The freemium model is somehow difficult, but it works because if you have a great product, customers will want it more. Freemium is integral for growth because it allows customers to extract basic value from any product. Once you get the free customers, you can introduce other value offerings to encourage them to move to the paid version.
To ensure a profitable model for your business, here are a few things you need to consider for your freemium offering:
1. Define the core value of your product
Defining the core product value helps to attract users with genuine interest and who are likely to convert to paying users. It also helps to differentiate the product by emphasizing its unique features.
For example, in HubSpot, the core feature of free and paid versions is the number of contacts in their databases. Users who want to continue adding contacts have to pay for an upgrade.
Limiting the core feature on the freemium model encourages users to upgrade to the paid model. Your pricing strategy should be based on that core value.
2. Be able to identify product-qualified leads
Product-qualified leads (PQLs) are the mirrored version of sales and marketing-qualified leads who have demonstrated buying interest.
There are different ways to define and identify PQLs based on your company and product, but the main criteria in a freemium model is usage level. A user becomes a PQL for a paid upgrade when they’ve been using the free version so much that they’re on the threshold of needing to make additional purchases.
In other words, they’re approaching a stage where they can no longer extract additional value from the free version of your product. As such, they either have to pay for the upgrade or scale back their usage levels. That’s when your sales team will want to reach out to that person – or not!
One of the unique benefits of the freemium model is that users upsell themselves. Because this happens naturally, many companies have been able to reduce the amount of sales calories they’re allocating to PQLs and re-focus their sales team to chase after bigger, more challenging deals.
Notify PQLs when they’re approaching the limits of their free plan. In many cases, you won’t need to invest too heavily in marketing to them. Don’t interrupt their buying process; if they’re enjoying your product and have come to rely on it for its core value, they’ll likely reach out to you on their own.
3. Understand that not every free user will ultimately become a paying customer
The goal of a freemium business model is not to convert every single free user into a paid customer. Any free product will attract many carefree, less-than-ideal customers who sign up just because it’s free, but those aren’t the people you want to target in your marketing efforts.
On average, about 5 percent of freemium users will become paid customers. On the surface, 5 percent might not sound great. The average lead-to-customer conversion rate in the traditional, non-freemium model is only around 0.5-1.5 percent (SiriusDecision), so freemium conversion rates are still much higher.
In the freemium model, you eliminate many transitional stages that guide a lead into becoming a paying customer. You allow prospects to tinker with your software and experience its value first-hand before purchasing. Most freemium users eventually convert into paying customers. Freemium enables a frictionless funnel with fewer sales and marketing touchpoints required.
Conclusion
Yes, not every free user will become a paying customer. Before implementing a freemium model, decide if you’re comfortable operating under that reality. Just remember that, if you approach it correctly, the potential gains are much higher than those from the typical model.
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