Why offer a freemium service?

January 22, 2021
There is no better way to increase engagement with your product and build up a robust user base than with a free version.

When you have a tech product, one of your main aims should be to get your users hooked and in turn, gain loyal recurring users. Your product needs to be so good that they just can't live without it.

Once you have users checking in regularly and start seeing value of your product, they will be more compelled to upgrade and start paying for the service.

Free limited storage

Click-up, the task management app has a strong user growth model. For a start, their product blows all others out of the water. Every feature is available to use in the free version (and there are many features), giving users the full experience.

As a user, you sign up and are able to explore the app, setting up a selection of lists as well as maybe a few document uploads. Once the 100MB limit is reached, users have the option to go for a paid subscription. By this point, the app will have become part of the user's daily or weekly life. Once your users have decided they can't live without your app, they will be more convinced about an upgrade and parting with their hard-earned cash.

What about the 'free for life' users?

If users don’t upgrade to a paid version of a product, that’s not necessarily a bad thing. Consider for a moment, the more that people encounter the product, the more likely they will be to refer it to others. What might not be relevant for one person might be just what their friend needs.

It's been found that a free user is typically worth 15% to 25% as much as a premium customer when you consider referral potential. Having a communications strategy dedicated to referral incentives can help maximise this.

In every usership model, there will always be the majority of people who are happy with the free product and have no intention to upgrade. Product engagement is a good thing, if you're not getting revenue from these users, you're getting something just as valuable; user feedback and data which can be used to gain insights and influence future product development.  

Free trials

Companies such as SEM Rush and Canva offer a free trial. You upload your credit card details and if you don’t cancel before a certain time then you have to start paying. This strategy could be considered detrimental as some users might feel they’re being tricked into paying if they didn’t cancel at the right time - this is a problem I've encountered myself many times!

On the plus side, having a free trial over a set amount of time creates a sense of urgency, the user is under pressure to experience the product and all its features before their time runs out.

Changing your pricing strategy

The jury’s out on Google Photos’ strategy… like many, I assumed that being able to upload an unlimited amount of photos for free would last forever. I deleted the hard copies of my photos and kept them all in Google. When the email came through announcing that they were going to start charging for storage over 15GB from June 2021, there was uproar (in my family at least).

It was inevitably going to happen, it was a very generous service, but talk about hooking your users in for a free product then holding your precious photos and memories to ransom! It demonstrates that if you’ve given away too much and need to restructure your membership model, then you run the risk of making your customers feel betrayed.

Embracing segmentation

The main intention of offering part of your product for free is that you want to leave your users wanting more and hopefully turn into paying customers. But one must accept that not all users will convert to customers, and your strategy needs to reflect this.

This is where user segmentation can play a big role: there will always be the ‘I’m not going to pay’ segment who make up the majority. You want to learn from this crowd, by innovating the product, keep them coming back, and continuing to get insights.

Your initial focus should be on the early adopters, turn them into loyal, recurring users who just can’t live without your product. Early adopters are less price-sensitive than other groups so initially will be easier to convert.

Next you bring in the 'early majority' - this is where price discounts and deals such as money off for the first x months come into play, these consumers aren't so conscious about 'trend setting' and a good quality product that satisfies is really important here to maintain retention.

The 'free forever' crowd is a hard market to penetrate - don't waste too much money on converting this group, their referrals and feedback will be more valuable in the long-run than trying to turn them into paying customers!

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