As a consumer, I love Freemium. You are giving me something for free. I like free a lot. As a businessperson, I hate it. I would (almost) never advise any company to offer a Freemium model. Instead I suggest Cheapium, a smaller payment that gets the customer to open her pocketbook and become invested in using your service.
Freemium is hard to convert
First off, a caveat. As a consumer I love Freemium. You’re giving me something for free – how can I not love that? If you disappear I’ll find something else to replace you. As a consumer I can’t think of a single service I pay for. Wait. I pay for Apple Music. That’s it. And that’s because I don’t have to buy singles anymore, and I was spending more on singles a months than I am now on Apple Music – so it made sense. If you’re not Apple, you’ll find me hard to convert to a paying customer on Freemium. And that’s a free trial, not Freemium.
“Freemium is a pricing strategy by which a product or service (typically a digital offering or application such as software, media, games or web services) is provided free of charge, but money (premium) is charged for proprietary features, functionality, or virtual goods.” – Wikipedia
As a business owner I prefer to pay for products. I value my time and the time of my clients. I need to know whatever I use for business will be around for awhile. I can’t guarantee that with some Freemium products. I pay for Dropbox because it holds all of our files and if it disappeared tomorrow we would be, well, okay because I also pay for iCloud and Google Drive to back everything up. But if they all disappeared at once I’d be in a panic. I also pay for HubSpot, Boomerang, Buffer, and a few other services. I want these companies to do well, and I’m happy to support them – they help me succeed at what I do.
I don’t want to fall in love with something and then boom! It’s gone thanks to bad management and no money.
However the numbers show plenty of people don’t agree with me. Freemium has a conversion rate average of 2% – 4% to paid. That sucks. That also means you need some serious numbers to make money.
Freemium sends the wrong signal
As a company you should also hate freemium. Why? People who don’t pay still expect the same level of service as those that do. And you won’t get the same feedback from people who pay as you will from those who don’t. It’s a different mindset. People who pay are thinking from a practical work mindset of what could help them at work that moment. Those who are getting things for free are thinking wistfully, as in “gosh this would be nice to have for free too”. Whose feedback do you want from these two scenarios? I know who I’d rather get.
Ever hear the phrase, “Why buy the cow when you can get the milk for free?” Backwards connotations on dating aside, people generally (yes, I’m qualifying here) don’t value what they haven’t had to earn or pay for. By giving your product away for free you’re saying that part of your product has no value. And while that might be true – we’re sure it’s not, but it might – you don’t actually know what part of your product has no value. And giving it away for free doesn’t help you figure that out.
Plus there’s no way to keep a business afloat if you aren’t actually selling anything. Saying you’ll make up for the free in volume doesn’t change the fact that free doesn’t pay.
Cheapium gets you what you need
You need real feedback from people who are willing to pay. You need to find out who is actually willing to pay, as opposed to your friends who will all say they will because they love you and don’t want to hurt their feelings – but will disappear when the actual bill arrives. You need to know who needs your product. And you need to know what other pains the paying people have, because you want to be able to make them more products and sell them more things.
You can do that if everyone is using your product for free. That’s why so many companies today are scrapping their Freemium model. Did you know that MailChimp added Freemium after 9 years? They didn’t start with it. You can afford to give things away once you know what people are and aren’t willing to pay for. Get there first. Start with Cheapium.
Cheapium makes you feel good
You start getting real feedback. And you get this amazing dopamine rush every time someone purchases (unless no one does – and then you have a very clear signal about either how you market your product, or the product itself).
Colin from EquityDirectory pinged me to get me to sign up to his service. It’s a marketplace for startups to find people willing to work for equity. He wanted me as a service provider inside the service. I’m always into checking out new things so I accept his request to have a quick Skype call to better understand the service. In our call I asked him about his business model – he was planning on Freemium. I told him to switch it to Cheapium, and explained what Cheapium is.
He did it. And got immediate results.
Hi Shira,
It was nice to finally connect on the phone yesterday. Thanks for your time and the suggestion to go cheapium.
I added a $1.99 ask as a question/offer toward the end of the application and the 2nd person through paid!
So that made my day and wanted to share it with you.
Hope you are having a great weekend!
Colin
The emails became more often.
… I think it’s a really important lesson for founders who think freemium is the only way to go.
I know it’s going to make a big difference for me, even if it’s just not spending any time with people who with never ever pay.
…and then BOOM!
Wow Shira!
See screen shot
I should have done this a month ago!
Using Typeform and PayPal, I was able to introduce that into my automated workflow within a couple hours.
THANK YOU!!!
And then he reached his first personal milestone
XXth paying customer just came in.
Thank you so much for that suggestion. The psychological boost that comes from people paying (even $1.99) is invaluable…
Then this came out of nowhere yesterday.
http://theamericangenius.com/entrepreneur/equity-directory-pairs-startups-with-talent-willing-to-work-for-equity/
Of course he still has to deliver on his promise of a good product. At least he’ll know the feedback he’s getting now will actually be helpful to bringing in more money.
I still don’t have you convinced? Here’s 3 more posts that agree with me:
- “Monetize Backwards” to Build a SaaS Business That Lasts
- SaaS Pricing: Our Big Free Plan Mistake/
- Scrap Your Free Plan
Are you ready to make the change?