Freemium is a combination of the words “free” and “premium”. Essentially, a company that earns with freemium products offers a limited version of the product free, and offers an upgraded version or pro version for a fee. You’ll see it most often with software.
This also works with book series, where the first couple books are free in order to hook the reader into buying the 30 other books in the series. Some popular bands like Nine Inch Nails have also used this model by offering one song from their album in a free download in hopes they’ll buy the entire album.
Don’t be fooled by the word “free”; freemium isn’t free. Freemium is a very profitable business model that works. It’s especially helpful in the digital world. It is more difficult to do it with a physical item, but that has been done before as well with free magazines, free newsletters and the like in hopes you’ll buy something else.
You probably even use some type of freemium already and didn’t even realize it. Below are four examples of freemiums that are successful. As you see, every one of these uses a digital business and product to offer as a free version. It’s not that there is no cost to the company to offer their service; obviously you do use some bandwidth, server space, and some of their resources to use the free versions.
- Skype – You can use it free, but if you want the additional features you’ll have to get the upgrade. You can buy Skype minutes, a Skype phone number and other upgrades for a fee. Since over a billion people have downloaded Skype, even if only a few percent upgrade to a premium version their profits will be high.
- LinkedIn – You can do a lot on LinkedIn’s free version. In fact, most people can get by just fine without upgrading their LinkedIn accounts to the pro version. With a paid account you can send direct InMail messages to anyone, view profiles of people checking you out and contact them, use advanced search features and so much more. Only about 12 to 16 percent of LinkedIn users have a premium account. But, again due to the fact that there are 433 million members, even if only 12 percent pay that’s still quite a bit of profit.
- Zapier – This is an innovative service that lets you put into practice IFTTT formulas. For example, you can move everyone who purchased something from you to specific email lists. The free version lets you create a limited number of “Zaps” and if you want more you will pay for an upgrade.
- SketchUp – SketchUp Make is the free version of this drawing software. You can use SketchUp to create plans for anything you want to create, from a desk to a house or office building. SketchUp Pro costs $695. Pro has the exact same features as Make but with additional professional tools. Make can even be used commercially. So for most people using the free version will work fine, but those who want the professional features can get the upgrade.
Can you identify some Freemium examples of your own that you use right now? There are probably a few. Sometimes a business starts out offering a free version in order to get some buzz and then in a few years drops the free version and requires everyone to either buy the upgrade or move on.
Will My Product Make a Good Freemium?
It can be difficult to know whether or not you have a good product for a freemium model. But if you can answer this one question in the affirmative, you might have a good product idea that will allow you to profit from the freemium model:
Can you offer a free, quality digital product that many people need?
A successful freemium product needs to be something that a lot of people want, that doesn’t cost anything for you to reproduce, but offers a lot of value to that audience. You have to be careful because in reality freemium isn’t free to the business using the model.
There is some cost, even when the product is digital. Even if it only costs you a buck a person, that could end up being quite expensive if a million people sign up for your free version. But if you’ve answered yes to this question then you can get started profiting with freemiums.
Creating Successful Freemium Products
There are some tried-and-true methods of creating successful freemium products so that you can make more profit. Let’s go over some must-haves for successful freemium products.
You Must Reach a Wide Audience
Remember, to be successful you must reach a wide audience, and what you offer them free must be something that they really need, that solves their problems, and that they’d want to use if it had a cost. It helps if you have complementary items to promote, such as the upgrade to the pro version, or even physical products they can buy such as books, electronics, or accessories. These must be things they don’t have to have in order for the freemium to work, but that are nice to have.
For example, Gillette offers their razor free, but you have to buy blades to use it. That’s not really a freemium, because you can’t technically use the product without getting the blades. A real freemium is something you can use and get almost everything you need out of without upgrading. This is why you need a wide audience. Chances are only between 8 and 20 percent will buy the upgrade. The more free members you attract, the more paid members you’ll earn.
