Your Starting Guide To A Freemium Marketing SaaS Strategy
If you’re in the SaaS industry, then you’ve probably heard the word “freemium” at least once. It’s a pricing strategy that has gained a lot of popularity in recent years.
While freemium is technically a SaaS pricing model, most SaaS businesses look at it as a form of marketing. And it has proven to be an effective way to get more customers, generate more revenue, and increase brand awareness.
In this article, we will explore the freemium model and some examples of SaaS providers that use it. We will also discuss its pros and cons and the best practices for implementing it.
So let’s get to it.
What Is The Freemium Model?
The freemium model is a pricing strategy that offers users access to the basic features of a product or service for free. This allows users to get familiar with the product and see what it can do without having to pay anything upfront.
In exchange for using the basic features, freemium product providers usually ask users to upgrade to a premium plan (usually paid) in order to unlock additional features and/or remove certain restrictions.
This way, freemium product providers can generate revenue from their customers while still giving them an opportunity to try out the product first.
Freemium VS Other Pricing Models
The freemium model is different from other pricing models like the tiered model or the usage-based pricing model. Although, a free plan is usually a part of a tiered pricing structure.
With freemium, there is no upfront cost to users. The product or service is offered completely free of charge, while users have the option to upgrade to a premium plan if they want more features and/or access.
Freemium Model VS Free Trial
It’s also important to note that freemium is not the same as a free trial. With a free trial, users are given access to all the features of the product or service for a limited period of time (usually 2 to 4 weeks). After that, they have to upgrade to a paid plan in order to continue using it.
On the other hand, freemium offers users access to basic features without any expiration date. Users can keep using those features forever if they choose not to upgrade.
However, a freemium strategy and a free trial don’t have to be mutually exclusive. In fact, you can use both a freemium strategy and a free trial together to attract potential customers and convert free plan users into premium users.
We will discuss this strategy in more detail below in the best practices section.
Real-World Examples Of The Freemium Model
The freemium pricing strategy is usually used for business-to-consumer (B2C) SaaS products. However, it has also proven to be effective for business-to-business (B2B) products as well.
Here are a few examples of freemium products in the real world:
One of the classic examples of a freemium B2C digital product is Spotify.
Spotify offers users access to their music streaming service for free with ads. It also has a few limitations on how many times you can skip tracks, but users can still access most of the features for free.
Listeners can upgrade to a premium plan (paid) in order to get rid of the ads, unlock additional features like unlimited skips and offline listening, and enjoy higher audio quality.
Slack is a popular freemium B2B communication and collaboration tool.
It offers users access to its messaging platform for free with limited functionality. Users can upgrade to the premium plan in order to unlock additional features such as unlimited searchable message history, guest access, and team voice and video calling.
Dropbox is another freemium product, though it can be both B2C and B2B. It offers users access to up to 2 GB of cloud storage for free.
Users that need more than 2 GB can upgrade to a paid plan in order to get more storage space, as well as additional features such as advanced sharing controls and integrations with other services.
Benefits Of A Freemium Model
The freemium model has several benefits for your SaaS marketing efforts.
Let’s talk about them one by one:
Easier Customer Acquisition
People love free stuff. And the SaaS freemium model leverages that to help you acquire customers more easily.
And with a freemium strategy, you can attract more people to try out your SaaS product by offering them access to its basic features without having to pay anything upfront.
Better User Insight
The freemium model also gives you an opportunity to get better insights into what your customers need and want.
You can track how users interact with your freemium product, which features they use and don’t use, what kind of feedback they give you, and more. This data will help you optimize your SaaS product and make it better for other users.
Higher Conversion Rate
The freemium model also increases the chances of converting potential customers into premium users.
Once a user has tried out the freemium version of your SaaS product and seen the value it offers, they are more likely to upgrade to a premium plan in order to get access to additional features and/or resources.
Higher Customer Retention Rate
It’s not just customer acquisition and conversion that benefit from the freemium model. This strategy can greatly improve your customer retention as well.
With a chance to try out your SaaS product for free, users can test it out and see if it’s a great fit for them.
You see, free plan users who upgrade to the premium version are the ones who are really a good match with your SaaS product. So they are more likely to stick around and keep using your product in the long run.
Opportunity For Product-Led Growth
Product-led growth is a strategy where your product is the main driver of growth. Rather than relying on a sales team to acquire customers, you let your product sell itself.
