Converting SaaS to a Freemium Business Model – Things you should know

The freemium business model is not actually a new kid on the block, despite what many are wont to believe. In fact, freemium business models have since the concept of subscriber services came about, albeit in less defined ways. However, the freemium business model is finding itself most topical and serendipitous in light of the growing SaaS (software as a service) concept which cloud systems have permitted.

So, there’s obviously going to be a marriage between SaaS and freemium models. They seem almost made for each other, don’t they? The question is, what’s the best way to implement a freemium business model with your SaaS construct? There are a lot of good general examples to take from, so let’s take a moment and look at five major tips for SaaS enthusiasts to heed when going freemium.

A freemium business model basically offers the core software service free of charge. The profitability comes additional features, services and functionality which may be unlocked by paying subscription fees or one time fees. The trick, however, is in what you’re actually selling, and how you’re selling it.

Full Function:

The most important thing to bear in mind when converting to a freemium business model is that your core, free service must function completely. Whatever the primary purpose of your software may be, the free, basic subscription must offer all of this functionality unencumbered. Do not cripple functionality and sell patches or unlocks that make the software work. Not only is this blatantly false advertising, but it will turn users off pretty much for good.

What are you selling alongside the freemium package?

Let’s look at an example. Online MMORPGs (massively multiplayer online role playing games) are often run on a freemium business model. Usually, additional items to equip to characters, character classes and other non-essential yet desirable game assets are where the purchases originate. This is alright, as long as the user feels that these are just splurges, perks to enhance the game or software, not make it function. If you’re designing a game or social software of some sort, avoid the conversion of in-game or in-software currency to and from real world currency. This brings about “gold farming” which is … calamitous.

Avoid making these optional purchases too extremely powerful:

If the additional features or game assets make a user vastly more efficient and seemingly skilled than a basic freemium user, this causes balance issues. Freemium users will abandon the software, or pirate it if they can, just to keep up with the users who have the spare cash to purchase additional features or assets. This causes what game and software designers call “class drift”.

When converting your SaaS model to a freemium business model, do not use advertising on top of it. Users automatically perceive ads in software to mean the version they are using is inferior and possibly incomplete, and it may cause them to abandon the software before even getting a chance to really use it. Also, if they make a onetime purchase of a feature or asset, and the ads persist, they will just get annoyed beyond belief.

What are you charging for the additional features or assets?

Remember, freemium is appealing because it’s inexpensive and therefore efficient to use. If a user needs an added feature, but it is as expensive as old fashioned software suites, they’re not going to buy it. If it’s an amazing feature, they will then view their basic freemium account as inferior and may abandon it or attempt some sort of piracy.

As a bonus point, let’s talk about giveaways and incentives. When you convert your SaaS service into a freemium business model, don’t be rigid with what costs money. Give users the opportunity to earn these paid assets or features by referrals, time logged using the software, or if it is a game, in-game accomplishments. Users will feel that paying for it is merely a shortcut at this point and consider it a convenience and not a costly chore. Also, referrals bring in more customers, and a theoretical exponential outreach can be achieved this way.

Ultimately, it’s all about balancing price, power of additional features and a little bit of getting inside a customer’s head. It’s possible to create a profitable venture where everyone is truly happy if you wisely integrate SaaS with a freemium business model .

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Omri Erel
Omri is the Head of Demand Generation, as well as the Lead Author & Editor of the SaaSAddict Blog. Omri established the SaaSAddict blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to SaaS and cloud migration.
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