May 19, 2019

Is Freemium Dead

Mukhtar Raage @mooraage

I've been toying with the idea of launching my product and charging from the get go, with 15 day trial periods. Do you think there's a wave startibg where people are proudly just charging straight away for the products they have? Especially if you don't plan on raising investment and growing a free product first.

What are your thoughts on the Freemium model?

  1. 10

    Depends on target demographic. I feel audience in their late 20s are less hesitant on paying for useful service. Freemium is still healthy from the 1000s of SaaS out there I bookmark and follow. Can you give a 7-15 day FREE trial and charge $0.99 USD for additional 7-15 days (double the trial period). So when the "trial" ends, you've already broken down the barrier most people have with the initial investment -- paying. The idea is, it's easier for them to pay full price after trial is officially over.

    1. 4

      Now that trial period extension is very creative this is the first time I'm hearing about that. Will definitely look into that. Kinda reminds me of Hooked by Nir Eyal

    2. 2

      I have a "fear" about this approach because I did not experience it, so did someone you know or anyone have testimony about this ?

      It's seems like a very creative way to break the barrier indeed and I have never heard of it.

      On first sight, I'd say it could allow to get more insights about the interest of your customers and may help segment them better..

      BUT on the other hand, I fear that charging low then charging full price may make people think that the full price is overly excessive (since we were so "generous" in the first place) which may get lower full paying customers.

      That's the kind of thoughts that raised my question above.

      1. 3

        To avoid that scenario, you make sure to let customers know why you charge the free trial extension which not many people do and that may be to your advantage as a perfect interruption. The key is to set clear expectations, so customers know the diff between an extension and premium price.

      2. 2

        Maybe have the extended trial agreement have a auto-renew at normal rate.. that way there is an understanding it's a 1 time extention and they have to opt out - makes for a fair trade.. we will give you 15 more days for only 99c but you agree that if you don't cancel before the end of 15 days, your account will convert to a full $19.99/mo "Pro" account. We will email you 2 days before will bill you to remind you. That seems fair doesn't it :) Click here to extend.

      3. 1

        Thank you both for your replies!

        Setting clear expectations and ensuring the client is really aware of our "real" price sure would help. Thank you

  2. 4

    It really depends on the kind of products and the support effort to serve free users. My ipgeolocation.io is a freemium product and has 6K+ total users (90% of them are free). My audience is developers who don't need any assistance from me. Most of my support queries are related to payment matters and feature requests. So I don't have any issue in offering it for free. The plus side of it is that my CAC is low and word of mouth is a major driving factor of my product. The down side of freemium is that it takes ages for some users to convert.

  3. 4

    2 Key questions:

    1. Cost per free user

    2. Customer setup friction/time to see significant value

    My primary SaaS is freemium because it is a major business changing switch to get started, with many users taking months or years until they are fully setup and committed and ready to upgrade.

    Cost per free user is negligible, minor data and backup storage only, occasional time for support. What we spend on free users we easily make back in avoided acquisition costs.

    2 new products are free trial.

    First because the cost per free user is significant enough to avoid, got per usage external costs.

    Second because the time to value is short, most users can be setup and running within 15 minutes and will then see the benefits automatically over 2 weeks with almost no extra time input needed.

    1. 1

      Thanks for the insight!

      I find that with some freemium model products , the value proposition to switch to a paid version can come across as negligible at best. Maybe this is just a symptom of poor communication.

      1. 1

        Thats the balance you need to master with Freemium.

        Free tier needs to be featured enough that the user gets benefit and is hooked, yet limited enough they are motivated enough to upgrade.

        How and where you draw those lines will depend on the product, but if cant satisfy both sides then a trial may make more sense.

        1. 1

          That's the value proposition i'm fighting with. If I create a free tier then the time and money i'd need to invest to create a paid tier is not feasable especially if the paid tier value proposition isn't good enough.

          I'm in the process of running some tests with the target audience to make sure what I'm offering is good enough to pay for.

  4. 3

    I don't think it's dead. It really depends on the product and type of business you are building.

    From a side project perspective, time and money are usually the limiting factors. Offering freemium takes away from both of those.

    I personally don't like freemium in the beginning stages as it costs more money, takes up time and it can be a false positive (signups who will never pay). I do think it can be an effective marketing tool, but I'd do that when you have revenue to play with.

    1. 1

      The false positives are a killer and can hit a teams moral!

  5. 2

    I think it also depends on how clearly you can explain your product upfront. If users know exactly what they're going to be getting, then they'll either be willing to pay for it right away, or they won't ever pay for it. Having clear screencasts of how the product actually work could be a great way to tell users what they're getting. Then you can offer a 30 day money back guarantee to make them feel totally comfortable in taking the plunge.

    Lots of apps just give you a list of features and maybe a general, 2 min video, that doesn't really show how you actually use the product. Not sure what they're hiding. But in those cases the free trial gives users a chance to actually see the product. If you can give users what they need off the bat, then you've removed the need for the free trial.

    1. 1

      That's a very interesting approach, thank you for sharing. I like the 30 day money back guarantee idea

  6. 2

    Freemium is used for marketing, if you can lower the CAC (Customer Acquisition Cost ), and handle the load (server costs/support) then keep it. If not then no need to have it.

    Lots of bootstrapped companies have no freemium.

    1. 1

      For 99% of apps, server costs are so low as to barely be a factor. One of my good friends bootstrapped to $50k/month in revenue on a purely ads based revenue model running on an older, slower version of PHP and still only paid about $250/month on hosting. His hosting wasn't a super cost-efficient one either—he picked it for the hand-holding.

