To Free or not to free... that is the question. Explore why the freemium business model is becoming essential for companies looking to scale, reduce acquisition costs, and build lasting customer relationships in today's competitive market.
Freemium Business Model is a customer acquisition strategy where basic features are offered for free and more advanced features are offered at a premium. Users try out the product, usually for an unlimited period before making a purchase decision for the premium version.
Why the need for SaaS companies, freemium has been in the limelight for quite some time now. There are several acquisition strategies that are opted for in business to achieve their desired growth, then what is so special about the Freemium Business model?
Freemium, being an excellent customer acquisition model, lays a business in many aspects and provides the opportunities for:
New features on the service can be tested to gather user feedback and behavior data without any major investments or initiatives.
Since the entry point to the service is free, the barrier is significantly lowered. As a result, new users can go onboard at a much lower cost overall.
Even though the basic version is free, companies can monetize the service through premium features, advertisements, subscriptions and in-app purchases.
The free users can be converted into paying customers by providing additional value to them. Freemium business model allows for a very wide top of the funnel, within the sales flow.
Freemium business model enjoys a higher product adoption rate, compared to the paid alternatives, due to the risk-free commitment required to use it.
Businesses can experiment with different pricing tiers with different features and premium services to increase their empowers their offering to a larger user base and maximize their reach.
Users who have been using the free version, who may or may not have switched to the premium version, have developed a kind of brand loyalty that will lead to higher brand advocacy due to the long-term relationship with the service.
Offering a free version of the product allows for a competitive edge over the other market players, as the users who might be hesitant to make a monetary commitment up front, can also be attracted and blocked from going towards the competitors.
Freemiums do not come with proportional increase in cost as new users are added. The marginal cost of adding new users is exceptionally low, making the service very scalable.
Users are more likely to convert to paying customers later as they have been experiencing the product's value without any financial risk.
Freemiums lead to higher user retention and satisfaction as they encourage the users to explore its features and engage with the product.
Freemium model is used by companies within a mature/established market, as an attempt at increasing brand awareness, market share or to attract a large user base relatively quickly. There are allocated to the service because it is free of charge. Companies that can offer a service that is easily replicable, can easily be offered at the cost-share. It is necessary to cater to the end user base.
Below are some companies that can consider a freemium business model:
These companies are experienced in maintaining an infrastructure necessary for the continuous expansion, additional to the offered services and user conversions among other requisites.
Deciding to operate a freemium business model is a huge decision. It takes a lot of planning and careful thinking to make this commitment.
Below are some of the factors that can be taken into consideration when choosing which features to offer for free and which ones to charge for:
Companies may choose to offer (or a share) of their services as a differentiating strategy or to match their competitors' offerings. The features may be further differentiated to being unique than their competitors.
Companies need to evaluate the value each of their features provide the users. Basic features are often offered in the basic version for free, features that are critical or enhance the utility of the product are placed in the premium tier.
Companies need to conduct significant market research to know the customer needs and competitor offerings. The more space on critical essential for the users or are not offered by the competitors are placed in the premium tier.
If certain features require significant resources like hosting & support and customer support, they need to be placed in the premium tier. Basic features that are widely used, don't which resources and are easily scalable are often free.
Monetization strategy-based companies may provide rapid user acquisition enabled for the free versions and some may prioritize the superior revenue generation through promoting the premium versions, depending on their strategies.
Depending on the user feedback and behavior, companies may adjust their feature offerings over time, adding and removing those exclusively, based on user satisfaction.
To get the users to sign-up for the premium version, user behavior is tracked and users are encouraged to upgrade using strategic placements of trial periods and limited access to key services, within the conversion funnel.
Companies that operate the freemium business model aim to maintain a balance between attracting new customers and generating revenue from the existing customers.
The Freemium Business Model is exceptional in building brand awareness, providing exponential growth, reducing marketing costs and the time to market. Companies need to make this popular and careful considerations are through strategic thinking, as this the end to them making changes to their entire operating mode.
EarnBill's flexible billing platform supports freemium models with automated user management, smooth upgrades, and comprehensive analytics
