Could Freemium be the Death of Your SaaS Brand?

It’s almost two decades since Vistaprint packaged a reduced service for free as a smart way to make money. Sixteen million customers later and the billion dollar company proved that “free” was incredibly marketable.

Who’d have thought…

So it became popular among the SaaS community and an excellent vehicle for viral growth. Hootsuite, Dropbox, Evernote, Buffer, Slack… the list goes on.

However, for every Spotify and Slack that enjoyed roaring success, ten Bidsketch and Baremetrics were financially hemorrhaging at the sides.

Freemium success for SaaS companies is like that rare breed of individuals that don’t get hangovers. It’s questionable, enviable and it’s probably not going to happen for you.

A tiny minority of the market enjoy viral growth and end up unlocking an empire overnight.

It was the vehicle for Slack to become the fastest growing App and hit $200m within a year, converting 1.2m of its users onto a paid service. Then again, its introduction nearly buried Baremetrics.

There’s something to be said for those that base a financial model on the exception. Especially when the service they’re taking to market is entirely different.

In 2015 Pacific Crest & Matrix Partners revealed that 70% of cloud services generate no revenue from freemium marketing.

Customer conversion from freemium to paid services rattles around at 1-10% on average.

The reality is SaaS companies will probably want to steer well clear of freemium and here’s why.

There’s no such thing as a free lunch.

Somebody is always paying for freemium.

The cost of onboarding and upkeep needs to be next to negligible, or it’s going to burn a hole in your company’s bottom line before it’s monetised.

It’s all well and good sacrificing short-term profits for long-term growth, but if you overlook the affordable costs, then you’re already nailing your company’s coffin shut.

What does the transition to a premium service look like, what is its likelihood and how could a surge in new customers create technical cracks in your system?

If you want to upset your CFO on investors, float the idea of a freemium model with them and watch their brows furrow.

Entitled “freemiumists”

People like free stuff.

What people don’t like, is when a free service is replaced with a cost, or they’re kettled into buying a premium service.

People feel like they’ve lost something. Freemium creates an entitlement, and when you try taking that away, you plant a marketing vulnerability.

The same people that want a free service will also expect it to be flanked by on-demand and unlimited support.

Just look at the reaction to Spotify’s latest move to withhold certain albums for premium customers. Please think of the backlash when WhatsApp or Skype decide to monetise more of their freemium offers. It’s a thankless model.

Everybody likes free stuff… apart from investors. Bear in mind that less than 10% of SaaS companies that achieve an IPO use freemium as a vehicle.

Wrong customers

Behind the businesses that provide the best service are customers that buy into what they’re doing.

They could be brand advocates or fall under the small percentile that will eventually convert into paid subscribers, but it’s more likely to encourage the wrong use.

It invites those that are reluctant to invest in your business or those that aren’t going to benefit from it truly.

Businesses that are worried about cutting pennies over your services aren’t going to reap the real benefits.

If they see a partnership regarding cost over value, then you’re always onto a loss.

Your reputation is your brand and unfortunately social media is now a bulletin board for pissed off customers. Why give them ammunition to sling mud at your company?

It devalues your SaaS.

Is your service worth paying for?

Providing a limited level of service obscures customers from seeing your entire vision. Not every SaaS company can demonstrate their value while trimming it down for size.

If you market your service for free, then you risk doing your company a disservice by suggesting it isn’t a premium service. If it’s worth paying for, stamp it with a price.

Think about who your customers are, how simple your product is to use and the costs of scaling a free model.

If you’re coveting low-value mass volume to make money and want to trade reliability and quality for price and popularity, then, by all means, swallow the freemium cyanide pill.

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