«The secret of the Freemium model is that the free version of an application has to be the main one, the free version has to be the best. The free version of Evernote is still Evernote ». This is what Phil Libin told us when a couple of years ago we met him on the Innova Network.
The freemium model , which we have already talked about other times in MuyPymes and that companies such as Evernote itself and others such as Spotify or DropBox are championing is without a doubt one of the ways in which our brand can gain greater recognition and initial adoption by a large number of users.
Of course, the big problem faced by companies that opt for this model is none other than converting “free” users into paid users. It is often said in this sense that the change to the payment model occurs when the value offer provided by the premium service is justified. But this by itself does not guarantee high conversion rates (and by high we mean 10%). Sometimes, as we are told by Forbes , the problem is not caused by what we do well (which we are offering in our paid version), but by mistakes that we can make throughout the process.
Not picking the right market
The first thing all business schools and marketing experts say is that we have to be in the right market. In the case of a freemium model, what are we talking about? From a market that meets two basic premises.
- A market that is already paying or is used to paying for a service like the one we can offer you.
- A market in which a niche or opportunity is presented for us, either because there is no real competition or because if there is, it is not delivering the product / service in the ideal way.
Of these two premises, most businesses tend to hit the key with the second, but they don’t take too long to verify the first, which is really the important one.
Let’s say, for example, that we want to launch a freemium service aimed at high school students. Will they be willing to pay? Will their parents have to do it? Are they going to find a way to bypass the restrictions that we can put on it?
Or take the case of a freemium service that only works on mobile phones. How many people in our city would pay for a mobile service? Is there an established mobile payment culture? Are there other companies that have been successful?
We cannot launch into a freemium model with a blindfold . If there is no custom to pay, no matter how good the free version of our product is, few people are going to be willing to pay for the premium version.
Reasons for change
Many of the companies that do not succeed when it comes to betting on a freemium model, do so because of a poor conception of the free version of their product. Either they don’t come and offer too little, or they offer so much that they are left with no real reason for their users to upgrade to the premium version.
As is often the case, the key lies in offering a middle ground: that everyone finds value in the free version and that they receive exceptional service in the paid version.
Some companies use technical support and great customer service as a hook for premium versions. And this is fine, but it usually works only with large companies. Small businesses and ordinary users often have few needs in this regard and therefore hope that the premium version will really pay off.
A clear example of a company that does well in this field is Spotify. Its free version gives us 10 hours of music per month with ads, which helps us to enjoy the service and meet new artists. The paid one, unlimited music without ads and offline music playback on our smartphone, giving in this sense a more than considerable jump in value.
Not analyzing the right metrics
Understanding and being successful in a freemium model means knowing how to correctly interpret the metrics that our business generates and, above all, knowing what the appropriate metrics are. We should be able to answer the following questions:
- What is the total cost of creating that free content, or of offering that free service to X number of users?
- How long will our free version continue to attract new users? And then?
- How often do we have to update the content, or the application or the service? What is the cost?
- What is the return on investment of the free version (ROI) of our product?
Analyzing these metrics from the beginning, we will have the information we need to make the necessary adjustments over time, avoiding that leap into the void that opting for this type of business model supposes for many companies.
