daily articles for founders

Freemium: make the cheapskates pay  

Here's an excellent article by Andy Singleton that covers a lot of insights he has gathered over years of selling freemium products. There are too many points to summarise the whole article, but here are a few key points:

  • Customers have a price they're willing to pay ($0, $X, or more) before they ever even sign up. The key to selling a freemium product right isn't to turn $0 customers into paying customers. That's very hard to do. Instead, you need to make sure that those willing to pay you are paying you, and that they're paying as much as they're willing to pay.
  • Metered pricing is a disaster in most cases. It encourages people to use your service less so that they can save $2 per user per month. It works against your product and creates uncertainty that makes customers uncomfortable.
  • Bundles should be sized in such a way that "the effort to move to a smaller bundle should be big enough that it is not worth a subscriber's time to figure out how to reduce usage to the next lowest package".
  • Customers will compare you to the nearest similar commodity. You need to manage how the price anchoring affects you when you're being compared to something that has one tenth the features, and a proportionate price.

There are many other points in the article. It's worth a careful read and some note-taking. Andy doesn't offer conclusive solutions to all the issues he raises, but he offers enough for this to be essential reading for those thinking of building a b2b SaaS product with freemium.

Updated: corrected author, thanks Tim Freeman.

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