Making Freemium Work: 6 Tips on How to Succeed with this Business Model

As a software development company, you know the importance of getting more users to try your product. 

However, where do you find them and how do you plead your case that your firm’s solution is the best on the market for solving challenges and needs?

The truth is that you don’t. Instead, you make your offer so irresistible that they can’t say no. 

And, given enough time, they come back willing to give you money in exchange for access.

How is this even possible? By using the freemium model to leverage your software platform or service.

You’ve probably already encountered this type of business in your everyday life.

Facebook does it. Dropbox does it. And a whole bunch of other widely known organizations who understand just how powerful it can be.

But, before you start telling everyone that your software platform is available for free, there are a few elements you need to keep in mind.

Here’s what you need to know about making freemium work to expand your customer reach.

What is a Freemium Model?

Essentially, the freemium model is when you offer a target customer a free version of your software or other SaaS platform. 

➤ In order to unlock more features and expand the usability of the program, they’re required to upgrade to a premium version for a small fee.

It might sound counterproductive at first to give away the software your team has worked so hard to create. 

But the truth is that this can be a lucrative sales model, especially if your premium version is filled with robust features or additional product training.

➤ The process also acts as a way to build a foundation of trust between your business and the end user. 

If it doesn’t cost them anything to use the basic level, then they’re likely to start to increase confidence in your organization and product while using the free version.

In the end, this translates to a higher likelihood of upgrading to the premium option in the future. Which, if you think about it, is the whole point of using this type of sales method in the first place.

➤ The freemium business model is also an excellent option if your software or SaaS platform is new to the industry or hasn’t yet built up its reputation as an industry leader.

Why? 

Consumers naturally distrust new or emerging solutions. Instead, they want to work with tried-and-true products or services. 

If you can build up your reputation, you have a better overall chance at success.

Making Freemium Work: How To Do It

Just about anybody can try the freemium model to gain more traction for their software platform. But it really takes a skilled marketer to know how to do it well.

Why? The process isn’t always as cut and dry as it seems.

In order to make a freemium program stand out, you have to be willing to give up basic access to your software without charging anything at all.

And the features you provide need to be as robust and useful to your target market as possible.

But you also don’t want to give away everything immediately, either.

If a user is getting too much value from what they have access to, then they might never upgrade to the premium version.

Can you see that there is really a delicate balance between giving too much of your product away and not being able to gain premium subscribers?

The good news is there are multiple ways you can achieve this without having to give up too much of your profit margin.

To help you out, we’ve collected six of our top tips on how to succeed with this business model.

#1: Know what your ideal customer is willing to pay for

It isn’t useful to just let anyone use your platform without some sort of premium option. 

That said, you also don’t want to be too skimpy on the freemium offer, as a bad deal could turn away subscribers.

The trick is to find the happy medium in between, which really begins with knowing your ideal buyer persona.

When deciding on what features to include in your freemium offer, make sure you’ve thought about how your target customer would use the platform.

While you might get a wider range of subscribers than just that ideal customer you have in mind, knowing their needs is the first step in understanding what they want for free and what else they’re willing to pay for to access.

For example, let’s say you offer a cloud storage solution for medical providers. You know just about everyone could use a small amount of space, such as 500 MB.

But the vast majority of your ideal client base has a need that exceeds 1 GB of storage space.

To make the freemium model work, you would give the lower amount for free, but charge a premium rate for what they really need access to.

#2: Nurture your freemium customers into paid ones

To ensure your freemium business model is a success, you need a plan to nurture your unpaid subscribers into becoming premium members.

What this means is that you should be able to know your buyer’s journey well enough to find touchpoints where reaching out and helping with their concerns makes the most sense.

For example, when a user has had access to the software platform for a set number of days but has never logged into their account. 

You would want to automate an email or other means of communication that could see if there were any questions or concerns.

You could also make a drip feed of emails offering helpful advice, guidance, and tutorials on how to best maximize the use of the freemium version of the product.

By doing this, you are building trust with your subscribers and showing that you truly care about their needs.

After a few contacts, they should be warmed up enough to start hearing about the premium version of your product.

