“‘Freemium‘ —a combination of ‘free’ and ‘premium’—has become the dominant business model among internet start-ups and smartphone app developers,” Harvard Business Review contributor, Vineet Kumar explains.
“Users get basic features at no cost and can access richer functionality for a subscription fee. If you’ve networked on LinkedIn, shared files through Dropbox, watched TV shows through Hulu, or searched for a mate on Match, you’ve experienced the model firsthand.”
In today’s digital age, consumers and businesses alike are inundated with new tools that promise to make their lives easier. But in a world where consumers have nearly limitless buying options, why should they choose yours?
How can you rise above the noise and win new prospects?
As the founder of a SaaS company, I’ve wrestled with these questions. One strategy we recently implemented is already paying dividends: offering a free, no-strings-attached product.
Here are four reasons why we decided to utilize a freemium revenue model and how it could possibly work for you:
Put customers in the drivers seat.
While some companies decide to offer a free trial, they often face challenges to overcome the initial sign-up barrier. To keep track of free trials, users are generally asked to provide details such as credit card information, which can be a real deal-breaker.
Psychologically, many people would rather register for a completely free product — even if it is scaled down — that can be used indefinitely. The user can then choose if and when an upgrade is feasible. Additionally, offering a free product allows customers to test it out on their own time and in their own way. You put customers in the driver’s seat – exactly where they want to be.
Diversify your audience.
Offering a free product can help you capture new customers and expand into previously untapped industries. For example, in the first two weeks of unveiling a free Google Chrome extension, my company tracked a number of registrants in entirely new markets — from human resources and public relations professionals to technology analysts. A free product can be the quickest, most cost-effective way to exponentially grow your database of warm leads.
Cultivate brand advocates.
Vineet Kumar, assistant professor of marketing at Harvard Business School, has done extensive research on freemium models. He has found that “a free user is typically worth 15 to 25 percent as much as a premium subscriber, with significant value stemming from referrals.”
Kumar suggests that companies should focus on referral incentives and prioritize ongoing communication to increase the value of these referrals. Satisfied users are your strongest brand advocates, so it’s important to listen closely and find out what they like and why. Then engage and encourage them to share their positive experiences with others.
Create a custom lead gen program on your own.
Why rely on companies who sell or rent questionable lists or keep going back to a stale list from an event that took place two years ago? A free product can serve as an invaluable lead generation program that is uniquely yours.
In closing, it’s important to remember that savvy companies use their free product not only as a powerful way to diversify audiences and deepen their potential customer pools, but also to demonstrate their commitment to continued innovation.
A free product will undoubtedly get users in the door, but it’s up to you to develop new, compelling offerings that will tip the scales and prompt them to move from a freemium to premium offering, and ultimately, become loyal, long-term customers and brand advocates.
This article has been edited and condensed.