The Freemium Model

Posted by Justin Rondeau | Posted in Advice, Freemium | Posted on Jan 16, 2012

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What’s Your Take on the Freemium Pricing Model

Pricing Chart

When we released our web based application High Impact Designer, we implemented a freemium pricing model for the first time in TemplateZone‘s history. Our other product lines had utilized a 30 Day Free Trial, but when we made the shift to SaaS saw a need to change our trial policies as well.

In the Facebook Page creation tool market, most tools all have implemented some variation of the freemium model. In an article by Tyler Nichols, he accurately points out that ‘I have come to the realization that most people who want something for free will never, ever think of paying you, no matter how valuable they find your service.’

If I believe this is an accurate statement you might be asking, ‘Why would you EVER utilize a freemium pricing model?!’

To which I would reply, freemium models need restriction. If you had an unrestricted free application, obviously people will more often than not opt out of paying. This is where a delicate balancing act begins. On the one hand you need to limit the application enough so that people see the value in purchasing the paid product. On the other hand you need to keep it open enough to show how your application functions.

There are plenty of benefits to using the freemium model. The first, and most apparent reason is how easy it is to increase your marketable leads. Giving something away is the best way to get a name and an email address, and everyone loves to see the word ‘Free’. By using the freemium model, you will have plenty of people to market to, however this puts a lot of pressure on your marketing team to convert the trial users into paid users.

Even though you get a lot of marketable users, freemium models have a notoriously low conversion rate. Though the ‘average’ conversion rate can be misleading, anywhere between 2-4% conversion of free to paid users is a big win for company’s utilizing the freemium model. However, it is important that you do not get too hung up on industry averages, every application has its own set of unique variables. Make sure to pay attention to the cost to serve, cost to acquire a customer and your retention rate. Checkout a presentation from Evernote discussing the metrics they follow for their freemium model.

All in all the freemium model has been very beneficial for our product lines, and if you are looking to implement a freemium model here are a few tips:

Have multiple touch points with your users

Using a well written drip email campaign will keep your users engage with your company. I can’t tell you how many times I have signed up for a free product on a Friday and never signed in again on Monday. It is important to remind a person that they actually have access to your product. While reminding them, make sure your messages generally add value to your reader an unsubscribe from these messages could be the nail in the coffin of that particular sale.

Make Upgrading Easy

You already have an account created, at this point you just need their billing information. Make it incredibly easy for a person to get the paid version, remember they have a variation of the tool currently and increased friction may make them think the free version is good enough.

Limit Your Application

This is much easier to say than it is to do, but you need to limit your application. If you give some one full reign to your product, they will not likely convert.

Place Teasers

Throughout our application we let our users see all of our templates, but they can only use the 10 we have provided for the free tier. By having little teasers and previews of the exclusive content or functionality reserved for paid users, people will be able to juxtapose the benefits of the paid and free applications while using the tool.

Do you utilize a freemium model? Why or why not?

  • http://www.buildingkeystones.com Elan Sherbill

    Hi Justin,

    Regarding the multiple touch points you say,”make sure your messages generally add value”.

    What do you recommend as the best way to offer value? Is it by offering promotions or providing information?

    Thanks for the great post!

    • http://highimpactdesigner.com Justin Rondeau

      Elan,

      I really glossed over that ‘add value’ part huh? The type of content you should be sending over to your users is really contingent on the source. In the case of High Imapct Designer, we are getting names of people that are using our product. Since these users requested more information about the product, we will send them information about the latest updates. However, they would also be interested on the latest trends in the industry. I have a 7 touch point mail series for Social Page Builder. My goal is to not only answer how to use our tools, but why they should be using them.

      Obviously you need to try to close the sale as well, I mean it would be a total time/money suck to write these emails and give a free tool away. Value is really in the eye of the beholder, so always keep in mind where your user comes from. Accurate and detailed segmentation is absolutely critical.