Is the freemium model right for your startup?
Updated 26/06/2024
“If I can just get people to sign up for a trial, they’ll see how good it is and subscribe for longer”
“Sales have gone quiet and now they’re expecting the magic marketing tap to turn on”
“All SaaS startups use freemium, I heard it on a webinar, why don't we?’
Should you use a freemium model in your startup marketing?
Before I go any further, I’m going to define what the freemium model is, because it’s a term that’s often misused.
Freemium Model Definition:
Freemium is a type of acquisition strategy that’s used to attract new users to a platform/service by offering certain features for free, and further features you have to pay for.
Freemium Model Examples:
Here are a few freemium model examples in action:
Netflix - Sign up for a 1 month free trial
Dropbox - Free until you want more storage
Hubspot CRM - Free until you want to do something with the contacts you’ve added
Wait there, let’s go back.
Freemium is an acquisition strategy, it is not a business model and it’s certainly not your pricing strategy. It’s a marketing tool: a way to get people in the door, and it comes with its own set of considerations.
Still with me? Here’s what I’m going to cover in this post:
Is freemium right for your business and marketing?
Are some types of users that are more valuable than others? (Quick answer, yes).
Your work isn’t done when they’ve signed up.
1. Is freemium right for your startup, and will it help you meet your marketing goals?
In short, it’s not right for everyone.
There’s a heap of advantages, such as getting customer insights, building your pipeline, and growing marketing contacts. But, just because you’re a startup or a SaaS business doesn’t mean you have to use it.
Evernote at one point said only 1% of its users convert into paid customers.
(Lean Analytics, Croll & Yoskovitz).
On the face of it, the above sounds a bit scary, but when you’re Evernote and have over 40 million customers, it’s not such a bad conversion rate.
Should I use a freemium model? Questions to ask yourself:
You have an advantage with the paid element of your product/service (you can get people to see the value and become paying users)
You are clear it’s not a silver bullet, and you’ll have to play around with what part of your service you make free (this will need customer research).
Bonus reading: Read Profitwell’s blog on The SaaS Freemium Model.
2. Are some types of users that are more valuable than others when it comes to freemium?
Why we went freemium and then changed tact (to another version of freemium).
The freemium model was in place when I joined Careercake. The idea was that every month, we’d release a course for free for 24 hours. After this, we’d then charge to view it and the user could have 30 days to view it at their own pace.
Initially, it was a good idea.
> It helped us to create buzz and build our community
> Having been born from a YouTube channel - where some question the ‘quality’ of content - it let us demonstrate to our audience just how much better our ‘actual’ product was.
What happened?
Yes, we got some great feedback, but we found that those who waited watched it, rarely - if ever - went on to become paying customers.
They knew at some point, they were going to get it free.
So, during our rebrand a few years back, we interviewed customers to learn about their pain points, objections and potential use of a platform like ours. It became clear that people needed content like ours at the point of pain.
At the point of pain - they need an answer, and they need it now.
This mindset, along with its motivations, didn’t suit the 24 hour launch freemium model.
We went down the free trial route, offering users a longer timeframe to view the entire content library. The feedback was, “I need longer to be able to look around the content because of X, Y, Z going on in my life”. We changed two variables: trial and content number to reflect our guess at what consumption rates would be.
More info and research, means more insight into different customer types.
To us, we typically have five buyer personas that subscribe to our B2C product. One segment is less likely to become a paying customer and reach our optimal LTV.
And that’s okay, because we’ve got processes in place to support the other users for longer.
3. Your work isn’t done when they’ve signed up
How will you convert them to a paying customer? Do you even need to convert them?
Okay, so I’ve shown you there’s different ways to run a freemium model and have hinted that not all sign ups are equal.
To get the freemium model to work - to get it working as a lead generator for the right type of customer - you need to do more work into understanding the value of certain features.
Delve into your customer types. Understand what’s important to them, what they have come to you to solve and how to arrange your solution to entice them to get them engaged. A good way to approach this is top task analysis and to remember your first attempt will always need testing and iterating, as different things happen to your customer.
We ran a series of customer mapping workshops to understand our user paths: what they were looking to achieve, and how the platform and process could be aligned to help them meet our goals and enable us to increase conversions.
You’re aiming for something that delivers value and has an experience geared around solving their [problem], but you don’t want to give away too much. You need to keep some things back to entice them to upgrade or become a paying customer. This could include unlocking certain features, introducing volume caps, etc.
At the time, for us, it went as granular as: what time of day /season are they accessing content, what cornerstone content increases the chances of them staying around for longer and is there a magic number of courses watched that’ll allow us to scale our efforts?
In conclusion, the next time the freemium model idea is sprung on you OR if you’re thinking it could be a good concept, consider the points I’ve made to better understand if it’s right for your customers and right for your business.
If you’d like to learn more about freemium, get in touch for a friendly chat about how we can help your business or check out our services to find out more about what we do.
