When Freemium becomes Freemidumb: Four Tips to Avoid Failed Freemium Pricing Strategies
Freemium is a pricing strategy that many SAAS companies use to increase their consumer base quickly. Generally, a freemium strategy involves allowing consumers to use a limited version of a product or service in the hopes that they will like it enough to want to pay for the full version later down the line.
The problem with the freemium model is that a lot of the time, consumers get stuck on the free version and don’t want to pay for the premium version (think: constantly deleting old files from your Dropbox account so you don’t have to upgrade to the paid version).
So what do you do if you have a product that requires consumers to use it to see its value, but you want to avoid potential freemium abusers? Below are four tips that can help onboard consumers while avoiding the pitfalls of a freemium pricing strategy:
Tip #1: Supplement your Freemium Service with Advertising Revenues
Spotify is a great example of offering a freemium service to attract new users while still making an income through advertisements. Users can use the limited version of Spotify for free but have to listen to ads periodically if they don’t want to pay a monthly subscription.
Tip #2: Shrink the Gap Between Freemium and Paid Subscriptions
If your product or service is small, shrinking the gap between freemium and paid subscriptions can help your customers jump more easily from free users to paid users. Case in point: Apple’s Cloud Storage. Users get 5GB for free but can upgrade to 50GB for just $0.99 a month. Because users get so much more storage space for such a low cost, users are easily persuaded to make the jump to a paid subscription.
Tip #3: Offer Student Discounts
An alternative to the freemium model is offering a discount for new users, specifically students who are on a tight budget. Adobe uses this strategy for young creatives by offering the Adobe Creative Suite at a discounted rate for college students. Once students graduate, the rate jumps up, but the users are dependent enough on the service after four years of college to pay the full rate to facilitate their professional work.
Tip #4: Provide Free Trials (But Make Sure They Have an Expiration Date)
Instead of offering a freemium product with limited use, some companies offer a free full-version trail with an expiration date. Hulu is a great example: right now, you can enjoy 30 days free (enough time to get hooked on This is Us or catch up on The Bachelor). At the end of 30 days, customers who want to have continued access to their favorite shows have to pay a monthly fee.
There’s no “one size fits all” for SAAS product pricing, but we hope these tips get your ideas flowing when you’re deciding whether or not a freemium model works for your business!