Your Product Must Be Valuable
Many people try to enter the freemium market only to discover they’re doing it all wrong. A freemium is not the same as an ethical bribe. It’s a real, valuable product in its own right that, due to its digital nature, happens not to cost you a whole heck of a lot to give away. In effect, you are using the valuable product as a lure to draw the audience into buying the upgrade or other complementary products, plugins, and attachments. But, the kicker is that the product must be valuable on its own without the upgrade.
For example, FreshBooks.com offers a limited free version that you can use to track time, send invoices, and accept payment and so forth. But, if you want to use it for more than a couple of clients, and more than a couple of people use it to bill you, they want you to upgrade. They’ll give you a warning and a notice to upgrade. But you don’t have to. You can get a lot of value out of it without upgrading if you don’t have more than a couple of clients.
Your Product Must Be Easy for Your Customer to Get
If you make too many hoops for people to jump through, you’ll be making a huge mistake. If you make it hard by putting a bunch of stoppers into the process of them signing up, they’ll likely give up. Remember, you want to get more free users, not fewer. Make it as simple to sign up for the free version as the premium version, with the same information required other than credit card.
For example, you’ve likely tried to get a product before from some sellers and had to go through upsell after upsell to finally get to the freebie or the inexpensive product. That can be irritating and while stats show it works in some cases, it doesn’t work in the freemium model because ease of access is the most important. You want them to experience using it so they want to upgrade.
Your Product Must Offer a Desirable Paid Up Grade or Highly Sought Out Complementary Products
Your free offer should be amazing. It should be useful for most of the people who will need that technology. But, if you don’t have a way to make money you’ll soon be out of business. Therefore, your offering of an even more amazing pro version of your freemium product (or add-ons, plugins, attachments or other complementary products) has to be truly amazing too. The cost should not be too high. You can have different levels, though, such as the freemium, the silver, gold and platinum plan.
Successfully using freemium products to make a profit is a tried and true business model that has been used for a long time. If you have a good digital offering you can do it too, as long as your idea offers serious value to a large number of people since only a small percentage will upgrade. Your best bet is high numbers of free users to increase your number of paid users.
Types of Freemium Products You Can Offer
When it comes to freemium products that enable you to make a great profit, you’ll usually want to offer information or software. Again, ensure that you have a very large audience before you use this method of profit generation.
- Software as Service – The best choice when it comes to offering software as a freemium is to offer a full-featured free version along with a couple levels of pro versions that they can upgrade to if they need the additional features.
- Other Software – Offer full-featured software that your customer will need to download, where they can use it and get a lot out of it without ever upgrading to anything. But, to make money you offer widgets, plugins, add-ons, and whatnots that make it even more functional and which might be considered in-app purchases.
- Games – There are many games that are fun to play without spending an extra dime. These offer hours of fun to many people around the world. The owners make money by offering extras and goodies to those who spend money on add-ons, plugins and more.
- Apps – There are many types of freemium apps out there such as weather apps, weight loss apps, recipe apps and so forth. If you can create an app that helps your audience in some way, then offer an upgraded version, in-app purchase, or ads, you can make money from your free app.
- Information Products – You can also offer information products that are free but where there are links to affiliate programs within the information product. This is a great way to earn a little extra money, assuming a lot of people download the product and click on the links and buy the items you suggest.
You can offer them anything that gives them what they need free – something they will actually use and get value from, and then make money through upgrades, add-ons, or advertisements and affiliate products. It’s up to you how you choose to do this. The important point is that you need to focus on the right things.
What to Focus On When Creating a Freemium Product
There are several factors you need to focus on as you seek to create a truly profitable freemium product.
- Building Your Community – The larger you can build your community the better, using different methods such as content marketing, Facebook groups, forums, YouTube and LinkedIn. No matter how you do it, build a great community that will back you up when you’re ready to offer your free and premium products to them. Focus on building a community of your ideal customer as big as you can so that they’ll buy.
- Delivering Amazing Products – No matter how friendly you are or how big your community is, if your product doesn’t offer amazing value to them (free or not), they’re not going to use it. And they certainly aren’t going to buy the premium version or add-ons or even any complementary items.
- Becoming Lean and Mean – The smaller monthly expenses you have, the better when it comes to promoting a freemium product. Use services yourself that expand and contract as needed. Hire only when it’s not your expertise. Don’t skimp on the project, though.
