Should we use a freemium model for our SaaS Software Product?

On Twitter, a person asked the question whether he should consider the freemium model for his SaaS (Software as a Service) company. I replied that my experience with start-up clients led me to believe there were many questions wrapped into the one question “should I use a freemium model”? I began a Tweetstorm for some of the questions that I have helped clients develop and answer. Here are the top nine. If you’re considering a freemium SaaS model you might want to consider them. FWIW, I believe I overwhelmed the guy who asked about it in a Tweet. Sorry, but like most business questions, it’s never a simple “yes or no”!

Questions for SaaS Freemium Implementation

  1. Do we possess the marketing automation to manage freemium sign ups and then effectively convert them?

You will need to use tools like email marketing and CRM together with integration software like Zapier to manage the process. The engagement with freemium users is completely different than subscribers, even if the content seems to be the same.

 

  1. What percentage of freemiums will convert?

Use your UX and user research to ascertain a target percentage of conversions. Then examine if it makes ROI sense.

 

  1. Do we need to engage freemiums differently than subscriptions and if so what will it cost?

As mentioned in #1, engagement will be different with freemiums. Ultimately, you need to push freeloaders to convert or at least recommend/share the value of the software. How will you manage this engagement and what will it cost?

 

  1. What is the effect of freemium freeloaders?

What are the costs and benefits of long-term users who never pay (freeloaders) or accounts that have no real person behind it (zombies). What impact does this have on your server and what are the realistic chances that they will refer paying customers or share their experiences with your software?

 

  1. How fast do we want to add subscriptions and will conversions of freemiums smooth our projection curve?

Is your strategy to add subscriptions organically or quickly populate with marketing and incentives? How will freemium conversions or users affect this curve? Will you need to state a user base for funding or capital. If so, freemium subscriptions can help build the user base.

 

  1. Is the product one which people need to try before buying?

 

Again, use your UX and user research to inform the complexity of the product. Software that is complex or does not fall neatly into an existing category (e.g. accounting, PM, CRM) might need a “try before buy” model. This is a good point to examine alternatives to freemiums like free trials or stratified pricing.

 

 

  1. Are we interested in building a community or just customers?

It might seem silly to ask if you want a community. What company doesn’t want a community? But communities take time and resources and your product might not be something around which people want to join a community. So be realistic if you expect freemium users to be part of a community that helps support paying customers.

 

 

  1. How frequently will the software be used?

This question is important because the more frequently the software is used the more users see it as essential and will pay.

 

 

  1. Do we have a clear value proposition for what our premium model offers? Is it compelling, and will people recognize it?

You don’t want a crippled freemium version that provides no benefit. But you don’t want a premium version that adds bells and whistles for which no one is willing pay. I have my clients map features of the software to the problems each feature solves and then use this map to create value props for each model.

 

 

To summarize, you will need to examine your internal resources, growth projections, marketing automation, premium value prop, and UX complexity in order to determine whether a freemium model is effective for your SaaS. Don’t lose sight of the fact that your SaaS product should be designed to make money by solving a problem for your users. Your software is not designed to build goodwill, foster a community,  or support freeloaders. These activities and groups are outgrowths of a solid product that can support their existence through paid subscriptions.