Freemium. Pros and cons

    Recently, the utility of the Freemium model has been quite actively discussed. Two domestic and one western service spoke on this subject.

    Despite such ambiguity, a completely free tariff has recently appeared in MySklad recently . What for?

    Analyzing our client base for individual tariffs (more about the financial metrics of the cloud service), we saw that the cheapest tariff for 400 rubles a month looked unconvincing. He suffered from a very high outflow of users, and the client’s lifetime was 4 times less than at a more expensive tariff for 2,400 rubles. Customer value (CLV) between these tariffs was already 27.5 times different.

    Due to the large outflow, the number of customers at a cheap rate at some point simply stopped growing. As a result, there was a strange situation when the cheapest tariff was simultaneously the smallest in terms of the number of users.

    Why did this happen?

    Firstly, users of cheap tariffs are most often novice businessmen. It happens that work in the service ends simultaneously with the closure of a non-profitable business.

    Secondly, the base rate has a powerful competitor - Excel or its cloud version in Google Drive. In combination with a smart head, these products can replace the basic functions of our service absolutely free. In fact, this is a typical example of how alternative solutions to a specific problem limit the price that a customer is willing to pay for your product.

    As a result, we got a rather large, but very unstable audience, to work with which from the point of view of profit was seemingly unpromising. At this point, we came to the conclusion that by making the lowest tariff free, in the short term we lose only a few percent of revenue, and in the long term we create a large loyal audience.

    The purpose of the new free tariff is to give the user the opportunity to work comfortably, without any restrictions and pitfalls. In a year or two, successfully growing businesses will naturally switch to one of the paid tariffs.

    Quite unexpectedly, but there is also an emotional side to this decision: to give is very pleasant. Especially what we think makes user life a little easier.

    When is freemium not worth using?

    It is clear that this model is not suitable for a service with a high cost of user service. For example, if it includes the services of live consultants, with all the associated costs. Therefore, the freemium would not be suitable for the Button, but it works fine with JivoSite.

    A company must have some financial stability. Starting a freemium can reduce revenue for some period of time and this can finish off a startup balancing on the verge of payback.

    Our position coincides with the MainChimp case. In any case, you first need to learn how to sell, debug processes and the financial model, and only after that, perhaps, launch a free tariff.

    It is too early to take stock, since a little over a month has passed since the launch. Nevertheless, during this time we have already received more than 400 active users at a free tariff. At the end of 2014, we will definitely tell you about the first results of this freemium project and give specific figures on how the free tariff impacted the conversion and growth of the client base.

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