- Learning to Distribute Effectively – One the hardest parts of freemium is delivery. You may need to list your software on iTunes or other platforms. This means you’ll have to agree with their rules. You may want to have a portal site that your audience downloads the software from, or they’ll sign on and use it in the cloud. No matter which way you do it, it needs to look seamless and work flawlessly if you want your user base to grow.
- Managing Risks – This is a very popular business model today with SaaS, so there is a lot of competition. It’s not a simple way to make money. When only a small percentage will upgrade or buy a complementary or recommended addition to the main product, you need to ensure that you do enough research to know for a reasonable degree of certainty that there are enough customers to support this model.
If you can focus on these things and produce a valuable product for your audience, you can succeed with profiting with freemium products. But always do your due diligence to ensure that you can make it work. In other words, don’t skip any of these steps.
Things to Consider When You Add Your Freemium Product
When you decide to embark on a freemium business model, there are some very important questions you have to ask in order to ensure that you’re going to be successful. Some of these are discussed throughout this report.
- What Should Be Free? – Your freemium offer needs to provide high value to your customer base. Therefore, you need to understand exactly who your customer is, what they need, what their problems are and that you can solve them with your free offer.
- Do Your Customers Fully Understand Your Upgrade Offer? – Along with the freemium, you need to be able to explain the upgrade offer or the monetization offer that you want your free subscribers to sign up for. If they don’t understand the difference, or what they can do with the upgrade version, then they’re never going to find a need to upgrade.
- What Is Your Target Conversion Rate? – How many people need to convert in order for you to break even? How about make a profit? Do you know how many people you need to convert, and then what percentage that translates to of your free customers? For example, if you need only 100 paying customers to become profitable, how many free customers do you need to get there?
- Do You Have Content Prepared to Encourage Conversion? – When people sign up for your freemium, you’ll need to send them information that will help encourage them to sign up for the premium account. Perhaps they need education about what the premium account offers. If you only earn from ads, perhaps they need a reason to come back to the platform. All of this can be accomplished via email marketing, social media marketing, and perhaps educational webinars.
- Are Your Users Promoting Your Offering? – If your product is awesome, people will talk about it – whether or not there is any incentive (money) for them to do it. But, why not give them some incentive. For example, Dropbox allows those who refer someone who signs up (even for their free account) to get more storage space.
- Can You Commit to Continuing Innovation? – One thing that you’ll have to do to make any product work, but especially a freemium one, is to keep creating new features and new benefits for your audience with your offering. The reason is that if you’re not competing on price (which a freemium offer doesn’t), you’ll need to compete on functionality and benefits to your audience.
As you work your way through these questions, some ideas probably come to mind. Let’s go over a few ideas that you can use.
What Is Your Upgrade Offer?
What you offer as an upgrade depends on what you’re offering as the freemium. Usually if it’s software, you’ll offer slightly better versions as they choose a higher and higher level of service from you. For example, perhaps you offer a free group coaching space in a group on Facebook. You offer a lot of value, do some live events, and give a lot of things to your free members that they can put to good use. But how do you monetize that?
There are numerous ways to do it. You can encourage them to move to a paid group where there are limited members, so they get more individual attention. You might choose to do this through a new platform like JigsawBox.com or a membership site built with aMember.com or another platform. Then another level might be one-on-one coaching that you can offer for an even more premium price.
Plus, you can offer additional products such as eBooks, reports, checklists, training and more. You can make a huge profit all by starting out with the free group coaching offer, as long as the group coaching offers an enormous value to the members without ever having to upgrade.
Ensure Your Customers Understand the Upgrade and How to Get It
In order to let people into your free offer, you’ll want to collect their information – including but not limited to their email address. Getting a phone number and address is a good idea because you can use that information to market to them in new ways. Just be cognizant about not selling that information so that they’ll feel free to give it to you.
Now your job is to use information to tell them about your other offerings. Using the example above, you can do it via your coaching group and mention it during your live events, but you can also let them know about your offerings via email marketing campaigns and email series that let them know about everything you do. A lot of people will wind up on your free group on Facebook without having learned anything about you first, so it’s your job to teach them.
