What is the freemium business model?
Freemium is a popular business model in the software as a service (SaaS) market. Companies make their platforms available in various configurations, including free and paid-for versions, to accommodate a broad user base with different financial resources.
The importance of Freemium
The most excellent free platforms demonstrate the complete product’s worth and entice consumers to convert to a premium version. Still, there may be numerous tiers accessible in addition to the free version. There will be a range of features and functionalities available with each sort of premium software.
The Benefits of releasing a Freemium
There are a variety of reasons why SaaS organizations use the freemium model, including:
Freemium is a great entry point
Freemium is an appealing entry point for users looking to get started.
A ‘free’ product, for the most part, is a fundamental characteristic that marketing teams may promote to great success. Even in its most basic form, an open-source platform available for free is more tempting to individuals and companies searching for a cost-effective solution.
Users can get free value
A freemium product provides value to every user, regardless of their financial situation: they may dive in and take advantage of its (although restricted) features without spending a single cent.
Freemium is beneficial in establishing user loyalty
Implementing the freemium model will make it easier for a brand to establish and grow a following of devoted users. Users are less likely to switch to an alternative product if their requirements change after becoming accustomed to your free version, provided the cost of an upgrade is not prohibitively expensive.
Challenges in making freemium product
Despite its advantages, the freemium model does come with certain inherent dangers.
Freemium is not for everyone
Not every SaaS company can launch a freemium model and expect conversions to skyrocket as soon as the news about its existence. Instead, product teams must develop a highly competitive platform that answers consumers’ pain points and successfully caters to the intended user base to be successful.
At least at the short term, you’re going to lose money
A similar amount of effort should be expended by marketing teams to promote freemium products as they would with any other type of product or service.
You might use an appealing marketing effort to encourage Spotify’s free edition, which allows users to access millions of tunes for free in exchange for agreeing to view a few advertisements.
It’s a straightforward marketing ploy, but it must still distinguish itself from competitors such as Google Play Music and Apple Music, which offer similar services.
As a result, the free version may have to be phased out, which introduces another risk: pushing away users who refuse to pay for the software, no matter how competitive the pricing may be.
You may never make a profit from Freemium
Product teams must design their tiers meticulously to ensure that paying members are charged realistic costs and receive good value for money across all packages and levels.
The fact that a competing SaaS business offers the same or more features for less money does not provide any reason to believe that users will be glad to commit to a subscription monthly or yearly.
Product teams must modify their product to meet their users’ goals, requirements, and expectations to retain their loyalty over months or years.
Simply put – maybe people will simply fail to perceive the benefits of upgrading to a premium plan when they do so. Product teams must exercise caution when putting together free versions of a product. Moreover, the proper functionality must be included to provide a pleasant user experience, but there must be enough missing features to entice users to upgrade to a paid-for version.
It’s a fine line to walk between the two extremes. When you do too much, your motivation is gone. If there isn’t enough, people may become so dissatisfied that they look for other freebies instead.
Freemium Vs. Free Trails
Freemium shouldn’t be confused with free trials, which are both available. SaaS firms frequently entice new customers to sign up for their products with the promise of a ’14-day free trial,’ during which they will have full access to the platform’s features and capabilities.
Users must notice how valuable the product is during the trial period, wonder how they survived without it for so long, and then purchase the whole package once the trial period (for example, two weeks) has expired. Instead, freemium is more concerned with providing flexibility to a wide variety of target users (while also urging them to upgrade whenever possible!
How To Use Freemium
Freemium isn’t suitable for every SaaS company. Here are some points to consider while deciding whether or not freemium is good for you:
Is there a market for what you’re selling?
If the product doesn’t have a large Total Addressable Market (TAM), you shouldn’t give it out for free. Most free users will never become paying customers, putting further strain on your current resources.
Is your service designed to be self-serve?
A volume game is a freemium model. A freemium approach may not be scalable enough if the product requires a lot of hand-holding, sales support, and human contact to enroll consumers.
Is there a compelling motive for people to pay for the premium version?
Unless they’re brand new, premium appealing and helpful features provide enormous value to people.
Businesses that offer freemium products can collect accurate user data, which you can use to help product teams identify areas where their free version performs and where it does not. Team members can adapt to produce a better free product if certain features are neglected or users believe the platform is nearly useless without critical functions only available in the paid edition.
For example, gaining better knowledge allows teams to create more accurate user and buyer personas due to their efforts. According to the study, brands may utilize this information to grow more effective, tailored marketing that appeals to specific customer wants and expectations.