SaaS Freemium Model

In the world of startups, the freemium model has proven to be highly effective for SaaS (software as a service) companies. But is the coveted model relevant for other industries as well? And if so, how can it help business owners increase their revenue?

For people who aren’t in tech, “freemium” might come across as a foreign term. However, it’s a powerful tool when used properly.

According to Investopedia, freemium is “a business model in which a company offers basic or limited features to users at no cost and then charges a premium for supplemental or advanced features.”

As opposed to the common product demo or trial approach, freemium doesn’t restrict free access at any point.

Some common examples of companies that have embraced the model are Dropbox, MailChimp, Spotify, or Skype. If you pay attention to the software and apps you use on a daily basis, it’s likely that you already benefit from freemium products.

Why is the SaaS freemium model effective for revenue increase?

At a glance, it might seem like the model would be counterintuitive for boosting sales. After all, the user gets unlimited free access to the product, right?

However, there are numerous reasons why a freemium approach is so effective for SaaS companies. Among them are:

  • Helps you acquire a greater amount of new customers;
  • Encourages users to upgrade and purchase additional features without any strings attached;
  • Results in increased customer retention.

How can the model benefit other businesses?

Regardless of your industry, you can adapt the popular SaaS freemium model to your products and services.

The principle is simple: provide continuous value to customers at no cost to them. Then, offer a variety of options to get an even better experience.

It doesn’t matter what you sell, as long as you focus on the tremendous value you offer. When you reach the upgrade stage, you can leverage your sales team to contact freemium customers.

Throughout the years, freemium has had mixed results for companies. While some doubled their revenue, others subsequently decided to approach alternative models.

As a result, research your market before making any major decisions and see if the business model is right for you.

Have you experimented with freemium within your business? Share your experience with other readers in a comment below.

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