Software companies have it hard. They can spend all the time in the world developing a great piece of software, but without people using and paying for it, they’ll never make a dime.
Getting that software into the hands of unaware or skeptical end users is the hardest problem, and with normal business models, it can be very difficult.
Enter the freemium model.
I know what you’re thinking. You’ve spent years developing and enhancing your software, and now I’m telling you to give it away for free. Seems counter-intuitive, right? Aren’t sales better?
They are, but freemium models show users the value of your product in the most straightforward, natural way, in turn, enabling it to sell itself.
If your product is truly helpful, easy to implement, and use, then your user numbers will grow naturally and they be willing to pay to get even more out of it. You’ll be able to charge for the most valuable features of the software and grow your revenue in ways you would never have with a traditional subscription model.
Let’s talk about the benefits of a freemium model in a bit more detail.
Skype, Sidekick (formerly Signals), MailChimp, Evernote, Hootsuite, Dropbox. The list goes on. Some of the most successful software companies, and they all offer a freemium service.
Even if they have concerns, a free service removes risk and obligation, enticing new users to try out the software. It helps your developers figure out the most desired features, work out all the bugs, and see how the software handles scaling with a growing user base.
All those services spent lots of time and resources doing just that, and they’ve grown immensely since then.
How to Upsell Premium Services
Once your freemium service is out in the world, make sure you keep track of your users, what they like, what they don’t like, and adapt the software until it’s just right.
If you launch a new feature, test it and make sure it’s something users actually like. You want to cater to your power users.
Power users are the ones that use your software every minute of every day. Using the software helps them achieve their organizational or personal goals. Find out their most used loved features and most desired features; the ones they can’t do without out, the ones they would pay for.
That’s when you add a premium tier.
For Skype, it was using the service to dial normal phones – enabling users to make voice and video calls anywhere through the internet.
For Sidekick, there was a cut-off after a certain number of email notifications. Once you reached it, you’d have to upgrade or wait until the next month for more.
Making Sure Freemium is Right for You
Bottom line: if it’s free, people are more likely to try it, and if it will add value to their lives, they’re more likely to buy it.
Create tiers by restricting the most valuable features, but be careful not to alienate free users.
Freemium can be tricky, there are a lot of risks – giving away your product can be harmful if not done correctly. Make sure you do your research and ask your customers if there are features they would pay for.
If your product is too complex, not in demand, or too pricey to create, it may not work as a freemium.
Your software has to be easy to implement, and clearly demonstrate value to your customers, or it won’t work. (It also can’t break the bank to produce, but you can learn more on that here.)
If your competitors are offering freemium, check into how they’re doing it; if they’re not, maybe you shouldn’t either. Research your market and take note of your buyer behaviors. This will ultimately decide whether or not going freemium will work for you.
Your Product Has to Grow
This is essential. If your freemium users have been using your software for years and still haven’t converted to paying customers, it’s time to reevaluate and make sure that the value is there for them once they convert.
In the case of Signals, the product grew until it was re-launched as Sidekick – the strength and identity of the brand was determined by the user base, transforming it from an email tool to an essential sales companion.
Yogi Insights has done some research on this very topic. By surveying customers who currently use free services, they found that 42% of respondents paid for products or services after experiencing them for free.
That’s a significant portion of your user base that can be expected to convert into paying customers. Establishing an incentive program for referrals is a fantastic way to spread the word about your freemium, while constantly listening for feedback and releasing community-based updates will help nurture evangelists.
Although you’d think that giving away your best software or products might not be the best way to gain users and generate profits, very successful companies have built empires on that ideology (ie. Google.)
To offer freemium software, you have to look at the long run, and establish a loyal, responsive user base that provides you with the feedback you need to create the most amazing tool for them to use.
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