Make the Freemium Pricing Strategy Work for You

In today’s ever saturating market making a “Your company sized” dent in the market is becoming increasingly challenging.
Many companies, especially in the software landscapes, have moved towards freemium pricing strategy, as a customer acquisition method. 

But how do you effectively transition your free users into paying customers? Wouldn’t introducing pricing alienate your audience which is accustomed to using the service for free?

In the following blog we will discuss premium features, the benefits of making the distinction between basic and premium features and how freemium acts as a growth magnet for a business.

It is important for a business to maintain a dynamic pricing structure that will allow it to offer a wide range of pricing options to its customers at most of the required levels. It will help the business to identify the most appropriate pricing for their products, considering factors such as costs, competitive landscape and other external factors.

The Freemium Pricing strategy acts as a growth magnet for the business.  The strategy allows the business to focus on customer acquisition by providing the following benefits:

• • Revenue Growth:

Revenue: One of the most important aspects of any business. But, how can a free service generate an income? Processes like, data management, metric calculations and advertisements can generate revenue for the companies, even from the free users. Advertisements (Banners, front/side display, pop-ups) may force the users to purchase the premium version (due to annoyance or other use based hindrance), which are usually ad-free.

Once at scale, these may prove to be valuable sources of revenue. Once the customer buys in, the payments can be automated, with a subscription service, generating a stable periodic income.

• • Market Share Growth:

Companies and startups alike prefer to use freemium pricing to quickly gain a broad customer/user base. Network effects, referrals and word of mouth marketing influence a lot of this early growth. It is an aggressive marketing strategy.

• • Customer Acquisition:

Freemium model is a great customer acquisition strategy and not a monetization strategy. There is no monetary entry barrier, which allows any users with a need for the offering to be able to use it, who would not have been able to otherwise.

• • Upselling:

Upselling is selling products or services that are one tier above the current tier, to the existing users. There is no initial sale.In the freemium model, we can easily upsell an existing user, rather than acquiring a new one. If focused on retention and reducing churn, the users are sure to grow with the business.Selling to users who are already familiar with your product and know what it can do for them, are extremely likely to make a purchase decision.

Users find themselves increasingly turning to freemiums, due to the flexibility that this business model provides them with. It empowers the users by giving them the freedom to choose between the two broad categories of offerings. It is one of the fastest growing SaaS offerings in the industry.

• • Low barrier to entry:

Freemium services need neither a limited time onboarding, activation, nor the payment information. This creates an extremely low barrier to entry of new users. Freemium might push more users to try and use the product, which will offer the company a very low customer acquisition cost. The acquisition cost is limited to the infrastructure and labor necessary to maintain the service.

• • Competitive Advantage:

High competition in an industry for the same service, at identical quality, creates a race to the bottom for pricing. Advantages of freemium, among others, give the companies a pricing and reach advantage over its competitors who do not offer a freemium model. They have already managed to get the prospective customer to use their product, what remains is upselling. A freemium content will have a higher number of users than its paid alternatives.

There are various ways to switch the free version users to the premium version. The idea is to make the switch as easy as possible. The software of the premium version needs to have a pull that will lead the free users in.

Top freemium companies who utilize successful freemium models have the following features in common:

➤ Incentives:

The new features of the premium version must offer the users an incentive to make the switch. Offer compelling premium features which will significantly enhance the user experience compared to the free version.

➤ Frequent Updates:

Update the features regularly and make improvements according to user feedback, to ensure they remain valuable.

➤ Support:

Users need assistance when they face an obstruction. The idea is to always be available to assist the users when they get stuck in something. Offer the premium users enhanced customer support and highlight it’s benefits.

​➤ Free Updates:

Regularly update the service according to the user needs and feedback to improve the performance, security and overall functionality and usability of the software. The updates can be:

• • • • • Security: Security updates are issued by the company to address the vulnerabilities within the system to enhance the security of the overall system. These are important to maintain the security of the system.
        • System: These address the overall working of the system and work on additional features that the users might need in the future.

​➤ Onboarding process:

The onboarding process for the premium version is designed to be seamless and as informative as possible, about the new features. It needs to have clear instructions and minimal steps.

➤ Low switching costs:

The switching cost cannot be such that it will discourage users from converting to the premium version of the service.

➤ Personalized marketing with frequent remainders:

Each user within a user segment can be sent tailor made marketing messages which highlight the specific benefits of the features that the user needs. These features can be identified through user data analytics.

➤ Discounts:

Limited time discounts to create an urgency. Discounts can act as an additional incentive to push the users that have been on the edge of conversion.

➤ Limited Time Trials:

Users can be offered a limited time trial which covers all the features within the premium version to give them a taste of the service at its finest.

➤ Remainders:

 Users can be reminded of the benefits of upgrading through frequent messages, emails and in-app notifications.

The Freemium Pricing Strategy Model is exceptional in building brand awareness, providing exponential growth, reducing marketing costs and the time to market. Companies need to make this decision after careful considerations and through strategic thinking, as this will lead to them making changes to their entire operating model.