This can be difficult to achieve without a freemium model.
The freemium model gives you an opportunity to let users try out and experience your product before they make a purchase decision. And if they decide to upgrade, their purchase decision will be driven by the value that your product offers — not just its price tag.
Potential Challenges Of Having A Freemium Model
While the SaaS freemium model can be great for driving growth, it also has its own set of challenges. Let’s talk about a few of them:
Getting Free Users To Become Paying Customers
The biggest challenge with freemium is keeping users engaged and turning them into paying customers.
If the free version of your product doesn’t offer enough value, then users may not upgrade to the premium plan. You need to make sure that your freemium version offers enough features and resources so that people will want to upgrade in order to get access to additional ones.
Maintaining Free Plans Still Cost You Money
Another challenge with freemium is that it still costs you money — even if people are using your product for free.
You need to account for the costs of hosting, development, customer support, and other expenses related to maintaining the free version of your product.
It May Lessen Your SaaS Product’s Perceived Value
A freemium model can also diminish the perceived value of your SaaS product.
If people can get access to basic features without having to pay anything, they may think that it’s not worth paying for premium plans. And this could negatively impact your conversion rate and revenue growth.
Freemium Marketing SaaS Strategy: Best Practices
True, using a freemium model can have its challenges. But with the right strategies in place, you can make freemium a powerful marketing tool for your SaaS product.
Here are some best practices to follow:
1) Set The Right Product Limitations
There are various types of limitations that you can set with your freemium model. And if you want to convert free users to paying customers, you need to choose the right one.
Here are some types of product limitations you can use:
Free Plan With Ads: Like what Spotify is doing, offering a free plan with ads is an effective freemium model for most B2C SaaS products.
If you’re offering a B2B solution, however, this may not be the best option. You may end up annoying your users with the ads and losing them altogether. This can even have a negative impact on your brand.
Limited Features: The most common freemium model is the one where users get access to a limited set of features. This gives them just enough resources to try out and experience your product.
One example of this is HubSpot. They offer a freemium version of their customer relationship management (CRM) system with limited functionality. But they also offer specialized features and solutions for marketing and sales. Users who want more comprehensive functionalities will need to upgrade to the paid plan.
Limited Usage: This freemium model is perfect for SaaS products that have a usage-based pricing model or whose pricing tiers vary by usage levels. It allows users to get access to all features but with a limited amount of usage.
For instance, Zoom offers a freemium version that allows up to 40 minutes of video conferencing for up to 100 attendees. But if users want more minutes and/or more attendees for their meetings, they will need to upgrade to one of the paid plans.
Limited Storage Capacity: If you’re offering a cloud storage solution, then limiting the freemium plan’s storage capacity can be an effective freemium model.
One good example of this type of freemium limitation is Dropbox. The file management solutions provider offers 2 GB of free storage with their freemium plan. This is enough for users to get a taste of what Dropbox can do and experience its value, but not enough for them to fully utilize the product.
So if they need more storage space, they will have to upgrade to one of their paid plans.
Limited Support: Another freemium strategy is to offer a freemium plan with limited customer support.
This freemium model is perfect if you’re offering a complex product or if your support resources are limited. Of course, you can still provide a knowledge base and community support for freemium plan users.
But if they need more specialized help and assistance, they will need to upgrade to one of the premium plans.
2) Provide Value Without Giving Too Much Away
What will make a freemium pricing model work as a SaaS marketing strategy is its ability to provide value to your users. However, giving away too much value for free might cause your free plan users to never convert into paid customers.
The free plan should give users just enough resources to experience the product’s value. But it should also have the right limitations in order to attract free users to purchase a paid plan.
How do you do that? Here are some pointers:
Identify “A-ha!” Moments: In the context of SaaS, “A-ha!” moments are those moments when users realize the true value of your product.
These are the moments that can get your free plan users hooked to your SaaS product. So, it’s important for you to identify these moments and make sure free users get access to those features and functionalities despite the limitations they have.
These “A-ha!” moments can vary for each SaaS product.
For example, let’s say you have a project management solution. An “A-ha!” moment could be when users start using the product’s automation features and they are able to automate tedious tasks that were previously taking up a lot of their time.
