Nothing frustrates me more than a founder using Freemium – not charging – as a business model without understanding the mechanics behind it.
Why do they do this?
Simple. It’s safe!
Without charging for their solution, they don’t have to feel bad when people don’t buy, because the barrier to sign up is low.
It sucks because it slows the founder down from learning if their product is actually any good.
If people don’t sign-up, they pass it off as they didn’t have the need.
They look at companies like Slack, MailChimp, Dropbox, or Evernote and think they’ll just implement a freemium strategy and WIN!
Wrong.
Here’s the truth.
Freemium is a marketing decision.
It’s about distribution.
On top of that, many of the companies – like MailChimp – started off as a PAID ONLY solution for almost 10 years.
It was only AFTER they truly understood their unit economics that they realized strategically it made sense to go freemium to capture more of the market.
They used the premium part of the business to start, then added freemium as a marketing decision.
In this week’s video I go over the rules that make freemium work, and why you need 3 out of the 4 to be successful in your SaaS product.
Here’s what you’ll learn in this video:
1) The number of potential users in your market
2) The specific market advantage required to win
3) The max complexity of your product and how it works
4) The specific cost each additional user can have
I consider this my official answer on the Freemium question going forward.
My hope is to help future founders from making the deadly mistake of assuming freemium is the way to go and waiting months to find out the model would never work for their solution.
All that being said, when it works, it’s POWERFUL!
It’s just the exception – not the norm – when building a SaaS product.
Be sure to leave a comment below with your thoughts or feedback to this blog.
Have an incredible day!
