Is Freemium Good for Startups?

An article we liked from Thought Leader Jurg Benders of StartupNation:

What Many SaaS Startups Get Wrong About Freemium

Freemium is an extremely popular pricing model for software products, and on paper it looks ideal.

The theory is that you’ll entice new customers with a free subscription and withhold certain features for the paid version. Ideally, your free users will love your product so much that they’ll sign up for the paid version.

What could go wrong?

Well, like so many good ideas, in practice, freemium doesn’t always turn out perfectly. It’s worked excellently for some companies, like Mailchimp, which used freemium to grow its total user base five times over and to add more than 4,000 paying users each month. But there are also freemium horror stories, like that of Baremetrics, which nearly went under after just three months of experimenting with freemium.

Thus, entrepreneurs are split over whether freemium is good or bad for web-based startups, but the truth is that it’s neither: everything depends on how you use it. Approaching freemium the right way can drive massive low-touch sales from subscribers who will stay with you for years. But approaching it the wrong way can land you in a deep hole of support tickets, infrastructure costs, technical debt and churning users.

By learning what many SaaS startups get wrong about freemium, you can avoid repeating their mistakes. Read on for my take on four key freemium mistakes to avoid, what makes them so toxic, and what to do instead.

Using freemium as a tool for revenue

The first mistake is thinking about freemium as a revenue model, when in reality, it’s an acquisition model. Your free users are not customers who’ve already converted; they are simply leads, who are deep into a different type of funnel.

In this sense, freemium is another marketing tool for attracting interest in your product and nurturing warm leads until they convert into paying customers. Focus your efforts on...