Make “A-ha!” Moments Easy To Achieve: To make freemium plan users experience the true value of your product, you need to make sure these “A-ha!” moments are easy to achieve.
In our example with the project management software with an “A-ha!” moment being able to automate tasks, it should be easy for freemium plan users to do this without having to jump through hoops.
In fact, you need to make them reach the “A-ha!” moment with as few clicks as possible.
This way, they can easily experience the value of your SaaS product even with limited features and resources.
Make Premium Features Attractive: The freemium model should be designed in such a way that freemium plan users can easily experience the value of your product but still feel the need to upgrade to one of the paid plans.
In our above example where you have the project management software, premium features could be even more advanced automation capabilities, more complex workflows, and other features that can give freemium plan users an edge.
By making premium features attractive, freemium users will feel the need to upgrade in order to get more value from your SaaS product.
3) Offer A Full-Feature Free Trial Alongside The Free Plan
Sure, offering a free plan is a great way to attract free users and get them to experience the value of your product.
But if you want freemium plan users to convert faster, it’s a good idea to also offer a free trial on top of it.
This will give free plan users the chance to fully experience all the features of your product and make sure they are getting enough value out of it before upgrading.
A freemium strategy combined with a free trial will provide an effective marketing solution for SaaS businesses.
The freemium model can help increase user acquisition while the free trial can encourage these free plan users to check out the premium features. If the free trial does its job, it will take the free user closer to becoming a paying customer.
And by combining both freemium and trial strategies, you can increase customer acquisition and conversions in a more cost-effective way.
4) Track Customer Usage & Behavior
One of the most important things to do when offering freemium plans is to track customer usage and behavior. This would require reporting and analytics software, such as Google Analytics or Mixpanel.
Tracking free plan user behavior will help you get a better understanding of how they are using your SaaS product. In turn, this can help you make sure that freemium plan users are getting enough value out of it.
More importantly, tracking user behavior can help you tailor your efforts to get free plan users to purchase a paid subscription.
For example, you could highlight the features they tend to use the most and show them how much better it would be with the premium version.
You could also track which freemium plan users are close to the limit of their free plan and contact them with a highly personalized offer to upgrade to a paid subscription.
5) Focus On Customer Success
Customer success is one of the most important components of a SaaS company’s customer retention strategy. And if you want to convert free plan users into premium users, customer success should be your major focus.
Here are some ways you can do this:
Provide An Easy-To-Follow User Onboarding Process: Your freemium users should have an easy time getting started with your SaaS product. Providing a smooth customer onboarding experience is key to getting your users to experience the “A-ha!” moment and eventually upgrading to a paid plan.
Provide Continuous Customer Education: You should provide freemium users with continuous education and support so they can get the most out of your SaaS product. This includes providing tutorials, FAQs, webinars, email support, and more.
Invite Free Plan Users To Join Your Community: Inviting freemium users to participate in your community will make them feel like they are part of something bigger. This could be a Facebook group, Slack channel, or any other platform you prefer.
This community could be a great place for them to get help from other users, ask questions about your SaaS product, and learn more about how to get the most out of it.
And as they become more comfortable with your product, they will be more likely to upgrade to a paid plan.
6) Add Social Sharing Features To Your Product
What makes the freemium model instrumental to product-led growth is its viral nature.
Adding social sharing features to your SaaS platform can help freemium users spread the word about your brand and encourage more people to sign up for a free plan.
This could include simple social sharing buttons so freemium users can easily promote your product on their own pages and channels.
Or, depending on the nature of your SaaS product, you could get them to share a link so they can use it with other people.
Let’s take Zoom, for example. For a user to be able to invite others to a virtual meeting, they need to share a link. This makes the SaaS product so viral and encourages more people to sign up for it.
Final Thoughts About Freemium Marketing SaaS Strategies
With all we discussed the freemium model in SaaS, let me balance it with this statement: the freemium model is not for everyone.
It’s not a silver bullet for all SaaS businesses.
Remember that free plans would still incur operating costs and onboarding expenses. Not every SaaS company can afford to offer free plans and still have a healthy bottom line.
If you have such considerable expenses to keep your operations, support team, and customer success processes afloat, a freemium strategy may not be the best idea.
However, if your SaaS product has a truly unique value proposition and you can provide a free plan without compromising your overall revenue, then having a freemium model is a great way to grow your SaaS company.
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