In recent years, the freemium business has been booming. From dating apps to instant messaging to music streaming, it seems to be today’s go-to model for both startups and established organizations to market their products. LinkedIn, Spotify, Salesforce, Skype… the list of modern and innovative companies based on a freemium model is endless.
The SaaS industry is no different; the rapid rise of Cloud technology has made it much easier for software providers to produce low-cost, ‘light’ solutions—Bynder Orbit being one of them—that appeal to a much larger audience, particularly small and midsize businesses (SMBs).
Just take the example of marketing automation platform, MailChimp. Within a year of going freemium, they experienced a 150% increase in paying customers, and a hefty 650% growth in profit. Although impressive, what works for MailChimp does not necessarily apply to any other SaaS provider. For every success there is a failure: SaaS analytics company Baremetrics was close to collapse when it implemented a freemium plan.
There’s no magic formula for a successful freemium strategy, so it can be tricky for organizations to decide whether or not adopting a freemium model would be right for them. This ultimately begs the question: what are the secrets to freemium success?
Appealing to a large audience
The easiest way to get one million people paying is to get one billion people using—Phil Libin, Evernote
Niche is definitely not a word used to describe the world’s top freemium products. For the strategy to work, you should ask yourself: does my product have broad appeal? Is it something that many people will have a need for?
For freemium to work well, there needs to be potential for mass market; it is important to remember that even with the most successful freemium models, the typical rate of conversation from free-to-paid users is likely to be below 10%. So that 10% (and even that’s ambitious) of paid users needs to be profitable enough to cover the costs of the remaining 90% in order for it to be financially sustainable.
Low marginal costs
If a freemium model typically targets a large market share, then inevitably you will need to consider the start up costs and servicing of a lot of free users. As much as they may appreciate that your product is free, servicing them is not—think server space, customer service, marketing, etc.
It’s easy for these marginal costs to get out of hand, so the model simply won’t work unless marginal costs are as close to zero as possible. Don’t forget that most freemium products are targeting a mass audience, i.e. SMBs and individuals, rather than large enterprises. As with Bynder’s free product, Orbit, a key difference between the free and paid product is the degree of hands-on guidance given to customers during implementation.
The freemium market is not expecting step-by-step servicing and support, which would never be feasible when considering the volume of customers you’re dealing with. Remember that it’s not the free users making you money; it’s the minority of paid users. To negate the costs of the ‘freeloaders’, freemium models should promote a hands-off, DIY approach to how users set up and use their product.
Balancing free and paid features
It can be tricky to get the right balance between offering a free product that has genuine value to attract new customers, while at the same time providing clear incentives that encourage users to upgrade. It’s a delicate line, and one that may require some trial and error before getting it right.
Yet, what it comes down to is how well you can make the user feel like they want—and need—to keep using your service until they are willing to pay for the upgrade. Put another way, your product should be sticky to the user. The more your product becomes part of a user's day-to-day activities, the harder it will be for them to stop using it.
Spotify are a shining example of stickiness done well. You can create personal playlists for free, and the more you use it, the more hooked you get. Or in the words of Spotify investor Sean Parker: “We’ve got you by the balls.” And the more usage, the more obvious it is that there are limits to the free version. Value to the user increases over time. That is the key—the incentives for a user to convert from free to paid should be staring them in the face, and almost impossible to resist.
The price of your freemium product is its ultimate strength. Who doesn’t love something that’s free? If it also provides value, the freemium product should market itself—its users should become its promoters.
This is nothing groundbreaking, but it can make or break the success of your freemium model. The degree of success from this strategy really depends on the power of user referrals. Slack is arguably one of the fastest growing SaaS companies today, and their Head of Global Marketing, Kelly Watkins, sees it as fundamental to their recent success:
Since we started, we've seen grassroots adoption at all levels drive growth… Slack has been recommended by millions of people around the world—something that remains instrumental to our momentum today.
So how do you incentivise users into recommending? Other than obviously having a great product, a clever way is to offer additional or upgraded features. For instance, Bynder Orbit offers extra storage space to those who invite other users. Not only does this strategy fuel organic growth, but it satisfies a key component of freemium success: the product’s value to the user increases over time.
It’s a fine line between success and failure in the world of freemium. But if you have a product that ticks the above boxes, then you’re on the right track!
If you’d like to learn more about freemium DAMs specifically, read our guide here.