      In my case, running a freemium membership site, monetization / site expenses is even more favorable. I'm earning more than my rent costs and I'm spending about $10/month including hosting, transactional emails, domain names, ...everything. Not only that, but I could handle at least 1000x my traffic without needing to move to a more powerful server. Support would be harder, but still scale very nicely given the revenue.

      It's much harder to get users than handle the traffic. If you ever find yourself in a situation where keeping up with server costs is the main problem, you'll probably either be rolling in so much money you can hire whoever you want to fix it or fending off investors trying to help.

      1. 1

        I agree for most products server costs will be very low.

        However handling support and getting feedback from free users who most likely won't convert can be a problem.

        1. 1

          Yeah, support is definitely the cost for a product-based business. My friend with the ad pub site basically just made content, so the only "support" was filtering spam / profane comments.

    2. 1

      Yes that's my thinking. I wouldn't be able to afford the cost of running a project that eats my money.

      I feel like its much harder to convert a user to a paying customer on a freemium model. Than charging outright. Of course your product has to be on par

  7. 1

    While freemium gets people in the door, those free users are extremely expensive to keep.

    Folks will sink their heels into never paying for something. In my experience on a few freemium platforms of varying sizes, free users tend to be upwards of 98% of your collective user base and in true 80/20 fashion, they are the majority of your customer support issues.

    There's nothing worse than "helping" a free customer that's trying to will your free offering into being even more free for their needs.

    Free tends to never be enough as well. Not for profits can be especially notorious about requesting access to a free version of your paid offering, even if the actually free version covers their needs.

    Everybody has their "story" as well. Students / educators think it should be free for academia. Smaller shops will feel it's too expensive for their needs. My favorite is the infamous "one-off" user that things that their needing to use my platform for a short period of time is somehow reason enough to give it away for free.

    Then there's the infrastructure costs associated with the majority of your customers using the platform without contributing any money back to the business. Sure, maybe they tell their friends, but that just compounds the problem by introducing even more free customers.

    Depending on your business, I think the free trial is a really good start. The big question is, is 15 days enough time for you to show value to a customer? Depending on the product, that may not be enough time. Hell, 30 days sometimes isn't enough time. I'd play around with that a bit.

    The moment you crack the code of being able to immediately show value (like, within the first hour of using the product) and it's sticky enough, you could drop free trials entirely in favor of a money back guarantee. Then you're cutting through another percentage of tire kickers and can focus more effort doing customer development with the warm leads that are willing to enter in their credit card to get started.

    1. 1

      Thats some very interesting insights thank you for sharing. So the basic concept of the application is. A host (tutor/researcher/analyst) creates a discussion, they invite their participants then hold an insightful discussion. Once, the discussion is over, the participants leave valuable feedback for the hosts.

      Now my thunking is ome of two things.

      1. I do a model where the product is simple. I reach a wide audience and I later monetise by either creating an Advert page (hosts advertise their services) where users are directed to after the feedback & hosts pay a monthly fee for it OR I create a freemium paywall for more features.

      2. I simply charge to use the product in the first place. Something like £5-£10/m with the 15-30 day trial.

      I'm going to create another post as a follow up haha. For more on the concept see my landing page here:

      https://mailchi.mp/9e48ee27e3a6/newny

      1. 1

        One other tid bit I picked up a while back. If you ever plan to charge a customer, you should just go ahead and do it at the beginning, so #2 is probably your best bet.

        People get pissed by pricing changes, especially going from free to paid (heck, I'm moving off Mailchimp for some stuff just do to their new pricing adjustments :P)

        Best of luck with your journey!

        1. 1

          Yes I definitely hate that too haha! I might have to do that!

          Thank you for your input !

  8. 1

    I have seen this debated for years. My co-founder and I certainly debated it 6 years or so ago, and we’ve tried several options. I strongly suggest trying one option and seeing how it goes, and then testing another option.

    1. 1

      That's definitely my plan. Thanks for your input!

  9. 1

    There are cons & pros to both business models, I've written a piece comparing the two models:

    https://freemius.com/blog/premium-versus-freemium-wordpress-plugins/

    Also, depending on the product type, but in some ecosystems like WordPress, by using the freemium model you can tap to free distribution channels for your free product version:

    https://freemius.com/blog/freemium-business-model-wordpress/

    Hope it helps.

    1. 1

      I'm gonna check it out. Thanks!

  10. 1

    I've been building www.ashop.co with a similar notion, that I will charge from the get go.

    yeat, in practice -- I managed to get some paying customers that way, but marketing/pitching part was really hard. For a month I've been mostly trying to sell it, not much building the product.

    I figured a way to offer a free package, while still making some money on it. But also acquiring premium users became easier... they basically email me now, instead of me trying to cold mailing everyone (or pitching in different social networks).

    So far, I'm happy with decision -- free packages give me more time to build product. And I have to spend less time marketing/pitching. Yeat, as some people mentioned here, I invested some time into making product as simple as possible (to have less support to handle) and it's very optimized Rails app (I've spent a lot of years performance tunning different client apps, so it was a no brainer on my side)

    I also have couple of more tricks under my sleave to lowering my expenses in case free packages will be a huge burden.

    1. 1

      Wow! So in practice it mostly depends on the product/service you're offering. It can garner different reactions from customers on different types of payment plans.

  11. 1

    Ahrefs does "7-day trial for $7", which is somewhere on the freemium "spectrum".

  12. 1

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