What is the SaaS Freemium Model?

Freemium is a revenue business model where SaaS (software-as-a-service) companies offer a basic version of a product or service for free. If users require advanced features, functionalities, or customer support, they need to upgrade to a paid subscription. 

The goal of the freemium business model is to appeal to a larger audience and convert free to paid users.

The freemium business models benefits both users and SaaS providers, like: 

Benefits for SaaS providers: 

• Wider audience: A free-of-charge software version attracts customers. 
• Increased growth potential: Freemium product packages are chosen by users in different industries.
• Feedback generation: SaaS businesses can make use of the feedback received from users to modify their product or pricing strategy.  

Benefits for SaaS users: 

• Try before committing: Users can test the SaaS product before deciding to invest in it and decide if it is a suitable option for their requirements. 
• Budget-oriented: The freemium packages offer access to a basic functionality software version. 
• Scalability: Customers can upgrade to a paid version of the software when they require additional features.

Implement a freemium model for a SaaS product is an appropriate move if: 

• Product features can be divided: You can easily create premium and freemium packages.
• You can handle user requests: You can respond to high support volumes.  
• There’s an increased upgrade potential: Switching from freemium to a paid subscription is the path most users take.

To evaluate how your freemium model is performing, SaaS companies can use the following metrics: 

• Conversion Rate: Measure the percentage of users that switch from a freemium to a paid subscription. 
• Customer Acquisition Cost (CAC): Evaluate the costs of acquiring new paid and free customers.
• Churn Rate: Calculate the percentage of users that have canceled their subscriptions, free and paid. 
• Customer Lifetime Value (CLV): Determine the revenue generated by a user throughout their relationship with your brand.

Here are three practices SaaS businesses with freemium models can use to achieve a balance between free and paid plans: 

• Balanced freemium version: Create packages that offer basic features, but foster the upgrade idea. 
• Offer clear upgrade reasons: Explain how upgrading to access paid features can solve challenges. 
• Straightforward upgrade flow: Offer users a simple upgrade process so customers can transition to paid plans.

When considering making the switch to a premium-only SaaS model, businesses should consider the following aspects: 

• Timing is essential: Transitioning to a paid-only plans business model is right when you have sufficient customers.
• Clear messaging: Explain to your existing free users why you are moving towards a paid model. 
• Use discounts or promotions: Consider offering your existing free user base ongoing access for discounted prices.