Understanding "freemium"

Giveaways can actually help your software or web services business generate sales and client retention. Develop a strategy for giveaways, and track your results to ensure success.

With an un-proven software or web services business, yours is the “new kid on the block”; you need to develop traction with your target audience to generate business.. The freemium model might come in handy, when initial traction seems hard to come by. By offering a free version of your software with limited features, you give people in your target audience the opportunity to try out your product or service. When they realize that they want the added features that do not come with the free version of your product or service, your customers will upgrade to the paid version with additional features.

37 Signals’ products like Basecamp and Highrise are great examples of how the freemium model works. Both offer free plans with limited features, and most free users eventually purchased the paid versions.

Benefits of Freemium

Customer data. When users sign up for your free software, you can collect valuable contact information, which you can use later to keep in contact about new updates and products. Customer email addresses should be the minimum information required.

Customer retention. Customers who start with freemium products tend to stay clients longer than with a direct paid business model. Freemium develops trust in your business, and customers will be more likely to refer others to your services as such. Freemium models also build great brand evangelists. Services like Evernote, which offers a free service, have people talking about their services on social media and blogs, which in turn helps build Evernote’s customer base.

Free testing. Offering a Freemium program provides free beta testers for your un-proven software or service. You subsequently roll out new features and options, looking for responses from your free users. You can ask for valuable customer feedback from your free version users, and use that information to create better products.

Key Points to Remember

Treat Freemium users as well as you would treat paid customers. No one will use a free service (or upgrade to a paid version) if customer relations is horrible, or if the program doesn’t work properly.

Don’t be afraid to test a few different Freemium models. You can compare different Freemium performance and move forward with a more specific Freemium strategy. Mobile app users are notoriously prolific with their Freemium offerings, including ad-hosted and limited feature models, so make sure to study the mobile app market for inspiration.

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