The freemium model relies on enough users paying for premium services to meet the cost of servicing all users, including those who use take the free option. One of the key metrics for a freemium service is conversion rate from free to premium.
Toni Schneider notes that this rate is about 2% for WordPress.com, for Box.net, for Evernote, and for many other freemium services. He wonders if there is some kind of “2% rule” at work.
Conversion rate, in this broader sense, is the percentage of users taking a particular action. Hence a firm’s funnel has multiple conversion rates/actions as it narrows. A freemium service using funnel analysis would probably define a payment action, marking the transition from a free user to a premium customer.
Funnels can be transparent: a firm can publish its conversion rates. Funnels could be aggregated: Mixpanel could, with the cooperation of its client firms, publish aggregate data on various conversion rates. It could make it worth the clients’ while by, for example, offering early or deep looks at the aggregated data.