Saas Hacks #1 - Freemium Business Models

Using a freemium business model to decrease churn and CAC

Welcome to SaasHacks, a newsletter where we share some of the best ideas on how to scale SaaS companies with growth strategy.

Overview 📄

The Freemium Business Model is when you give users a product for $0, providing basic value for an unlimited time, but encouraging them to become a paying feature to get access to a better feature set.

The Freemium business model is a tried and true technique for giving users an irresistible taste for your product, and hooking them with a free product that anyone who actually started using would need the paid plan for.

📈 Common Techniques

Let’s look at some of the most common techniques for implementing a Freemium Business Model.

Limited Features

If your product has A, B, and C features, but what most users really want out of your platform is D, E, and Y features, freemium can be implemented by forcing the user to enter their credit card when trying to access these features. For example, Todoist provides a host of functionality on their free plan, but requires you to start paying for stuff like push notifications and other advanced features.

Limited Usage

In this technique, users are given all the main features, but there’s a limitation in how much they can use the product. For example, with Slacks free plan, you can have a maximum of 10k saved messages, after that you have to pay for a premium workspace plan.

Limited Capacity

You offer free plans with limited space or storage. For example, Google Drive offers 15GB of free storage, and anything above that requires payment.

Limited Support

Products like MailChimp rely on the limited support freemium model. Free plans are offered email-only daytime support, while more premium plans have 24/7 support, or even phone support!

✅ Benefits

  1. Whole product is built around the customers wants or needs to optimize for free users.

  2. Collect leads for the final marketing pipeline.

  3. Test product features and see what aspects of your application lead people to upgrade

  4. Users are given the freedom to explore your product for as long as they want

  5. Using a free trial can create brand advocates and lead to better link sharing,

❌ Disadvantages

  • Freemium plans may stop users from upgrading because they’re satisfied with free features

  • Users may feel disappointed that certain features aren’t included

  • You may be forced to spend too much on maintenance and support for free customers

  • There are times where developers will have to work on tickets for “free” users

  • Your product may lose its value to the user due to a negative perception with free products

🔍 When does SaaS Freemium Work?

  1. When used as a marketing strategy to get new customers (not for when it’s implemented purely for revenue).

  1. When you are ready to manage the expense and time with providing customer support and maintenance (not for when users are confused about product features and can’t reach out)

  2. When your software can reach millions of users in its target audience (not for products that are very specific)

  3. When what you’ve built is easy to use (not for when a complicated feature-set or setup process requires onboarding)

  4. When your freemium plan limitation is in usage (not for when users don’t test the real value of your software in the freemium plan)

  5. When a well-thought plan is developed to convert freemium users into paying customers (doesn’t work without a clear communication channel with users)

  6. When Customer Lifetime Value (CLV) to Customer Acquisition Cost (CAC) is positive.

  7. When pricing plans are reasonable, unique to individual user needs, and comprehensive.

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