Should I Offer Freemium?

According to the State of Independent SaaS Report, 66% of SaaS products offer a free trial, but only 17% offer a forever-free (aka freemium) plan.

Is freemium the path for you? It depends. Freemium is like a samurai sword. If you know what you’re doing, it’s powerful. If you don’t, you can cut your arm off.

There’s a reason that many venture-funded companies offer freemium and many bootstrappers don’t. This is because venture-backed businesses can afford to support a large freemium user base.

For a bootstrapper, though? You typically need as much cash as you can get in the short term. Freemium pushes your revenue into the future, so if cash is tight it can be less than ideal.

Free plans don’t just magically work—you need to understand how they function.

Freemium works best with a simple product that doesn’t require much work for the customer to get value, where the support burden is reasonably low and there’s some level of virality built into the product.

For example, an e-signature app is pretty straightforward. The user uploads a doc, then sends it or signs it within minutes to get near-instant value. If you’ve created an easy-to-use product with a good UI, you will not have to do much in the way of support or onboarding. Plus, every time a user needs a document signed, they’re spreading the word about your product because you’ve built in the Virality Cheat Code (covered later in the book).

As long as your per-user or per-usage costs are pretty low (i.e., you’re not paying much every time someone sends an email through your e-signature app), then you can offer a freemium tier without spending much cash.

On the other hand, a freemium model would likely not work for a construction management software CRM with low to zero virality and a complex setup and onboarding process.

You can run into problems if your free users are in a completely different market than your paid users. Do they need additional features or require more support? Are they in different verticals or categories?

If your freemium users aren’t at some level helping push growth of your paid tiers, offering a freemium plan isn’t the right call.

If all your competitors offer freemium, does that mean you have to? Not necessarily.

The reality is that many startup founders don’t actually know what they’re doing. They’ll launch a freemium option for a while and then shut it down because it was too much work or didn’t provide the results they expected.

If the majority of your competitors offer a free plan and it’s become a sticking point with the prospects you talk with, then you might consider offering a freemium option to remain competitive.

Or you could come into the market like automated customer acquisition software Bounce Exchange (now Wunderkind). Not only did they not offer freemium like the majority of their competitors, but they also launched at $2,995 a month. Some people in the community thought they had lost their minds.

However, Bounce Exchange had a different business model. They became successful because not only did they offer software, but they also managed the entire service for their customers. They did a great job of creating a product for a very specific segment of the market who was willing to pay for it rather than racing for the bottom with pricing.