One of the startups I work with uses a freemium SaaS model: visitors subscribe to their service, and some of those visitors create content. Some of those content creators become paying customers when they need a premium feature or hit a capacity limit.
Here’s the original thing I sketched up for the infographic I wanted:
Note that in this diagram, there’s a threshold for “engaged user.” That might be temporal (“has launched the app in the last five days”); or it might be a consumption metric (“has shared at least five files”); the point is that it’s a measurement of whether the prospect still cares about the thing you’re selling.
Google’s funnel flow
Even though I’d asked for this leaky bucket diagram, I still wanted something more, and I was having a hard time articulating it. I’d looked at Google Analytics’ funnel flow diagrams, which are promising—they show the various sources of traffic, and illustrate how many prospects you lose along the way—but they’re more about a visitor’s conversion than about the gradual movement, over time, towards paying customer:
Subscription-based businesses live or die by churn. The fundamental rule of SaaS is: acquire more customers than you lose. (A secondary one is: acquire them for significantly less than they give you over their lifetime.)
This is often referred to as a “leaky bucket” business model. But the bucket is a bad analogy, because each stage in a customer’s journey from initial awareness to conversion has three possibilities:
- The customer abandons the process of becoming a subscriber (what we’d call churn, or leakage)
- The customer moves forward to the next stage in the process (what we’d call conversion)
- The customer lingers in the current state, and is an asset that may convert later.
For this reason, a leaky pitcher, rather than a leaky bucket, is a better analogy—because it incorporates the flow-through of a funnel; the leakage of a bucket; and the residual value of a backlog of prospects.
A leaky pitcher diagram
What I was after was a leaky pitcher. I wanted a way to express not only flow through the process and leakage during the process, but also the pent-up value acquired within the system. If a startup shows that free users become paying users over time—as Evernote or Dropbox do—then the amount of water in the pitchers is critical.
Here’s what I came up with:
This kind of diagram also shows a SaaS business where it needs to redouble its efforts, based on where the buckets are filling up:
If there’s a lot of leakage at the top of the chain of pitchers, then users need to stick around long enough to see the offering (rather than bounce) and the call to action convincing them to try something out must be simple. That means eliminating everything that can get between a first visit and whatever behaviour you consider “engaged.”:
- If they’re going to create some content, ask yourself whether they really need to sign up first.
- If they’re going to save some files, don’t let them proceed until they’ve done so.
Of course, you have to be sure you’ve chosen the right measure of engagement; if you haven’t, you probably need to rethink what, at its core, your product or service is for. You need to be sure that the behaviour you’re encouraging is a leading, causal indicator of something valuable to your business model.
As a sidenote, I wrote another post recently on the dangers of the funnel metaphor in a world where there is a wide range of possible goals, and sources. So while we’re redefining metaphors, if buckets should be pitchers then funnels should be waterslides.