This post is by Amanda Nielsen from Openview Labs
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Editor’s Note: This article first appeared on New Breed’s blog here. It may seem counterintuitive to offer part of your product or service for free, but sometimes, it can be the most powerful marketing strategy at your disposal. Freemium, a combination of “free” and “premium” is a business model used widely by software companies to promote product led growth. The idea behind freemium is this: By enabling prospective buyers to test out the software for free, you’ll show the value in it before they ever spend a dime. Eventually, they’ll hit a paywall where they can’t access certain key features without purchasing the premium product. Because they’ve experienced the benefits of the free version, paying for the upgrade feels like a natural next step. If that seems dubious to you, think again; countless companies, including DropBox, Hulu, LinkedIn and MailChimp, have seen major success with this model. It
because it allows the product to sell itself, reducing the burden on sales and marketing teams.
How to Translate Freemium Into Any Business ModelFreemium has proven to be a great strategy for software companies, but that doesn’t mean non-software companies can’t spin up their own version of freemium offers as well. When you boil it down, freemium is a classic inbound way to sell products and services: Give value before extracting value. However, if you’re looking to take a freemium approach to your business, there are a few things you should consider first.
Will a freemium model be cost-efficient for your business?The main danger with a freemium business model is that if it doesn’t make sense for your business, you could lose a lot of revenue in the long run. Before you weave freemium into your business strategy, you have to be sure you have all the resources you need to sustainably grow with this model. In general, businesses will need to be at a certain growth stage for a freemium model to make sense. To figure out whether or not freemium will generate a sustainable return on investment for your business, ask yourself:
- Is my product or service robust enough to support a freemium model? If your product or service only has three features, and you want to offer two of those features for free, people probably won’t feel inclined to purchase the premium model.
- Is my product or service simple enough for people to easily try it out? If the barrier to using your product or service is too high — for example, if implementation involves a cumbersome data migration and other complicated hoops to jump through — people won’t be likely to use the free model at all.
- Is there a demand for my product or service? If there’s no demand for your product or service, it probably doesn’t make sense to start off with a freemium model.