What makes freemium pricing work?

Free
photo by http://www.flickr.com/photos/bstabler/

 

Should you give away your product for free? The concept of “freemium” — or providing a product offering that doesn’t cost the customer anything, and allows for the prospect of future upsell — has great success for products like Mailchimp, Dropbox, Evernote, and WordPress. The basic idea is that some number (perhaps as many as the high single digits, but more often 2-4%) of customers convert to paying, and as time goes by and the customer sticks
around, that likelihood to convert increases.

What makes freemium pricing work?

Obviously, the zero cost of a freemium product is attractive. One of the challenges inherent in free pricing is that the perception of value for a free product might also be zero unless a few things are present:

  • The product or service offers immediate value to a new customer;
  • There is very low or no sales “touch” required for customer success;
  • And there is one or more natural conversion points where the customer realizes that it’s time to “buy.”

Things that make people say, “That’s valuable!”

Customers think products are valuable when they solve an immediate problem, e.g. the problem that you had when you “hired that product to solve your problem.” Mailing a list that you already have; sharing a big file; keeping an always-on notepad; and writing a blog post are clear, uncomplicated problems for which solving a problem has instant value. Customers also perceive value when there is low effort to implement this solution, and when the exact thing they were trying to solve gets done.

So what should you do if you don’t provide immediate value to customers using your product or service? You can provide “scaffolding” by delivering a simple procedure that will solve an immediate problem. You can deliver Customer Wow. And you can also actively listen to find the items that customers find challenging – those are great candidates to improve as fast as possible.

It sells itself: the magic of “no-touch” selling

It’s easy to believe that with the magic of the Internet, products will sell themselves. And sometimes they do (it’s amazing when that happens.) Most of the time, however, there is some effort required to close a customer from prospect to sale. When customers help themselves; when there is a large enough user based to provide community help; and when there’s no great economic drag on your company to keep them as “freemium” users – it’s all good.

In my experience, the reality of this process falls somewhere in between the perfect situation where users try and buy themselves, and a fully supported scenario, where they are supported figuratively from “cradle-to-grave.” You can help yourself by identifying the attributes that mark currently successful customers (completed activities, speed and acceleration of adoption, and lots of questions to your support and sales team are often good indicators) and try to recreate those attributes in brand-new users. The best way to do that? “Dog-food” your customer experience by trying it yourself and identify the “cringe-list” of items so bad they would make a new customer prospect drop right out of your application.

When is it obvious for the buyer to upgrade?

Sometimes, it just makes sense to upgrade. Run out of space in your networked drive? Need to send to a larger email list? Want to post even more notes to your connected notepad? These are natural conversion points, and are well crafted ways to get you as a customer into the next tier of value for a company. The number of transactions you complete; the number of connected accounts for a complex product; and enough practice to know that you really want to use the product are all good ways to introduce (or gently suggest) a natural conversion point for a freemium product.

Except when life gets in the way, and you really meant to try that product but haven’t taken the time. Placing time limits on the free trial and starting to charge the customer are great ways to use the idea of loss aversion to force the customer to make a decision (“should I stay or should I go?”) You can also use account management and Customer Wow to make this process easier.

Freemium pricing works best on a product when as the customer you understand what you’re getting, you can get what you want without needing help from a sales or support team, and when you know the best time to upgrade (because it just feels right.) As a product team, if you don’t have these attributes immediately, you can create immediate value by providing steps for the 80% solution or “happy path.” You can lower the required touch by fixing the things that first time users most often criticize. And you can place a time limit on your trials (or just leave the customer alone in a semi-dormant state if it’s economically feasible.)

Do you think freemium works for most Internet products? Or is it an idea that really only fits a few, simple and well defined models of behavior that people already use?

An Online Elephant Never Forgets

licensed under http://creativecommons.org/licenses/by/2.0/

I make lists. Top 10 lists, lists of things to do, and lists of things that I ought to do and haven’t gotten around to doing yet.

Recently I started using Evernote – a cloud-based note-taking system available on my iPhone, web, and elsewhere – and it’s made a huge change in the success rate of note-taking and completing those notes. In fact, it’s become my “cloud brain.”

Evernote helps me with three key problems that I struggled with before:

I need to remember something, and I don’t have anywhere to put it.

People can maintain 5-7 things in short term memory, and a few of those things are likely already in use ;). With Evernote, I can just open an iPhone application, add to an existing list, and not have to worry about forgetting … whatever it is that was.

I need to compile a list of things to share with a team.

At work, we have an all-team standup meeting three times a week – you have two minutes (or less) to give your status, tell the team what’s going well, and where you need help. Using Evernote, I can create a concise list to share with the team.

I maintain a weekly report.

Sometimes, I update it from my desk, and sometimes while I’m on the go. Evernote allows me to maintain the same document and synchronize it to multiple places. Not everything is perfect (editing rich text on the iPhone inexplicably doesn’t work) but it provides the perfect 80% solution to this problem.  At the end of the week, if I’ve got all of my formatting right, I can just cut and paste into my report.  Building the system in this way (before an automatic solution is available) also makes me think of better ways to automate it — and I can tweak the report when the development effort is cheap (cut and paste) rather than expensive (dev time).

My lists have moved to the cloud — this is great, as my cloud brain is great at maintaining information, retrieving it for quick recall, and for building a list of all of the things I did (since the last time). Thanks Evernote!

What’s on your mobile device?

Your mobile life and what you can do in the rest of your life

I’ve had an iPhone for almost a year, and am astonished at the changes that it’s made in my productivity.  The main difference is that where on my BlackBerry or Windows Mobile phone I mainly read email while on the go or between meetings, I can now access web applications, read email and phone at the same time, and generally live all of the brand promise of the iPhone.  Yes, it sounds like a fanboy shill, but it’s true.

To try and avoid the eye candy that Apple would like to place in front of me in order to make me buy more stuff, I focus on my iPhone home screen and try to make that the center of my mobile productivity.

I do this by splitting up the screen into four general regions:

  • Messages, Notes, Calendar = Upper Left
    Here’s where I go when I need to note something quickly, find out when I’m meeting someone, or to send a quick text.  I don’t spend much time here but I do need to look at it frequently, so I keep these apps on the most easily accessed real estate of the iPhone home screen.  If I need to remember something, I place it into Evernote, my “cloud brain.”
  • Photos = Upper Right
    I love to take pictures, so I keep a few camera apps handy (ShakeitPhoto gives a cool “Polaroid-like” effect, while Hipstamatic has a whole series of effects) to snap and upload pictures.
  • Social + Location + Aggregators = Lower Left
    To keep up with the news by and about the most important people in my network, I use Gist.  I also use the Facebook and LinkedIn mobile apps.
  • Misc = Lower Right
    A few more of my favorite apps live here, including Zendesk which allows me to reach customers at a moment’s notice.

Finally, I’ve added the Mobile Twitter app to my home deck, as I spend a lot of time in Twitter managing multiple accounts and keeping up with a variety of hashtag conversations online.  This is the third in a series of iPhone home page organizations, and I’ve noticed a theme emerging — how can I do more seamlessly in a mobile way while limiting distractions — and the home screen is getting better.  (It’s not without distraction, but better ;).

I’d love to hear how you arrange your mobile device to improve your work.

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