“Perhaps the reason price is all your customers care about is because you haven’t given them anything else to care about.” – Seth Godin
“Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product.” – Ron Johnson, the former chief executive officer of J. C. Penney
“There’s a fine line between compelling and adversarial.” – Kathryn Gorges
Sometimes the freemium setup hits the mark, creates a great relationship with happy customers, and brings in more revenue as people are inspired to level up to paying. And a lot of times businesses blow it. Why?
Last spring I finally had to call it quits on a service I’d been subscribed to for a loooong time. Here’s how it happened: one day I got an email from them. They announced a price increase that was 15 times the price of their lowest subscription. And they were dropping their freemium model completely. Effective in 2 weeks. Period. End of story.
Well, that made a lot of their long-time, loyal customers really mad – ones who had helped build the reputation and revenue base of the company. Turns out that didn’t really matter to the business. They were now onto the really big companies and no longer had time, energy, or inclination to serve their original market.
Various versions of this have happened to me several times over the last 6 months. Services that once offered a free level, a low paying level, and then some other levels, have decided to stop all that and do something completely different (and confusing I might add).
And then there are the ones who offer what feels like a scam freemium model that has a free level with almost no value (once you start using it you really have to upgrade). This just feels like they’re dangling a carrot and then swipe it away at the last minute – not good.
Getting customers or prospects to try something new challenges every business, whether it’s an additional offering or a new business. The freemium business model has proven effective for service businesses such as SaaS, but also for some types of product businesses.
So, what’s the problem? Why doesn’t this work over time? Is freemium just an interim model and not long-lasting? Is the free level just too hard to sustain?
The types of freemium that work deliver a great experience and are sustainable financially to the business. They offer the newcomer a small slice of delight in both the value of the offer AND the kind of relationship they’ll have with the business. That signals to the customer there’s more delight and good service to be had by leveling up.
Successful freemium offers build a relationship of trust by offering value, clear communication, commitment, and respect. Freemium isn’t just a quick path to getting clients and then moving them up to higher levels of purchase.
The free in freemium needs to be free of financial outlay while offering value. Because the experience is NOT free to the customer: they’ll need to spend time and resources, sometimes significant, to take advantage of even a free level. That product or service becomes an integral part of the customer’s business. Otherwise, what’s the point on either side of this equation.
Recognizing that free isn’t free on customer’s side helps motivate thinking more deeply about the entire experience for the entry level in the freemium model.
Mediocre freemium business models aren’t sustainable and they create unhappy relationships with customers, either in the short run or the long term. Spend the time being strategic with a focus on making upgrades irresistible to your customer – because of course they want more of what they’re getting.
Note: freemium is a pricing model, and the basis for the business model, where people can get real value from having access to part of the product or service for free. And then they can move up to various levels of paying for more value.