out what would they expect to be in the free package, what would they expect to be in the paid package, and then you can kind of maneuver some of those things into the free package that they will expect to pay for, to delight your audience.

But you have to be really careful not to move the core value of your product into free or you’ll end up like Evernote.

Also, there’s something to be said about how complex a product is, so, say, with Dropbox and the simple value metric that they had, compared to a CRM or a product like Chargebee, where things tend to be more complex, arriving at a value metric and knowing what’s valuable enough for a team at a certain stage takes a little longer.

That’s a really good point that freemium suits products where there is low time-to-value. And when the time to value is longer, it’s difficult then to upgrade people.

And so we have a central growth team within product. And that team constantly tries to figure out how to onboard people onto these things we call ’wow moments.’

And that’s just the concept of, that many understand, as to why something is valuable to a user. And so that’s an obsession. That’s an obsession for any freemium company.

Because that’s basically your sales…when someone onboards themselves because of a ‘wow moment’ and receives further value of your product, that’s the equivalent of a sales person being on a call with your prospect and show them like three or four things your prospect really wanted to hear which would cause them to upgrade, right?

That’s the equivalent of what you’re trying to do in onboarding. You’re trying to understand what their core reasons for wanting to use your product are and show them as things as soon as possible.

They’re called different things in different companies. We call them the ‘wow moments.’ But they’re really your value prop and that’s what most freemium companies try to do within their user onboarding.

And what kinds of surprises have you had as you’ve thought about onboarding for three very different and complex B2B SaaS products?

That’s a great question. I think that the complicated thing for us is that we have multiple personas and within those personas there are multiple versions of those personas.

So let me give you an example. When you think about “hey I’m going to build a free CRM and going to create an onboarding experience for sales people.” And you’re like, “oh, that makes sense, because mostly sales people use CRM.”

What you probably don’t think about is that within that sales realm there are sales managers and sales reps, and their relationship with the CRM is very, very different.

A sales rep generally does not like CRM. It actually impacts the flow of their work, and they just want to figure out how they can spend as little time in the CRM as possible, because it really annoys them, frustrates them.

The sales managers want to use the CRM because they want to get better reporting, more efficiently manage their team, understand where are the weak points in a team, and forecast how they can better like coach the team through the data they’re collecting in a CRM.

Now that you have broken it out into sales reps and sales managers. Then you have reps who have used a CRM before and not used a CRM before. Then we have a Sales manager who has used a CRM before and not used a CRM before. And their experience of the CRM is different again.

Because if someone has never used a CRM, it’s not going to work if I say, “we have this feature just like other CRMs, we have this feature better than other CRMs,” as they have no concept of what I’m talking about, because they’ve used spreadsheets before.

So that’s the thing that, not that’s it surprised me, but has really woken me up to how complicated it is to do user onboarding for multiple categories of people where we have all of these different personas.

And those personas can again be broken out based upon the experiences they have or experiences they don’t have. And so it’s complicated.

Not that it was surprising, maybe it was surprising, I think when I first started out, I was like, “we will do some cool onboarding, we’ll see all this cool stuff happen with activation.”

And then you don’t realize how difficult it is to replace humans usually talking to these people, talking them through on a call, and talking about, ‘hey this is a thing you want from the product. Well, here it is, here it is.”

Trying to replicate that through a touch-less onboarding is very, very complicated.

And it’s complicated for us because we have a product that is not a point solution, where there is one clear thing you go in for, and we can just onboard you onto that thing and there’s a short time-to-value.

Like we’re a CRM and a marketing product and a sales product and a customer success product. Within those products there are individual features, like Live Chat and Free Forms. So you’re kind of like trying to make sure that “hey, does this person want free forms, or they want our live chat or they want our contact management?”

So it’s not easy. But I think we’ve gotten a lot more knowledgeable and better over the course of doing this for the past three years.

Further reading:

Product is the Future of Growth – Here’s Why

How to Build Product Driven Growth

The Best Way to Win the Freemium Model Is by Challenging the Very Model Itself

Freemium Model for SaaS – The Good, The Bad, and The In-between

Easy Guide: How To Run A Van Westendorp Pricing Analysis