👋 Hey, I’m Lenny and welcome to a 🔒 subscriber-only edition 🔒 of my weekly newsletter. Each week I tackle reader questions about building product, driving growth, and accelerating your career.

Q: What is considered a good free-to-paid conversion rate?

Getting this benchmarking data is difficult because very few companies publish their conversion rates, and metrics can look wildly different depending on the target customer, product experience, and sales motion. At the same time, improving your free-to-paid conversion rate is one of the single best ways to increase revenue without adding headcount or marketing spend.

To get you a definitive answer, I partnered with Kyle Poyar from OpenView Ventures and the excellent Growth Unhinged newsletter, and the wonderful team at Pendo, to run the most in-depth product benchmarking survey ever. We collected data from 1,000+ products, and from that pulled out a host of fascinating takeaways, including:

1. Good and great conversion rate by product type

2. The most effective ways to increase your free-to-paid conversion

3. The differences between freemium vs. trial products

4. Pricing and packaging tips

5. Much more

You can check out the full report here. The data set focused on B2B SaaS, but we ended up with data for prosumers/micro-SMBs all the way up to large enterprises. We tried to look at conversion from every possible angle, but if we missed something, drop a comment and we’ll update the post with additional learnings.

1. What exactly is “free-to-paid conversion”?

Your free-to-paid conversion is the percentage of new accounts who end up paying for the product in the first 6 months.

Free-to-paid conversion = [new accounts who begin paying within their first 6 months] / [total new accounts created during the measurement window]

The best practice is to measure free-to-paid conversion on a cohort basis, looking at the percentage of new accounts who begin paying within their first X number of months. Without looking at conversion on a cohort basis, it’s impossible to tell whether you’re getting sequentially better or just pulling forward conversion that would naturally happen over time. Our data assumes a six-month conversion window.

An account could be made up of a single user or a collection of users. We’ve defined the data at an account level. Of course, the lifetime value of the two audiences might differ significantly. Make sure to monitor conversion rates across different audiences and not only the blended rate.

2. What is a good and great free-to-paid conversion rate?

On average, 3%-5% is a GOOD conversion rate for a freemium self-serve product, and 6%-8% is GREAT. This group includes products like Canva, Trello, and Typeform.

For a freemium product with a sales-assist motion, 5%-7% is a GOOD conversion and 10%-15% is GREAT. Examples of freemium products with a sales-assist motion include Airtable, GitLab, and HubSpot—any products where sales is generally involved in closing new customers.

Products that offer a free trial (i.e. you can use all of the features for a set amount of time, like Shopify, Google Workspace, and Intercom) have higher conversion rates on average—GOOD is 8%-12% conversion, and 15%-25% is GREAT. 

My theory for why free trial products are so much higher is that these products are typically attracting a user that’s more ready to buy, which then makes them more innately ripe for sales involvement. Sign-up rates for free-trial products are materially lower than for freemium products (5% vs. 9%, respectively). There’s time pressure in a free trial—since users can access it for only a short period of time—and so people wait to sign up until they’re serious. As a result, it’s common for free-trial products to have sales involved in most or all cases. Nearly half of free-trial companies (44%) have sales reach out directly to more than half of sign-ups, double the rate of freemium SaaS (24%).

3. What is a good free-to-paid conversion for my specific type of product?

The numbers above are useful, but they don’t tell the full story. Free-to-paid conversion rates vary substantially from company to company and by product type. It’s not uncommon for one freemium business to see free-to-paid conversion rates below 1%, while another is able to get to closer to 20%.

Here’s what we saw in the data for freemium products:

1. A fifth (20%) of products see a free-to-paid conversion rate below 2.5%

2. About a third (33%) see between 2.5% and 5%—and this is the biggest bucket

3. Only about 15% see a conversation rate higher than 20% (not pictured).

For free-trial products:

1. Only 7% of free-trial products see a free-to-paid conversion rate below 2.5%

2. A quarter (~24%) of products see a conversion rate between 7.5% and 10%—the most common bucket

3. 14% of products see a free-to-paid conversion rate as high as 20%

Looking at the data by customer type is also illuminating. A few takeaways:

1. If you’re selling to larger customers, plan for lower free-to-paid conversion. Bigger companies tend to have more stakeholders involved in the buying process and more complex requirements. (There’s also the potential for bigger deal sizes, compensating for the lower conversion rates.) 

2. It’s a truism that developers are a tough crowd to sell to—and the data supports that intuition. The median conversion rate for developer-focused companies was 5%; this was half that of companies that do not sell to developers.

3. We investigated conversion rates based on a long list of other factors, too. The data did not indicate statistically significant differences based on the revenue of the company, year-over-year growth rate, or whether the product was a horizontal app or vertical-specific app.

4. How do I increase my free-to-paid conversion?

Regardless of how your product stacks up, you’re probably thinking the same thing: what should I do to increase conversion? We observed four specific behaviors that can move the needle on free-to-paid conversion...