There are pro's and cons to the no-cost pricing approach. Take a look at how these 10 companies rocked the freemium model and see if they can work for you too.
Benefits of the Freemium Model
The best Freemium products aren't free. This is the marketing juxtaposition at the centre of all freemium models. Free applications and software are only as good as their ability to convert you onto the premium version.
- You can attract a lot users to try your product
- Eliminate customer obstacles in your acquisition process
- Generate user habits, which can create loyalty.
Like many industries, free samples are there to get you hooked. Everyone loves getting something for free, and if that something is a useful piece of software or application designed to make lives and working days easier, then that becomes a positive offset. We all pick up the free coaster, pens and tape measures when we go to conferences. Freemium uses exactly this same concept, but as a SAAS pricing model. The concept is simple, get everyone onboard for free, let them have a good look around, sign them up to your great product...then shift them over to the paid-for premium stuff and start reaping in the profits.
The Dangers of the Freemium Model
But there is of course a real danger in undervaluing your product. When you offer something for very little, then offer them the upgrade worth 10 times as much, they are expecting it to be 10 times as big, 10 times as powerful and 10 times the value. The problem arrives if the original value of your product is free.
- Free users often provide worse feedback and are less engaged than paid customers
- Underestimating conversion timescales.
When you listen to all the complaints from free users it can seriously undervalue the premium product. Free users will always be less inclined to offer positive feedback. Trying to understand all the complaints and wants from them can distract you from the premium, paying users. Then there is the problem of scalability and the timescales required between offering and supporting (funding) your freemium product while awaiting the conversion to premium - therefore affecting your Cost Per Lead & Client. Sometimes freemium isn't a very scaleable business model, unless, that is, it has an extremely wide appeal. Which makes the list of companies that rocked the freemium model that much more impressive.
10 SaaS Companies That Rocked the Freemium Model
Their Freemium model was simple: Offer the entire product, functionality and all, to show everyone how easy the product is to manage. The kicker was that for anyone wanting to use it for storing significant data, (and when we say significant, we're talking over 2GB) there would be a storage charge. The low charges for 2TB wasn’t much, especially when businesses and individuals had gotten used to the usefulness of the product. Subscribing to the paid version wasn't that big of a deal, especially with Dropbox's compatibility with other platforms. It now has well over 300 million customers.
Hootsuite made the decision to launch their social media tool as freemium in reaction to having no marketing budget whatsoever to spend. Their biggest advantage was being ahead of the game in offering a social media dashboard at a time when social took off. A predictable number of their free users became paid users. They paid the extra for allowing more users, more functionality and additional support. Hootsuite now use their freemium community to ensure their product stays competitive and honest. Free users, not chained to a particular product can be demanding and fickle.
Buffer started from scratch, and far from being a quick success it targeted itself on Twitter first by launching a landing page before engaging with those registering interest. All to establish first that the tool would be of benefit. This early testing procedure was slow, generating just three paid users in their first month. But refining their product would eventually pay off. Shaping their product into something marketable, their growth figures were enough to convince investors of their profitability and...boom, it had 4.5 million paying customers.
EchoSign was an early success story in freemium economics. With its free tool to integrate contract signing with customer relationship management systems, it quickly built up over a million users. It gave away its product free of charge with the idea that once a certain number of signs were reached customers would transfer to the premium version. It worked, soon enough Adobe came calling and snapped up the business
With enough financial backing Spotify's freemium model amassed its first 60 million users relatively quickly and with it, 15 million paying users. Making it one of the most successful freemium adopters in moving their free users to paid users. It is bolstered by utilising revenue gained from ads in their free model to add to the revenue generated from paid subscriptions. While its free model doesn't differ wildly from its paid subscription, with music becoming more about streaming personal playlists, it has successfully tapped into a market that had seen falling physical sales and stagnating downloads.
WordPress offers blogging software that is free. This means with Wordpress you can create your own website for free, something that once cost most businesses a huge amount of money. In fact you can take your website and host it on Wordpress servers for free too. The kicker (and this isn't really a kicker) is that for the really technical stuff, you might want to part with a fee. "We only charge for the things that are really hard to do [our customers] will understand: This is hard, this is expensive, and I'm willing to pay for it" said Wordpress CEO Toni Schneider. 10,000,000 blogs later, it's a freemium model hard to match.
While I loathe to include it in this list, without doubt one of the most successful freemium games has been the Candy Crush Saga. In gaming, successful freemium means having to pay to get additional benefits. Offered the option to pay for additional benefit, Candy Crush has mastered the concept of the in-app purchase. Being a game, not a SaaS company offering a business solution (unless we include all those hours we wasted playing it in meetings), means that there are different motivations in making this freemium product work. The cross-networking with Facebook has been critical in allowing a game become a point of conversation, comparison and competitively between friends. It mirrors the network compatibility of Dropbox.
FreshBooks arrived as an online invoicing solution for freelancers and small business. But it also offered tools for tracking expenses and recurring billing. The concept of FreshBooks wasn't to compete with other invoicing packages on the market, it was to convert those using do it yourself packages like Word and Excel to use a package that would make their lives easier. Being free should be an option that sealed the deal. And like most freelancers and small businesses, once the time came to increase their clientele, paying to add additional clients to the system was an easy sell. This is especially true for users not wishing to learn a new platform or transfer their financial data to a new provider. The growth of freelancing has also been a big help in selling too.
Zapier is a web automation app which means you can send triggers (zaps) that automate parts of your business (or, if you are that popular, your personal life). So when you get an email with an attachment, you can zap it and save it to another app, like DropBox or Google Drive. Their success was built on getting people in the door by offering them a limited number of free zaps. It allowed them to automate some parts of their business, demonstrating the benefit that could be seen over wholescale implementation into the business and upgrading to a paid account.
No list can be complete without using MailChimp as a model for offering a free version to the masses whilst charging, what can be considered pretty high rates, to anyone wanting to regularly send out mailshots to their 15,000 contacts. Their approach works by offering a substantial number of contacts and emails free of charge (2,000 contacts and 12,000 emails per month). But when that becomes not enough, you will find yourself migrating to paid subscriptions. At that point you are presented with a choice, subscribe to one of the MailChimp paid options or migrate to another service, which means moving a huge email list somewhere else at a time when you are nicely growing that said list. Successful freemium exponents like DropBox and Evernote only convert 0.5-2% of their freemium users to paid subscriptions. When you imagine the customer support base they need to support all those millions of free accounts, is quite a cap-tip to the enormous amount of financial backing required to finance it. Which explains this quote from Phil Libin, the CEO of Evernote:"The easiest way to get 1 million people paying is get 1 billion people using". But it can work well through bootstrapping too as the co-founder of EchoSign, Jason Lemkin, says of the freemium model:
"Freemium is quite hard to scale because you need such a huge denominator. But dude, everything's hard to do well. SaaS is hard. B2C is hard. Freemium is hard. But do it right, and Freemium - it's relatively cheap."