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When is the Freemium Model the Way to Go?

Heather Vacca - Friday, February 17, 2017

The freemium model makes sense for a lot of businesses. Pandora, Evernote and Dropbox are a few examples of freemium success stories. While the model has clearly worked for some, other businesses haven’t been as lucky. The freemium model is powerful, but it can become a costly cycle of supporting non-paying customers.

In this post, we are going to discuss what the freemium model is and when it makes sense to use it for your business.

What is the Freemium Model?

The purpose of the freemium model is to give away a service for free to acquire customers through word of mouth, organic search marketing and referral networks. As people learn to love your product, they will have the option to pay for a premium version of it. This is how you make money.

The nice thing about this sales model is that you can operate outside a traditional sales-driven marketing strategy. Customers learn about your product on their own time, and you get to relax. You can also gather user data to better understand what features customers like and dislike.

Are There Any Drawbacks?

If the freemium model was always successful, everyone would be using it. The biggest problem is that it can become a costly trap. People might take advantage of the free version and never upgrade to the paid version.

If you choose to go this route, your premium version needs to offer something relevant and meaningful, such as an ad-free experience, extra storage, additional features, etc.

Is Your Business a Good Fit for the Model?

While you won’t know the true impact of the model until you try it, here are some signs that it will be a good fit for your startup.

  • You are confident that your service is at the top of its class. It should be high in quality and stand apart from your competitors’. People will be testing it out - so you can’t drop the ball!

  • People will be willing to convert to paid users. If your service offers value, then your paid version should offer even more. Be ready to list the benefits.

  • The cost of duplicating and distributing your product is similar or the same. Thanks to mobile app solutions and SaaS, it doesn’t matter if you create 100 or 10,000 of your product. The cost is the same.

  • Your product is easy to use and understand. People will be learning about your service on their own, so they should be able to educate themselves.

  • You have a wide reach and a large market. Only a small number of people will convert to paid customers, so it’s important to have a large market to work with.

The freemium model has ample opportunity for growth and success, but it won’t work for everyone. If you think it can benefit your startup, than let's get started and make your brand name a household one.

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