If you’ve earned their trust and conveyed the value of upgrading, then it should be an easy feat to get them to buy.

#3: Stay committed to improvements

Let’s say you get to a point where your freemium offering is going spectacularly well.

You have tons of new free subscribers jumping on board all the time. And a fair number of those convert well to premium customers.

How do you keep them as customers and ensure they don’t slide back into the unpaid version of your platform?

By continuously staying committed to improvements and innovation.

Simply put, you have to continue to make your product the best it absolutely can be by adding new features as often as reasonably possible.

This allows current subscribers the option to try out the new capabilities, while it also gives your freemium users a reason to consider upgrading.

The problem a lot of freemium software providers have when it comes to this business model is that they let their end product get stale, which leads to attrition and declining subscription numbers.

Instead, it is always better to make these improvements and give your target customers yet another reason to trust your company.

Not sure where to start on making changes? Send a survey out to your existing customer base. 

They’ll likely have an idea (or seven) to help get your development team on track.

#4: Offer a referral incentive

Word-of-mouth advertising has always been one of the strongest forms of marketing, even before the internet was even a thing.

With the freemium business model, it is still just as important to get people talking about your product and the different features available for subscribing.

To make this much more effective, you’ll want to offer some sort of referral incentive.

For example, you could give a newly upgraded paid subscriber the chance to give one month free to a friend. 

There’s a good chance that a new person who received a premium month for free would be super happy to continue after the timeframe is up.

The end result is that you have two happy premium subscribers willing to tell others about your product and why it is the absolute best solution for their unique needs.

You can also take this a step further by offering monetary or gift incentives for referrals.

This is often more lucrative within the B2B environment, where your SaaS might be something that a company pays thousands of dollars a month for team access.

If your existing customer knows about this program and understands that they might get a commission, there’s a high probability that they are going to work harder to help you close the deal.

#5: Understand customer motivations for conversion

While this somewhat relates to knowing what your customers are willing to pay for, it is a little different.

Understanding customer motivations for conversion are elements that would push an existing freemium subscriber into purchasing paid access.

As an example, let’s say your software is financial-related and helps small businesses get better organized for filing taxes.

During most of the year, your main freemium base wouldn’t have any direct need to speak with a certified accountant over live chat.

But during tax season? You bet they would.

In fact, they would be likely to sign up for an upgraded service that provides access to additional insight and guidance to keep them in compliance with the Internal Revenue Service.

Even if your software program doesn’t deal with something as huge as finances, it comes down to a basic understanding of what drives people to seek additional value from your product.

By keeping in mind your ideal customer’s wants, needs, and motivations, you can position your paid subscription as a positive alternative to the free offering they already have access to.

#6: Understand the intricacies of this type of business model

The freemium business model isn’t like many others you might see.

For example, your hairstylist wouldn’t usually allow you to try out a portion of a haircut before leaving without paying. 

And your favorite vegan restaurant surely wouldn’t let you chow down half of a sandwich for free before walking out the door.

Understanding the intricacies of the freemium business model includes knowing how to provide intense value without scaring away potential subscribers.

Furthermore, it is important to know that this model has a unique customer life cycle.

While early adopters tend to be very excited subscribers, those who come to the product later in the process are likely to not be as enthused.

In turn, this can lead to a higher churn rate than you might have previously experienced.

So, how do you keep this from becoming an issue?

Success with the freemium business model really just comes down to studying it carefully and striking a balance between value and necessity for your target market. 

If you can achieve that, then your company is really in a good place.

Wrap Up: Making Freemium Work Effectively for Your Business

Coming up with various ways to ensure your free subscribers trust and value your brand is important. 

But so is striking a balance where upgrading to a premium subscription feels like a no-brainer.

Striking this balance is really at the heart and soul of making freemium work. 

If you can manage to accomplish this feat, then it should be incredibly easy to keep those new free customers and, ultimately, a whole slew of happy paid subscribers.

Are you looking for more information on how to increase online conversions? 

Our Rock Content team has put together an extensive ebook specifically designed to help you reach your goals!