Upfront value is something that the B2B software as a service (SaaS) industry is slowly but surely trending toward. People expect to get a return on investment (ROI) quickly, and freemium is an excellent way of showcasing value to potential customers.
A freemium strategy involves offering potential customers value for free, typically in the form of a lightweight version of your product. It helps grow your user base—and with more people using your product, you have more opportunities to monetize those users by getting them to upgrade.
Success hinges on perfecting your freemium strategy so users get enough value from your free product but are still incentivized to upgrade. Here are six tips on how to get it right.
- A freemium pricing model addresses customer expectations for immediate ROI and helps you grow your user base.
- Tread the line between giving too much and too little by providing functionalities that drive acquisition, activation, and retention for free while still enticing people to upgrade.
- Consumer expectations and market dynamics shift; adapt your free and paid feature sets accordingly.
- Recognize the diverse needs within your free user base and cater to those unique personas.
- Differentiate between users and buyers, and tailor your upgrade strategy so you push the right person to upgrade.
- Freemium tactics don’t just have to live in your product—offer value to potential customers in diverse ways.
- Address potential upgrade concerns by showing people how they can control the costs of your product.
1. Perfect your tiers
Deciding which capabilities to make free is a delicate balance. And it’s the key to making your freemium strategy work.
Offer a feature for free if it helps you:
- Acquire new customers
- Activate customers
- Retain customers
Make everything else paid.
For example, at Amplitude, we’ve done a lot of qualitative and quantitative research into what helps people build a habit with our platform. The ability to create charts, share charts, and collaborate in a dashboard is critical, so we offer a free version of those features.
Including a feature for free doesn't necessarily mean you offer the full capabilities, as long as it’s a valuable and usable version of that feature. Focus on the components of your product where value is obvious. Imagine one of your features is the ability to run an audit report on all the users who exported data from the system. There’s no point in offering that for free because the user will not appreciate the value of a CSV file on its own.
It’s also important to figure out your upgrade trigger. If the free plan is too generous, there’s no incentive to upgrade. There are tried-and-true best practices in B2B SaaS, like limiting the number of shares and saves or gating enterprise features for security, governance, or compliance.
The right upgrade trigger will look different for every business. In Miro, for example, anyone can access a board someone shares, even if they’re not registered. Many people can see the value of Miro boards, but you can only create a board if you sign up.
What works in terms of free versus paid plans evolves as user expectations change. Take GitHub. The platform became popular because it offered completely free code repositories. Eventually, other competitors came along that were also free. Now, free code storage isn’t a differentiator, so GitHub has had to offer more for free.
When your conversion rates drop, it’s time to rethink your tiers.
To know when to adjust your free plan, monitor your product baselines over time. Track the number of free users you get, the rate at which you convert them, and the rate at which you upsell them. When your conversion rates drop, it’s time to rethink your tiers.
2. Understand who your buyers are
You can’t get users to upgrade if they don’t have decision-making power. If your freemium users aren’t your buyers, learn how your user is connected to the buyer in their organization. Then, push the message to upgrade to the right person.
Use this as a general rule of thumb based on how much your software costs:
- $10/month: An avid user will upgrade on their own
- $100/month: The user has to talk to their manager or team leader
- $1000/month: The decision to upgrade needs approval from a director or someone at the VP level
- Any higher: C-suite needs to get involved
It’s important to separate your users’ pain from the buyer’s pain. In B2B SaaS, gating enterprise features often works well because most individual users aren’t interested in security, governance, or compliance. They just want help getting their tasks done. But leaders in organizations do care about those things—they’re the ones who have to deal with audits and the risks associated with data breaches.
When I worked at Box, we complemented our freemium approach with a top-down sales strategy. Freemium users could create accounts and start collaborating within Box, growing the number of users within an organization.
Later, we could contact a CIO and say, “Are you aware you have 1000 people in your organization using Box? Why don’t you buy our enterprise package?” It’s much more compelling than just approaching a CIO and saying, “How about Box?” when they have no reason to use it.
3. Offer value outside of your product
People confuse freemium strategies with being product-led. Product-led growth involves putting your product front and center. Combining freemium with a product-led approach does help you to convert people in a less sales-heavy way.
Offering a free, lightweight version of your product or features is also the most common way to do freemium. But it’s not the only way.
It’s possible to use freemium tactics outside your product—for instance, on your website—to give potential customers value.
Companies track a lot of metrics in Amplitude. As a result, we know things like what a best-in-class landing page conversion rate is for marketing. We’ve started sharing benchmarks for different industries on our website. The benchmarks are valuable information for potential customers and give them a taste of the kind of insights they can get from our product.
4. Show people that they can control cost
Price matters. It’s true that unless your product shows enough value for the price you’re asking, people won’t want to pay for it. Yet many people are put off upgrading products not because of price but because they’re scared about spiraling or unexpected costs.
For example, people sometimes get spooked with Amplitude because data volume dictates price. They think: Nothing stops my engineers from adding more data, so this is out of my hands. They’re scared they’ll have a huge bill in a few years.
To combat this, show people they can control or keep an eye on the price they’ll pay. Even something as simple as sharing that they’ll get alerts and notifications when they reach certain usage or price thresholds can reassure them.
5. Understand the cohorts within your free users
A mistake I sometimes see teams make is treating their free users like they are all the same. They try something with 1% of users; it shows signs of working, so they think it will work with the other 99%.
At Amplitude, we can easily divide our paid user base into SMB, commercial, and enterprise. Free user bases are much more complex—they include everything from a single person testing your product out for the first time to thousands of employees at a large company that doesn't see the value in upgrading. Take the time to understand the different sub-cohorts within your freemium user base and create different personas to cater to different needs.
6. Let go of the sales-led mindset
Consumer-led products do well with freemium strategies because they've already studied their user base. Other companies don’t succeed with freemium because they try to translate a sales-led model into a freemium approach.
It’s difficult for historically sales-led companies to switch to freemium. They typically just take the elements that work in their sales demos and add them to a free product.
Instead, understand that freemium means you’re probably dealing with a different buyer and user base. They have different expectations and triggers. Learn about that new base and determine what value they need to see to upgrade.
Dive into the data that will help you define the optimal pricing strategy for your product. Get started with Amplitude today.