When you let your audiences know about all the things that you do, and how they can get involved too, those who can will. Those who can’t or who maybe just won’t, will not upgrade no matter whether you take away the freebie offer or not. But you never know when, over time, who will sign up for more. Your job is to continue to build value in your freemium offer while building out the upgrades to make them even more enticing.
Know Your Numbers
It’s surprising how many marketers and business owners have no idea what their numbers are. Do you know how much you need to earn to break even? Do you know how much you need to earn to be considered a success to yourself? How much money do you need to live the lifestyle you want to live? How many potential customers are out there? How much will it cost for you to attract one free subscriber? How much will it cost you to convert them to a paid customer?
All these numbers are important to know so that you can budget for marketing and advertising plus everything else you have to do. If it costs you 20 dollars to get one new free subscriber, is that worth it? All of the data you collect while you’re running advertisements on social media is important too. The more metrics you collect, the more you can know if you’re doing the right thing or not. You can make assumptions all day long, but assumptions will not help you earn more money.
The truth is, while marketing and advertising as a general rule has always converted at least two percent, online marketing that uses the freemium model typically converts at a higher rate – up to about 12 percent. When you run those numbers you see why you want a larger free audience. If you don’t get it yet, let’s just say you’ll make more money if you have a larger free audience. This is why you need a wide audience to make freemium work. Knowing your number makes a huge difference.
When you put this all together you can earn a great deal of money from freemium products. You simply have to do the research first, know how many people want your offer, and then know how to market it.
Marketing Your Freemium
Now that you know what you’re going to create and offer as a freemium to your audience, it’s time to market it. Marketing your freemium is not much different from marketing a paid item. After all, the entire point of getting people to sign up for your freemium is to get them to upgrade, buy add-ons, and purchase complementary items so that you can be profitable.
- Set Up Your Email List – Set up an email marketing list so that you can collect emails of people who sign up, or who want to know more. This way you can send them information, education, and help lead them to making a purchase. Segment the lists between those who are using the freemium, the upgraded versions, and those who just wanted information. This will help you know what to send each list.
- Social Media – When your freemium is ready, go straight to social media. Set up a Facebook ad using about five dollars a day to start to get people to sign up. If the conversion rate looks good you can increase this amount, but just start with five dollars a day. Remember to split test a couple different ads to ensure that you’re running the most optimum advertisement to get more sign-ups.
- Affiliates – Another great way to get more word of mouth is to incentivize people who sign up, as well as try to attract super affiliates. Super affiliates are people who make it their job to promote people. If you only pay a buck to get a sign-up for the freemium but you offer 50 percent if a customer upgrades, you’re going to get a lot of people helping you promote – provided you have a great product.
- Blogging – Keep blogging. Blog about the problems that the software or product solves. Blog from different angles about the problem and solutions, and help your audience understand the need for your solution in both the free version and the upgraded version.
- Guest Blog – Guest blogging still works if you are picky and choosy about where you blog. Only post blogs on high-quality websites that service either direct competitors, or serve your audience but sell complementary goods and services. Create a unique article just for their blog, and let your bio speak for itself. It helps if you give them an affiliate link to use too.
- Host Webinars – A really great and lucrative way to demonstrate your product as well as get people to sign up for your freemium (and upgrade later) is to host webinars. During the webinar you can talk about everything that your product does, as well as answer questions. If you have super affiliates you can offer to host a webinar for their audience to boost sales even more.
Leave no stone unturned to tell everyone you can about your freemium. After all, the more sign-ups you get, the more premium subscribers you’ll get. If you don’t have an upgraded version, the more in-app sales you’ll make or the more money you’ll make on ads or complementary products. The sky is truly the limit when it comes to profiting with freemiums if you do your due diligence.
If you want to profit with freemiums, come up with an idea that has widespread appeal, create it, and then start marketing it. You may need a good budget to start with, depending on how much it costs you to create the product. But, the freemium business model is here to stay, especially for digital products, and for good reason – it’s super profitable.