What is the best customer acquisition strategy? What is the best business model you can use to entice or attract potential customers to try out your product?
These questions are topmost in the minds of every entrepreneur, business manager, or marketer.
Freemium, as a business model, has been used by many companies to attract prospects to their offer, and these companies have witnessed remarkable success using Freemium to attract and convert prospective customers.
Among the many success stories of the productive use of the freemium model are companies like LinkedIn, Spotify, Dropbox, Skype, Slack, Pandora, Evernote. These are merely a few among several other companies that have used the freemium business model successfully.
MailChimp applied the freemium business model for a year and recorded a 150% increase in paying customers, and they also recorded a whopping 650% increase in profit.
With this overwhelming success stories recorded from the use of the freemium model, does this necessarily imply that the freemium business model is suitable for your business?
Is the freemium business strategy really for every company?
So, congratulations! Your billion-dollar idea has finally come to reality, all the sleepless nights of diligent hard work has finally paid off, and now it’s time for you to relax and start receiving the bank alerts right? I wish it were that simple.
You still have one more hurdle to overcome. You need to find a way to attract customers who would be interested in your product. How do you intend to achieve this?
Many companies have indeed used the freemium model with remarkable success; in this article, we’ll show you reasons why the freemium model may not work for your business or product.
But before we dive in, let’s take a look at what freemium means.
What Is Freemium?
The term Freemium is a fusion of the words “Free” and “Premium.” It is a business model that is used by some organizations, especially when they want to create awareness and acquire customers for a new product or service.
Basically, it deals with companies giving out some features of their new product or service for free in order to get many prospective users to try out the products and spread the news about the product; then the company later introduce some advanced features in the same product or service which will only be available to paid customers.
Essentially, the primary focus of the Freemium business model is to get potential customers hooked on the free plan so that they will be convinced to subscribe to the paid plan so that they can enjoy more advanced features or privileges.
Is The Freemium Business Model Right For Your Business?
Now that you understand what the Freemium business model essentially means, let us take a look at some reasons why the freemium model may not work for your product or business and also why many companies fail with the freemium business model.
High Product Value
Does your product deliver enough value? Does it address a pressing concern or an immediate challenge faced by many people? Will your free version also have enough value for prospective users? You need to make sure that your product provides sufficient value so that you’ll be able to convince free users to convert to paid customers.
Let us take a look at Zapier; for instance, Zapier is a web application that allows users to link numerous digital tools together through the use of automated triggers known as “Zaps.” Zapier introduced a free plan in order to boost account creation and also allow users to get a feel of what they stand to benefit from the product. Their freemium plan gives a lot of value to users, while the enhanced features which are available to paid subscribers give users access to more complex automation.
Ease Of Product Use
How easy will it be for prospective customers to use your product? If you have a product where you still need to organize a kind of training to educate users, then such a product is not suitable for the freemium business model. This is owing to the fact that you’ll incur many costs in the training process, and this will not be good as you’ll need to provide training on an ongoing basis for free users. The cost of training will be too high. You can make your product easier to use by providing instructions in the local languages of your target audiences. Writing service reviews offered by Online Writers Rating and other services can come in really handy in this situation.
Large Market Presence
Do you have a huge market presence for your product? Typically, only about 1 – 4% of free customers convert, so you need to have a very large market. Phil Libin, the CEO of Evernote, once stated that if you want to get about 1 million paid subscribers, then you need to have at least 1 billion free users. Evernote’s virtual notebook gives a lot of free users access to basic features, while paid users enjoy more virtual notebook functionality.
The Attractiveness Of The Product
How do you intend to make your product or service more attractive and increase its usage? When free users use your product, will they be interested in converting to the paid version because there are more enhanced features? Does your new product excite your target audience?
The fact that you are giving out your product for free does not mean that many people will automatically subscribe to the free offer. If your product is not valuable or does not generate a buzz within your target market, no one will be interested in subscribing even for the free plan. The bottom line is that your product needs to solve a problem or address a pain point within your target audience.
What Is The Cost Of Supporting Customers?
Have you taken into consideration the cost of supporting free customers? Maybe you have to maintain cloud storage for your customers, or you need to provide one form of support or another, you need to evaluate it and make sure that the costs are manageable in the long run.
If your products require that you provide much extensive support and logistics, then the freemium business model is not for you.
Does It Motivate Or Creates Urgency For Customers To Convert?
Many business owners do not approve of the freemium business model because it does not create urgency for free customers to convert to paid customers. When you compare the freemium model with the free trial model, the free trial model creates urgency in the sense that users will no longer have access to the service after a short period.
If you want to succeed with the freemium model, then you need to create a sense of urgency for your product. You need to create an additional value that can only be enjoyed when users subscribe. This way, many free users will see the need and urgency to invest in your product.
Do You Give Too Much Value To Free Customers?
You need to strike a balance between the value you give to free users and the value that paid users would get. If you give too much value with the free feature, then the free users will have no reason to convert to paid users.
One reason why many companies fail with their freemium business model is that they offer too much value at the free level, and as a result, free users see no reason to convert to paid users. The primary focus of the freemium business model is to entice users to a point where they can become paid users.
Let’s look at Spotify; for instance, they developed an app that allows users to stream their favorite music from their computers or phones. Users can also create playlists, save music, share playlist, etc. The bottom line is that Spotify gives a lot of value to free users, and at the same time, there are also lots of advanced features that are only available to paid subscribers.
How Would You Track Success?
For you to know whether the freemium model is suitable for your business or product, you have to come up with a clear part through which free users will go through and become paid customers. You need to analyze the success of the freemium model.
You can look at the areas that are most used in the free plan and consider offering them for a fee. You can also look at areas or features that need to be withdrawn altogether so as to clear the path for more free customers to convert.
The Freemium strategy used by Dropbox is very informative. Users get access to a certain amount of storage space for free when they share Dropbox with others, or when they invite their friends to sign-up. This strategy reduced funds that Dropbox would have spent on marketing. Dropbox in 2017 was able to generate over $1.1 billion in revenue and over 11 million paying users with the freemium model.
Indeed, the freemium business model can be very useful in boosting growth and creating awareness for a new product. It can also give you important feedback on how to improve your product.
If well designed and carefully implemented, the freemium business model can be an instrument of remarkable growth and development for business owners and entrepreneurs.
However, it is not a business model that every business can delve into. It might not be a good fit for your business. It could be a costly trap for your new product or service if the necessary precautions, as listed above, are not taken into consideration.