Matt Lloyd Mobe Tips:The freemium business model, which blends the elements of “free” and “premium,” is gaining popularity among business owners. They are leveraging the concept to draw larger numbers of customers than they could if they didn’t have a free digital product to offer upfront.
In some cases, this strategy works great. In others, it’s a complete disaster. So, how do you know if freemium is right for your business?
To best answer this question, you should consider how the business model evolved.
Matt Lloyd Mobe Tips: Back in the day, the freemium model was pretty much only used by tech companies. Entry-level IT solutions, free apps, music services, VOIP offerings such as Skype—the whole idea was to offer an easy point of entry to the masses, with a plan to upsell a certain percentage of free users on the backend, thereby ensuring profitability.
Over time, the pricing model morphed a bit and expanded outside the tech realm. While marketing purists may take issue with applying the term freemium to other free content-driven mechanisms, such as inbound and content marketing offers, the result is largely the same: using a free product or service to attract customers who, hopefully, will pay for the premium upgrade.
This makes sense up to a point because the power of a freebie stems from having a high quality digital product that can be easily duplicated at low or no cost.
But there are two key factors that will determine whether or not the freemium model is good for your business:
- Your free product’s potential reach, and
- Your capacity for offering complementary products that can lock in profits
Obviously, the greater your free product’s reach, the more prospects and customers you’ll draw. And this larger influx should translate into a larger potential market for your upsell products—because the more people who know about these offerings, the greater the chances that they’ll buy them.
Unfortunately, this is where the wheels can come off the wagon, even for tech companies that should know better.
Case in point: Box, a cloud storage file sync and share company. (Note: Box is the example of choice here because it’s publicly traded and there’s plenty of information available about it. But you could probably insert the more familiar Dropbox, which is privately held, and arrive at a similar conclusion.)
Matt Lloyd Mobe Tips: Of course, that’s not to say the freemium model doesn’t deliver. In many cases, it yields outstanding results. Your challenges when adopting such a model will usually come down to determining what should be offered for free, and what to do if your initial assessment misses the mark.
If you fail to draw in new users, for example, it’s probably a sign that your free offerings are not compelling enough, so you’d want to provide more (or better) free features.
On the other hand, if you’re gaining traffic but no one’s paying to upgrade, that could be a sign that your free offerings are too robust and you need to pare back.
As a business owner, it’s up to you to determine both your customers’ expectations and your willingness and ability to supply free and premium offerings that meet those expectations. To help stay on track, ask yourself the following six questions:
- What am I willing to provide for free?
- Am I communicating the value of my premium offer effectively?
- Do I know my ideal conversion rate?
- Do I fully grasp my product’s conversion life cycle?
- Are my freebie takers spreading the word about my product?
- Is my freemium model driving innovation in my business?
Whether or not the freemium model is right for your business will depend upon a number of factors. If you let the six questions above serve as your guide, you should be able to determine if this model will lead to sustainable success or if you should consider another approach.