Thanks to the likes of Google and open source providers such as WordPress, we are increasingly becoming trained to expect a lot for very little, or even for nothing at all.
The freemium model has been around for years, but there has been a dramatic shift towards this becoming the expected norm. Online services and apps have to increasingly deal with customers’ expectation they will get something for nothing as part of their product and pricing strategy.
As a small business or a start-up, how do you deal with this kind of competition, and more importantly, consumers’ expectation they should get services for free?
With major companies such as Evernote seeing only 2% of free accounts becoming sources of revenue, how do you put a strategy in place to get customers paying?
Business/ power users fund the consumers
SaaS providers such as Dropbox, MailChimp (screenshot below) and Wunderlist don’t offer personal/home users cut down, limited versions of their products for free, they offer business/power users enhanced versions of their products for a fee. There is a subtle difference here from what most companies do. By giving personal users a complete product they make their product synonymous with people’s daily lives.
This essentially turns them into a platform, one that so many people use that they become a natural tool for a business.
Microsoft used this strategy to dominate the PC OS market in the 90’s – get it on to as many computers as possible!
Limited time freemium
You can play to customers’ expectations they should get to use your product for free by having a free trial as the default (or even only) choice.
You can see this in action with Netflix (30 days) and Shopify (14 days), with Netflix not even giving you the option to part with your cash.
Compare Shopify a year or so ago to now…
I would surmise this is in response to the rise in free ecommerce platforms such as Magento and WordPress ecommerce plug-ins (like WooCommerce).
There is a handful of useful reads about converting trial users in to paying customers:
- How to quickly turn trial users in to paying customers
- The #1 reason you fail to convert trial users
- 8 ways to convert free trial users with email marketing
Bolt ons, upgrades and in-app purchases
Mobile games are a classic example of this strategy in play. How many games in the app stores can you think of that are free to download, but the only way you can progress at a reasonable rate is to buy add-ons/power ups?
The danger here is you make the basic free product so limited that no can get anything done with it.
The most successful games on iOS and Android take a patient approach, letting you get deep enough in to the game that it is starting to form a habit before limiting the experience until you pay.
The worst games dive straight in demanding cash to do the simplest tasks before I’ve really got in to the game. These games are instantly deleted from the phone!
Because your product is free, there is absolutely no financial or emotional relationship between you and the user to start with. They don’t have that sensation to “get their money’s worth out of you”.
This means you have to work hard to get them to use your product, and not become another forgotten log-in password. Give them enough of a taste to form a habit and desire more.
Get value without the revenue
The best example of what I mean here is Dropbox. When you first sign up you don’t get a great deal to start with. The real meat comes from all the extra actions you can do to earn more.Every free account user who has tweeted, shared, or referred their friends for the service can be built in to your customer acquisition costs, making the shares, invites, and tweets from “free” users actually correlate to real marketing pounds.
Do it for a reason, not just because everyone else does it
Free account customers are notoriously difficult to move along the funnel, so it is vital you have a strategy behind your freemium plan. An important question to ask yourself is “Are my customers attracted to ‘free’?”
What would you say if I offered you a fridge for free? Chances are you’d get a little suspicious and assume there was something wrong with it. Some products are so important or complex that customers prefer to pay for them, associating price with quality.