Phil Libin, CEO of Evernote said it best: ““The easiest way to get 1 million people paying is to get 1 billion people using.” And what’s the quickest way to get people to use something? Offer it for free.
Let’s face it, we’re all fans of “the free”. From essential to material needs, and yes, even when it comes to SaaS products (especially if it’s new to us), we’re simply more inclined to adapting and utilizing something that costs us nothing.
In fact, some of the biggest and highest grossing SaaS companies of today got to where they are by building their empire on the so-called Power of Free. With free offers, free trials, free services, etc – these SaaS companies have built both their client base and brand loyalty from the ground up within a fairly short amount of time.
When Freemium Works
In his book, “Free”, Chris Anderson explains that Freemium works on the 5 Percent Rule:
Where 5% of premium customers support the remaining 95% of free users and also the cost of servicing the 95% is close to zero.
The Freemium model doesn’t always work and sufficed to say, it’s not for everybody. As a matter of fact, the slow death of Freemium is a rising school of thought among the SaaS community because there have been many-a-software-casualty from offering free services to entice users (but we’ll get into this in my next post). So when does Freemium work, you ask?
- When there is a significant number of potential users in your market.
Remember, only around 5% of free users will eventually end up paying you so definitely consider user volume as a factor.
- When you have set clear and specific goals and established solid reasoning for why offering “free”is a requirement for you to win.
What do you want the freemium model to achieve for your business? How does it give you an advantage against the competition?
- When your software is simple, straightforward, and has a clear path and demand from users to climb the pricing tier.
Your software must be sophisticated, intuitive, and easy enough for new and free users to dig into without requiring additional help or frustrating them. At the same time, the features available on your pricing tier must have a natural sensible progression.
- When adding new users don’t lead to higher costs on your end to keep operating.
You must have a relatively low marginal distribution and production cost. Are you able to continue and ramp up your operations without skyrocketing your own costs? Consider if you have the capacity to scale exponentially and not be dinged in the pocket.
Freemium Success Stories
Here’s a peek at some of the best examples of SaaS companies finding magnanimous success with the Freemium model:
Dropbox placed a “Get free space button”on their front page, with the offer that users would get 500 megabytes of free space for every friend they invited and got to sign up. By essentially combining their free offer with a marketing/share tactic, Dropbox grew to be one of the biggest companies in the SaaS space.
HubSpot offers a 30-day free trial, no credit card entry required An interesting tactic when many marketers feel that the credit card entry during the trial period helps smooth the transition to paid services.
The other half – like HubSpot – feel that a request for credit card info is a barrier. But what HubSpot excels at and what I want to highlight is their lead nurturing. They are great at moving users through the funnel and maximizing the free trial period to do so.
Trial-to-paid rate: 56%(34% after backing out first 90-day churn). Moz does experience a high churn rate, but the fact remains that they are successfully taking users from free trial to a paid subscription. Factor in their low customer acquisition cost and the free trial is definitely a major win for them.
Arguably the king of SaaS, Salesforce has seen tremendous growth over the years to date. They continue to offer a free 30-day trial and see a 3-5% conversion rateto paid services. Considering the price and undertaking of converting to paid means for a Salesforce user/company, this is a fantastic result.
Hotmail: Let’s take it back to 1996, Hotmail was the first free webmail service and one of the first “viral products.” Hotmail put the message, “P.S.: I love you. Get your free email at Hotmail,” at the bottom of every message sent from a Hotmail user. They used their customers to grow their business. Even though their entire service was free for the end user, they deserve the call out for getting it right, early! Not to mention, who didn’t love Hotmail back in the day?
Free is powerful. Gain your customers trust by giving them a real look at what your company can do for them. Open the door to start your follow up campaign with organized content and emails. Find creative ways to make “free” work for your SaaS company and start seeing transformative and tangible results that can take you one step closer to magnanimous growth.
Find creative ways to make “free” work for your SaaS company and start seeing transformative and tangible results that can take you one step closer to magnanimous growth.