The following is a guest contributed post from Shane Neman, Chief Product Officer at CallFire.
Played Candy Crush today? You’ve been “freemiumed.” Even though you downloaded the app for free, to gain access to its extra cool features and offerings, you have to pony up, even if it is only $0.99 for an extra five moves to beat the last level of Minty Meadow. And although you technically never have to make a purchase to play, game developer, King, has designed the game to make sure you do.
Freemium model success isn’t limited to the entertainment and gaming world. Think of B2B giants like DropBox, Evernote, and MailChimp, which are great examples of companies that have introduced very successful freemium products in recent years. These popular enterprises have paved the way for the current crop of B2B companies to take advantage of this effective pricing strategy. The key reason they’ve seen such acceptance: they didn’t sacrifice the quality of their product to offer it for free.
Whether you’re building a freemium product from the ground up, or looking to transition from an existing paid model, it’s imperative to focus on what makes your product or service great. Ensure your customers have access to the features they love in order to see a freemium model impact the bottom line.
Get To Know Your Customers
Having a solid understanding of your customers should be the foundation of your strategy. When considering a move to freemium, start with the people buying the product so that you can cater your offering accordingly.
Analyze your current customer base on a deep level, down to specific demographic data. If you are a B2B company, and it’s not easy to identify the age and gender of your customers, it’s helpful to pinpoint which industries and verticals comprise the majority of your customer base.
Once you’ve done your research on exactly who your customers are, take it one step further and understand how those current customers are actually using your product.
Understand How Your Product Is Used
Naturally, as the developer, you feel protective of the features you created. However, users don’t always agree with what you identify as key features of their experience, and you should listen. Some aspects of your product will organically become the focus, and it’s important to be cognizant of which features are the most popular, and which ones don’t seem to resonate. This will better inform what to include in the free offering and what to maintain behind a pay wall.
Decide How Much To Give For Free
Do the features you’re planning on giving away add value or are they a gimmick? And, are they sticky enough to keep customers coming back for more, and hopefully paying for access? Although this is most likely going to be an experiment through trial and error, let the data drive the decision. Use customer usage and payment analytics as a guide to what elements of your product hold the most value.
If you don’t provide enough features, the value proposition will diminish. If you give away all of the features, then you potentially lose a catalyst for upgrading from freemium. Identify and understand what will compel your customer to upgrade to the paid version of your product. It can be usage frequency, additional features, added product support, or the removal of branding or ads on a paid plan.
The goal is to offer a fantastic product with limitations. Customers could stay on the free product, but with a great user experience and favorable interactions, they are hopefully hungry for more – seeking out the paid product to enhance their experience and expand their engagement with your products and services.
Remember that it is always easier to offer less at the onset and more down the road than it is to give too much up front, only to take it away later. Finding the right balance in providing enough initial value with compelling paid upgrades will take time.
Consider Freemium’s Effect On Your Bottom Line
Creating or switching to a freemium model will obviously not generate a revenue spike initially. Consider not only the potential future revenue you will lose to customers signing up for a free plan (cannibalization of those who would have otherwise paid), but also the portion of your current user base who may downgrade to freemium.
To that end, you also have to decide whether or not to allow current paid customers to switch back and forth from paid to free at will. Only you know what your business can tolerate in terms of short-term revenue loss.
Think About Additional Costs
Short-term revenue loss can come from multiple channels, such as additional support. Should you offer help via phone, email, or chat, or offer no additional support at all to freemium users? You should take into consideration the ease of use of your product and the amount of available supporting documentation. Extensive additional support might not be necessary if you have enough comprehensive resources like a user support forum or how-to guides. But, if the content isn’t already created, consider if it’s worth the cost of supporting additional non-paying customers.
It may seem like a slippery slope of lost revenue; going freemium is not for the faint of heart. You have to be patient, agile, and have the stomach to give up short-term revenue for potentially much higher long-term earnings. Its more of an art than a science, requiring perpetual testing over time to make sure your freemium product still offers value. But, if you keep your customers’ interests at heart, and stay committed to offering value at all levels, you’ll see exponential long-term gains.