Freemium at Scale with Typeform CEO Joaquim Lecha and Point Nine Managing Partner Christoph Janz

All right, good afternoon everybody. Thank you so much to the Saastr team for organizing this conference, and thank you to Kim for joining me on this session.

Not at all, my pleasure.

So really quick, I'm Christoph Jans, one of the partners at Point Nine Capital. We're an early-stage VC mostly focused on SaaS all over Europe and beyond. And Kim is the CEO 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.

Yes, so thank you, Christoph. Typeform 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 code and without any, let's say, true design education.

Yeah, yeah, thank you. So let's talk freemium. As we 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 Typeform funnel. So maybe you can walk us a 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?

Yeah, so good, let's start. So at the top of the funnel, let's say, reaching our web pages, we have 1.7 million people on a monthly basis, new unique visitors. 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 these people will create and visualize and share a Typeform. And also out of the 190,000 that sign up, around 3% will actually move on to a paid plan. The interesting maybe behavior also is that the creation of the form, the visualization of the 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 2 weeks, 80% during the first 4 weeks, but the remaining 20% can take up to, let's say, week 48, so there is a long, long tail.

And is that the main reason why Typeform has a free, basically an 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?

There are 3 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 let's say reactivate and also upsell. In regards to brand awareness, so right now, like in May, 200— almost 20,000 free users created a forum. And that is basically 1.3, 1.4 forms per— 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? Also, still nowadays, and we are like 5 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 knew our brand. 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 form, 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 around 3%, and this these customers converted 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 has plenty of advantages, to be honest. Finally, in terms of customer feedback, I mean, there, there was a The basic motivation for David and Robert, the two co-founders, to create Typeform was that they thought there was a better way of creating more human interactions, more conversational. Like, they were looking at these existing forms as the online version of lifeless paper forms. So they are kind of very proud of the product, and from the start, they wanted people to try it. Nowadays, 70% of the customer tickets come from free users, and we treat these as golden nuggets, no? So they suggest new things, they encourage us, and they also complain about things. It is important to have, let's say, a lot of people trying your product and telling you how you can improve it.

So 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— seems to be giving Typeform so much useful feedback.

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, mostly it's CS cost. We can also have a bit of server IT-related costs as well. To serve the free users. But currently, on a monthly basis, it's around $130,000, which is like 7%, 8% of our total monthly cost. So it's OK for us. It's not that much. And the positives is, again, this lots of feedback. In addition to that, like, All these forms, I mean, at the beginning, this changes actually, you 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. By letting people use it, you can observe what they do, what things to be useful for them, no? So again, having free users, there has a cost. It has a cost. But on the other hand, 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, no? This type of form for 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 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 behavioral analysis, no, of data analysis of their behaviors is, is so valuable. Yeah, we think.

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. Like, do you 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?

There's a lot of science that we still haven't applied to this. I think this is becoming more and more important in, let's say, in the next stage. So I would say that in the first stage, like zero ARR to maybe $5 million, you want to get the product out. You want to know a lot about the users and the feedback of these customers. And then when you are maybe beyond $5 or beyond 10, you start to enjoy 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 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 obtain this value and that they can upgrade and pay this price and have a nice gap in between. So 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. So other companies, how many of their total registered users in Dropbox or in Spotify are currently customers? 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 something we have to really do.

I don't 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 makes sense, is that a strong argument in favor of freemium is if there is a virality in the, in the product, like Dropbox and Typeform and Mailchimp. So then obviously you have this advantage of 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 COCs are pretty low, so meaning the costs of supporting all these free users is not killing you. I think you can— 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 basically wouldn't—

I wouldn't say— like, we have identified and clustered 13 different use cases and let's say also group them in 5 customer segments or customer needs and And I wouldn't say that every customer who comes to us, or every user, free user, who comes to us 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 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, OK, let's focus more on these. We are happy to have them all and not blocking any use, let's say. 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. But not all of them are the ideal customer, but all of them are welcome, of course.

And not all of them have to be, right? Basically, when you have a free Offering, you're opening the floodgates. You will 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 them, like the better ones that I have a higher propensity to pay in your sales process or 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?

Yes. I mean, we've done a lot of things, but there's everything to do still, no? So, and I would say that having them, having all these users is not worse than not having them, no? 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 2 of these use cases. So one of the ideas that we are implementing is more personalized onboardings. So you're 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 to cross-discovery, right? So that we can suggest you, like other e-commerces do as well, no? 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.

Yeah, yeah, right. Maybe let's quickly talk about the K-factor or viral coefficient, which is kind of like the holy grail of, of like, like companies with a viral loop, usually ones 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 user. And if that number is above 1, 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 don't know, Skype, WhatsApp— probably not that many— Facebook maybe in the early days that had, had a viral factor above 1. I think even if it's significantly below 1, it 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