What Are Good Conversion Rate Benchmarks For A Digital Product?
Every app has a different goal: for some, it’s to entertain while others sell physical products or a subscription to some service – understanding performance and impact against conversion rate benchmarks tells businesses if users are “buying what you’re selling.” It could be Kitten Mittens or something useful, like a patient portal for a healthcare business, or a spin on HBO Max that doesn’t require you to force quit every time the app freezes.
Digital products generate all kinds of data where app conversion rates tell businesses what works with their users and what doesn’t. Conversion metrics tell you what pushes your users forward to complete some goal like making a purchase or even signing up for a free account.
For example, YouTube Premium provides a valuable service by removing ads and allowing the app to run in the background. Even though around a quarter of the world uses YouTube, only 20 million pay for a premium subscription. With Zoom, you get unlimited conference calls for the low price of free but the catch is that you’re limited to 30 minutes at a time. Slack, a tool we rely upon here, has an excellent free product but it becomes immensely more valuable by unlocking new features and improving existing ones such as unlimited message history – this is useful when you have to recall something that was discussed on a Thursday morning two and a half months ago. Dangling the carrot of more integrations and core features clearly works for some 142,000 of Slack’s 10 million-plus active users pay for premium service as of 2021.
No matter how well you search the web, you won’t find a direct answer that states “if you provide X product or service, you should get Y conversion” because of the multitude of factors in play for any given app. And if you do, it’s total BS. So throughout the following, we’ll explain the main component of conversion then look at a few examples to help put the performance of other popular services into perspective.
Growth is the main ingredient
Digital product conversion is a composite of a couple of different factors and the first is your audience. As your potential userbase grows, the conversion rate will usually change but it’s heavily dependent on the demographics and their actual behavior.
In some cases, your audience might expand to include more of the same “kind” of users which is common when apps gain popularity through word of mouth, rankings improve organically in app stores, and when marketing departments simply get “louder” with an existing campaign.
Other times, an app might grow to support a new feature that has the potential to appeal to not only existing users but expand the overall audience. This can convert existing users who have yet to fully subscribe which is common in freemium apps or this can open appeal to new groups who will spend differently than your existing users causing the overall conversion percentage to “jump” up or down.
Conversion can shoot up when you start to gain users who are more likely to spend as well as plummet when you successfully capture the attention of larger groups that are less likely to fully convert. For example, in one scenario, you could land 100K users who will spend an average of $20 a year – this group needs to be “sold” on an idea so marketing costs (i.e. your customer acquisition cost or CAC) come out to $10 per customer. In another scenario, you could land 1 million users who will spend an average of $2 per year but with a much lower investment at only $1 per person.
In both situations, the net earnings are the same but conversion rate benchmarks need to shift up or down depending on the size of your existing userbase and their average spending. Once the dust settles, your goal will still be to increase conversion but the starting number you’re working with can be higher or lower.
Finally, It’s important to recognize that your actual conversion is ultimately what matters most: whatever you use as a reference is just a guideline. Further, it’s not an end-all metric as you need to crunch the numbers along revenue, among other KPIs. Once you’ve gathered data on your user behavior, don’t worry if your numbers match the competition, just worry about trying to make them better in the most cost-effective way possible.
Examples of conversion rates in popular apps
In light of what we said about modeling your projections around a similar app, everyone needs a starting point to at least get an idea of what you’re up against. Let’s take a look at a handful of popular apps in a handful of general categories to get an understanding of what your conversion rate benchmarks could look like.
A look at the dating app, Tinder
Within the diverse category of “lifestyle” apps are solutions around food, fitness, dating, travel, and more. Within each group, you’ll find various business models, features, and target demographics with some appealing to the masses while others focus on a specific niche.
One of the most popular apps in the subcategory of dating is Tinder, which we’ve all at least heard of, as it’s targeted toward just about everyone in the general public. Interestingly, Tinder didn’t have a real monetization strategy in place early on so these features that are now fundamental to their revenue stream were all a byproduct of designing around user behavior. When it launched just over 9 years ago, the same overall design we see today was present but a lot of the extra features like Boosts, Super Likes, and Rewinds were missing, as was Tinder’s premium service tiers that give users access to things like unlimited likes and paid freebies. As we can see, their paid user conversion has consistently grown over the years, along with their overall growth, to now include 6.6 million paying users out of 75 million monthly active users (MAU) as of late 2020.
Dropbox makes a killing as a freemium solution
The popular file storage and sharing solution Dropbox is one app that falls into different general categories as you could think of it as a utility along the lines of your smartphone’s calculator app or some data storage augmentation. However, business users who share content with others might view it as more of a productivity app than anything else because of its collaborative nature.
Dropbox has a massive user base of 700 million users, 15.48 million paying users. While this might seem like a relatively small percentage, Dropbox does quite well financially as they’re currently in a unique position by having more profit than anticipated due to having significantly higher conversion.
Spotify’s conversion is great but still doesn’t earn profits
Entertainment apps aim to provide some kind of enjoyable experience whether it’s movies and music or completing some kind of satisfying challenge. Furthermore, there are also apps like Spotify that can fall into several different general categories, much like Dropbox, depending on your perspective.
Spotify is a unique instance in the market where it provides a massive catalog of music to users around the globe for free but for just $10 or so a month, you unlock much deeper controls like the ability to access music at will with no ads. Last year, they managed to grow to 155 million paying subscribers of their total 345 million MAU in 2020, and this year, they managed to add on yet another 10 million paying subscribers. Though they have a great overall conversion, especially recently, they’re still posting losses notwithstanding years of posting billions in revenue.
Spotify boasts good conversion rate benchmarks but illustrates the point from earlier about how good actual conversion is helpful but not wholly indicative of financial performance.
Almost everyone uses Office
Like other app categories, productivity apps include several different kinds of products and a lot of competition. This includes the likes of the popular notetaking and sharing app, Evernote, the simple project management platform, monday, and the kingpin of all productivity solutions, the Microsoft Office suite.
From the lens of conversion, Office is in a fairly unique position as it has crushed just about every business productivity suite over the years – today, the only other solution of this caliber is found in Google’s comparable products. Today, Microsoft Office 365 has 258 million paying users in an audience that’s already quite familiar with what the products do. As such, a large part of the company’s focus is on retention and long-term growth rather than true conversion-seeking efforts because the brand is so established.
One thing to take away from this is that, like Microsoft, conversion rate benchmarks for a single product should eventually level out along when actual conversion inevitably slows after a long period. It’s important to understand when you’ve reached your potential – for example, the number of Office 365 users won’t double in the next year or even two, and attempting such ambitious growth would almost certainly cause more harm than good. This is why we see them focus on other assets like the Azure platform which is part of their highest performing revenue channel, Dynamics 365, the Windows OS, and others.
We assess user behavior & derive effective strategies
Your conversion figures will always feel like a work in progress. Sometimes they’ll dip and other times they’ll rise but what’s most important is the overall health of your business. Though you should aim to continually grow your conversion rate, there are other factors in play too that showcase and influence business performance. At Blue Label Labs, we research the markets and analyze users to help businesses understand their products, users, and develop strategies that sustain apps for the long run. To learn more about how we work or to discuss the idea you’re itching to bring to life, get in touch with us today.