How Start-ups are using Freemium Models To Acquire Paying Customers in 2021
As we know, the freemium model is a combination of free and paid services (with the paid services generally perceived as more value-adding). SaaS companies are increasingly moving to Freemium as a choice of business model to get their users hooked to their products and services without a commitment to pay at a regular interval.
The foremost reason for this strategy to work is that it provides enough access to a user within the beginning which provides enough scope for one to find out and understand the merchandise. By offering a free plan, within the beginning, the business provides essential services to the individual or organizations.
After a time when the users build a habit around using these products, the companies start monetizing them by offering more value-adding products as a paid up-gradation. Moreover, this model enhances the capability of the companies to get better exposure via word-of-mouth.
The key areas that the companies should focus on to perform well in this Business Model are as follows.
Companies Ascertain their target Conversion Rate.
Companies state if the conversion rate is too low, it's either because you give away a lot for free or a little or no reason to pay or maybe because the customers are not able to grasp the usefulness of the upgraded features.
Conversely, if the conversion is too high, it shows the free offerings aren’t fruitful.
Therefore, hampering the new user acquisitions. Moreover, based on the conversion rates, companies generally look for other avenues.
Companies commit to relentless Innovation
A pivotal point here is to keep the customer retention rate higher by providing regular updates and upgrades in the product offerings. Also, continuous innovation in the product offering is essential to keep companies stay visible and relevant keeping in mind the ever-increasing competition.
Companies Monitor the Conversion Lifecycle
This includes know-how of your person personas and their motivation to pay as your merchandise treads the one-of-a-kind tiers of the product existence cycle. For example- Early Adopters are much less price-touchy in comparison to Laggards.
Companies keenly assess the unique selling point and are willing to remunerate if it matches their aspirations. SaaS companies keenly observe and target these Early adopters through their product offerings and brand communication. Companies understand that reaching out to the wrong target audience will only increase their user acquisition cost and servicing costs.
Let us have a look at some examples of famous companies that are setting an example by meticulously strategizing their Freemium Model.
Ben Chestnut, MailChimp's co-founder explains that during any business, the ratio of non-paying to paying customers is preferably 10:1. The corporations must collect sufficient sales from the paying consumer to preserve the non-paying cohort for a freemium version to work. As per a source, the company has delivered over 30,000 new customers and 4000 new paying clients each month.
The following variables are to be taken care of to acquire more customers into Mailchimp’s freemium model:
- Mailchimp works aggressively to rank for greater precise key phrases than its natural seek competitors. This has helped Mailchimp to rank on top Search Engine Result Pages (SERP) thus acquiring more visibility.
- Meticulously designed landing pages, useful resource guides, and multiple CTAs placed strategically keeps users hooked and on the page.
- Mailchimp makes use of a number of its content material budgets to promote new content using Google Ads concentrated on key phrases that entice precise users.
Thus, MailChimp correctly makes use of a great content strategy accompanied by strategic marketing to lure their customers.
Zoom, a cloud-based SaaS application platform that helps corporations and individuals to virtually connect with one another. Zoom initially could capture a huge customer base by pricing its services at a cheaper rate compared to competitors.
After gradually acquiring a significant customer base, Zoom kept on adding new features to entice and make the overall experience easier for the customers. Let's go through these offering strategies that make its freemium model a success.
Zoom Meetings and chats are flagship products that allow its users to communicate via text and call. The free version permits its customers to communicate for 40 minutes while limiting the number of users to 100. If your organization or team needs more than this, you need to pay a monthly subscription fee by selecting their pricing plans.
Also, Zoom has room systems designed especially for conferences which help businesses to run video meetings virtually for which zoom charges a monthly fee.
Zoom provides cloud calling solutions and web services via Zoom Phone and Video Webinars.
Thus, this wide range of services are aimed to satisfy particular customer needs and keeps end users hooked to Zoom increasing their willingness to pay.
Spotify is one of the most popular streaming services currently boasting more than 70 million paid subscribers. The key to Spotify’s success in the Freemium Model can be attributed to its immense research to get the product-market right fit. According to a source, competitors like Napster laid the major stage for Spotify's success.
Let's have a look at Spotify’s strategic journey to ace the freemium Model:
- Initially, Spotify partnered with influential music Bloggers in Sweden which appealed to the beta testers, users, and later to the music bloggers and resulted in garnering a lot of attention.
- Next, Spotify made a stable product while gradually limiting the number of invites a person is able to send through the app which gave them enough room to progress the product while preventing high attrition rates.
- Spotify expanded its catalog to appease the international viewers, thus began its expansion into European Countries. This is when the company started its freemium model.
- It later moved to an ad-supported product generating ample revenue from hosting ads. Therefore, even if people were reluctant to pay, the company made sure this doesn’t affect their revenue inflow.
Thus, Product innovation and multiple income streams have enabled Spotify to grow as a successful Freemium Business Model for others to emulate.-
These businesses ensure that their income flow is at least at par with the outflow to service the non-paying customers as well. Serving non-paying customers is important for two reasons:
- If not serviced well, the attrition rate increases and this puts more pressure and cost to acquire new customers.
- Secondly, it is easier and more cost-effective to monetize existing long-time customers than acquiring new ones.
Companies can choose to keep the pricing Fixed or Dynamic. They can choose to release offers for non-paying users to start paying for more value-adding services. But before spending too much on giving away free products or services, the companies must assess the Customer Lifetime Value to gauge if the users whom they are giving out discounts are the profitable ones.