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Thinking of Going Freemium: Consider These Tips First

Going freemium has taken a few hits [1] recently in major news outlets, with some questioning the validity and sustainability of the model. That being considered, the freemium model does have some advantages over others when it comes to promoting brand awareness. While it is not a silver bullet, there are a few specific strategies that you can use to help position your freemium software offering for success.

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Leverage “Word of Mouth” 

Word of mouth marketing has long been known as one of the most effective ways to gain loyal customers. It is natural that people will look to their peers and respected companies to determine the most effective business strategies. However, many companies do not want to share information regarding their business tools.

Freemium software is positioned for an advantage here. While businesses frown on the inclusion of a software company’s logo on paid tools, it only makes sense to include it and other credentials in a freemium version.

MailChimp [2] – a company that found great success by going freemium – helps customers design exceptional email campaigns. I recently talked to Ben Chestnut, the CEO of MailChimp, and asked him about the freemium model:

“Freemium is great for publicity.  Some of our competitors will include their logo in the footer of every single email their customers send out.  We’ve always felt uncomfortable doing that, especially with a paying customer.  But if we give it to you for free, then we have a right to share a little bit of the space.  So we put our logo in the footer for all of our free users.”

Offer Clear Upgrade Benefits

Consumers need a good reason to upgrade from a free model, or they simply won’t do it. For this reason, it can be difficult for some companies with freemium offerings to find a balance, because the free version must be good enough to hook users, but not so good that they won’t upgrade.

Some services, like Evernote [3], have an upgrade path built in that attains greater perceived value as the customer uses the service and gains more benefit from it. Paying to upgrade for more storage doesn’t make sense when a consumer is only using 1/10 of their free storage. When they are near capacity and have integrated the product into their lives, however, the urge to upgrade to a paid model becomes more and more prevalent.

Don’t Increase Price Without Increasing Value

One of the worst things a freemium company can do is arbitrarily impose a cost upon a previously free service. This is not because the service is worthless, but rather because customers have already associated the value of “free” with the software.

Changing that value while not adding any additional benefits will convince customers that a company is attempting to rip them off. While it was not a freemium service, the price hike of Netflix [4] last year caused mass outrage amongst its many users, forever tarnishing what was once a near-flawless reputation.

Customers are smart – unless you are offering software as part of a free trial (and you make that clear), do not charge them for something that was previously free.

The freemium model may not be the perfect answer that some believe it to be, but it should not be dismissed as useless either. Companies with a model that can increase in value over time and offer clear reasons to upgrade may be able to gain more (and more loyal) followers by going the freemium route.

Special Offer [5] Photo via Shutterstock