Provide a free upgrade to a higher tier to reduce SaaS churn
Upgrading customer’s plans and moving them to a better plan without increasing price is an awesome technique to reduce churn, increase engagement, and retain customers.
How to use the technique
- Develop a strategy with clear goals. Why exactly you need to offer free upgrades? Is it for engagement, brand awareness, loyalty, churn reduction, future cashflow, etc.? Better conduct a survey and ask existing customers as to what they expect. Read our free churn optimization framework on how to conduct research.
- Select customers for the free upgrade based on a set criterion. For example, engagement, in-app activity, usage level, volume, etc. Use health score and pick customers with the highest or lowest health score.
- Share details via an email. Explain the free upgrade, the benefits it comes with, the duration of the upgrade, and what you expect them to do next (try certain features).
- Help them get more value from the free upgrade. Share tutorials and help guides to help them get value from the upgrade quickly. Assign an account manager for assistance. This works best for retention.
- Let customers use the upgraded plan for some time. The free upgrade should last for a few good months so that customers can get value from the upgrade. Three months is a good time for the free upgrade.
- Track performance. Are customers using features of the upgrade? Are they enjoying it? Are customers getting used to free upgrade? Have you separated free-riders from real customers? Make them used to the upgrade. Read our free churn optimization framework to find out more on how to do it practically.
Mistakes to avoid
- Not setting clear rules. Without rules, free upgrades can backfire. If there is a duration for the free upgrade, clearly communicate it. Don’t hide anything. Give customers a freehand.
- Degradation without prior intimation. If the plan will be downgraded after a few months and you already communicated it, send multiple reminders prior to degradation. The idea is to let customers switch permanently to the new plan.
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Valarie Zeithaml published an article in the Journal of Marketing on consumer’s perceptions of price, quality, and value of a product. It was found that consumers consider price, quality, and value in the exact same order when making a purchase decision. Price is the first thing that a consumer will give importance to over quality and value. Even if a customer perceives a product to be of high quality and value, the high perceived price will prove to be a barrier.
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