When to use freemium

When to use a freemium model for business

Freemium business model can do more harm than good if not used the right way. There are pros and cons of offering free services and freemium is not a model for every business. When is the freemium pricing model bad and when is it good? When can you offer something at no cost to your users and still be able to scale your business getting enough paying customers?

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When to use freemium and how to get it right

Here is what you need to consider to successfully implement a freemium acquisition model.

1. Cost per extra user

   It makes sense to do it when it doesn’t cost you anything to serve more customers or the cost of delivery to additional users is negligible (a penny or less). The way you can benefit from acquiring more users is that your WOM marketing will accelerate and will multiply your number of customers, also those paying  for the service.

2. Your business isn’t cash-hungry

   You need to be able to finance your operations until the business has scaled and the freemium users convert into paid or you’ve acquired enough paid users.

3. Economy of scale

   Your user numbers need to be significant, with the number of potential customers beginning at 10.000. The freemium business model works for larger businesses and can be very risky for smaller companies. 

4. Simple value proposition

   Your product needs to be easy to understand and use without explaining or demonstrating how it works (or with a very simple and short instruction video). It needs to be simple enough for the customer to make a purchase decision without support from a costly sales team.

5. Your competition isn’t offering free plans

   You will have a greater chance of succeeding when free offerings are your unique competitive advantage and others aren’t doing it.

Examples of  successful businesses offering free plans

If you want to find out more, explore the companies which successfully grew using this business model. Some of the examples of successful freemium business models include: MailChimp, Dropbox, FreshBooks, HotSuite, Trello, Adobe, Spotify, WordPress.

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What is your experience with offering free plans? Share in the comments below.