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Why a Freemium Model Is Absolutely Hurting Your B2B SaaS Startup

Can a freemium model really increase conversions for your B2B SaaS company?

Your B2B SaaS startup’s #1 goal? Getting (paying) clients into your pipeline, of course! 

Your lead generating activities may have included:

    • Starting a blog
    • Hosting as many free webinars as your schedule allows
    • Giving cold emailing a try

So far, these strategies seem to take quite a bit of time and for the most part, have felt more hit-or-miss than surefire client generators. So now you’re wondering: “Would I get more leads if I gave people free, but limited, access to my software?”

We get this question a lot, so we thought it was time to put into writing what a freemium model is, how exactly freemiums work (or don’t) for B2B SaaS startups, and how to decide whether the freemium route is right for your software. 

What is a freemium model and why is it so popular? 

In short, a freemium model is when you provide a user with access to some, but not all, of your software’s functionality for an unlimited amount of time. The hope is that as the user continues to enjoy your service, they will want to upgrade to paying for full functionality.

Many companies (including popular SaaS companies like HubSpot, MailChimp and Slack) consider the freemium model to be the gold standard because: 

    • It’s an easy way to provide value, and always a great way to start off a business relationship.
    • Freemiums can generate leads and help you build an easily segmentable email list.
    • There is less risk to the user. When they’re ready to purchase, they’ll be confident your software is worth the investment. 

However, not all software is built in such a way that you can give a good experience with limited usability. In the case of B2B SaaS startups, a freemium experience may actually deter purchasers instead of tempting them while putting an additional strain on your young company. 

How freemium models work for B2B SaaS startups

Typically, SaaS companies will add a free, “basic” plan to their pricing menu. These plans are often limited either by the features available to the user, the amount of data, the number of users or customers you can add, or the amount of support offered. 

At first glance, a freemium model seems like a really easy and simple way to turn leads into paying customers. But B2B SaaS startups struggle with execution because they need to ensure: 

    1. Their tech is equipped to handle the pressure every new user puts on their resources. 
    2. Their team has the capacity to constantly improve your premium product, so that freemium users continue to be tempted with the upgrade. 

When you know you have great software, it’s easy to believe that if you just let people use it, they will want it forever! But a bad experience with freemium could be worse for startups. The freemium route comes with a lot of risks that can eat into profits and be detrimental to conversions. Here’s how:

    • If you scale down your product too much, users will get little out of your freemium offer and abandon your services.
    • If you don’t scale down your product enough, users will be satisfied with your free offering, and will never convert. 
    • Your software likely requires some onboarding or training of some kind. When you give people free access they simply make an account; then, the onus is on them to learn how to use your software, doing them and your product a huge disservice. (Note: You can avoid this issue by helping free users onboard and get going; however, that requires committing time and resources that most startups don’t have to spare.)

If you’re still considering offering your product for free, take a few minutes to map out what the buyer’s journey may look like once they enroll. What resources will you need to devote to securing a user upgrade? Are these resources still worth investing in if your freemium users never upgrade?

Overall, applying a freemium model to your software will require a lot of up-front work without a guaranteed return. 

So, now you’re thinking, “Okay, maybe a freemium model won’t work for me. But what will? I need those leads!” 

B2B SaaS lead generation models that are better than freemium

These are just a couple of the many non-freemium options available to B2B SaaS startups that help prospects preview your software:

    1. Free trial: Give users full access to your platform for a limited time. This model still presents a few of the same problems a freemium model does (like allocating support resources to trial users), but you can tempt your users with all that your software has to offer, instead of letting them down by offering your slimmed-down services. 
    2. Utilize video: Videos showing your product in action are a great way to highlight key features, demonstrate how your product works and open up a dialogue with leads. Prospects can get a sense of how to use the software without using a free version for an extended period. 

Knowing which option will work best for your startup depends on many factors such as the nuances of your software, the stage of awareness of your audience, and the resources you have available to commit to trial users. 

Giving away software for free isn’t the only—or even the best—way to get prospects excited about your startup’s software. Instead, it could put additional strain on your business instead of fostering steady growth. Accelity can help you decide on a model that works best for you. Request a consultation today!

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