Is Freemium the right model?
Some SaaS businesses selling to enterprise customers have a freemium model, whereby they offer free use of a lower tier version of their product. The goal is to entice the prospect to upgrade to a full-use, fully featured paid product. Does it work? Absolutely. Below are examples of SaaS IPO’s since 2021 that had a freemium model. Text is taken directly from their public filings.
Expensfiy. “we enable a self-service, low-friction model that makes it simple for anyone to try and use our platform and then easily share it with others. Anyone can easily download our application or go to our website and sign up for free on their own, and later upgrade to a paid subscription for advanced features. The adoption of Expensify within an organization typically starts with the individual employee, who downloads our mobile application for free and uses it to easily submit expenses to their manager with a few taps. After the employee realizes the benefits of our platform, they become a champion of Expensify and spread it internally to other employees — as well as to their friends in other companies. With multiple employees using Expensify, and valuable features simplifying the manager’s job, the decision maker often purchases a subscription to Expensify and becomes a paying customer with a few members.”
Gitlab. “We have a simple and easy to understand open core business model. We offer a free tier that includes a large number of our features to encourage initial use of The DevOps Platform, solicit wider community contributions, and create lead generation. We offer two paid subscription tiers, Premium and Ultimate, which are based on features available and priced on a per user basis. Our Premium tier includes features relevant for managers and directors, while our Ultimate tier includes additional features relevant for executives. Each of our plans provide feature access across every stage of the DevOps lifecycle, making it easier for customers to adopt additional stages on The DevOps Platform and add more users.”
Hashicorp. “We are committed to an open-source model in which we maintain free open-source offerings while developing proprietary features for paid tiers of our software. These proprietary features include collaboration modules, governance and policy modules, enterprise use cases, and premium support and services”
Amplitude. “Our Starter plan is a free-tier, self-service option that allows prospects to easily sign up and begin to leverage the power of the platform in rapid fashion. This plan includes core product analytics with the ability to track up to 10 million events per month. Users of this plan get access to unlimited user seats and are encouraged to add additional team members across functions to proliferate the use of our platform within their organization.”
So is a freemium model for you? Maybe. The advantages are numerous; specifically freemium: i) is an excellent lead-gen tool; ii) creates advocates for your product at all levels; iii) allows you to refine the ICP; iv) drives simplified pricing; and v) establishes your go-to-market as thoroughly enterprise. That said, it requires more dev and product resources, could attract leads that are not ICP, and requires more sales resources to separate the real leads from the non-ICP. Overall it’s very resource intensive (it’s effectively its own business line), but if you get it right, you go the promised land like the companies above.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.
