What percentage of free users converting to paid is considered “good” for a SaaS freemium model, and how can we tell if our conversion rate is healthy or if our pricing might be a barrier?

Based on our pricing strategy book, Price to Scale, there isn’t a one‐size‐fits‐all conversion percentage because what’s “good” is highly context dependent. However, here are several guiding points to help you assess your freemium model’s health:

• Industry Benchmarks as a Starting Point
While some SaaS companies see around 2–5% conversion from free to paid, our book emphasizes that these figures should only serve as a rough baseline. Your “good” conversion rate depends on your cost structure, customer acquisition costs, and overall lifecycle value.

• Understanding Your Unique Model
Price to Scale stresses that models must be simple, measurable, and scalable. If your pricing and product metrics aren’t clearly communicated (for example, if the value proposition isn’t obvious on a single slide), it can be a barrier. A lower-than-expected conversion rate might signal that your paid plans aren’t compelling enough relative to your free offerings or that the transition isn’t clearly justified in terms of value.

• Diagnosing Pricing Barriers
Consider these practical diagnostics:
– Analyze engagement patterns: Are users using features that hint at the untapped value of your paid plan?
– Compare your free-to-paid conversion costs against the revenue you earn from paying customers. If acquisition or maintenance costs are too high, it might indicate that either the free product is too generous or the premium features aren’t differentiated enough.
– Benchmark against competitors, but adjust those figures based on your market segment and the specific value you provide.

• Taking Action
If the conversion rate appears lower than expected, run controlled tests—both within your product (e.g., tweaking feature accessibility or on-boarding flows) and with pricing itself—to determine which elements might be acting as a barrier. Price to Scale encourages you to think about "marginal cost" as well as average cost, which can help reveal whether more aggressive pricing strategies or adjustments to the freemium offering could stimulate higher conversion.

In summary, while 2–5% might be a common starting benchmark, the health of your conversion rate is best gauged by how well it aligns with your overall cost structure, value proposition, and growth strategy, as detailed throughout Price to Scale. Regularly testing and refining both your product's free features and its premium value is key to ensuring that your pricing meets both market demand and strategic business goals.