The Premium Freemium
How to create value and funneling your users to your paid for products
Speaking to over 40 founders over the past 4 weeks, a common question keeps coming up:
“How can we effectively build a premium freemium model set up for profitable growth?”
Most of us get the basics of the freemium model: offer a free service to draw users in, then entice them with premium features. However, the real challenge lies in sculpting this model effectively, considering crucial factors like Customer Acquisition Cost (CAC), Lifetime Value (LTV), and creating a compelling journey from the free to premium tiers.
This framework focuses on how to maximize value and user engagement at every stage.
The Freemium Foundation: More Than Just Free
The foundation of a successful freemium model lies in offering undeniable value in your free version.
Remember this: IT IS NOT JUST a teaser or a limited preview. it's the first chapter of an engaging story.
This version should be good enough to stand on its own, offering genuine impact and delight and most importantly a USER EXPERIENCE that will make your users want more. Think of it as your product's handshake – the first, and perhaps most crucial, interaction with your potential customer.
How to build a Free Version:
Focus on Core Value: Identify the core functionality that addresses your users' primary needs. This value should be apparent and accessible from the get-go.
User Experience is Key: A seamless, intuitive user interface in the free version sets the tone for quality expectations in the premium offering.
Community Building: Use the free version to build a community of users. Engagement within this community can provide valuable feedback and foster brand loyalty.
Funneling to Premium
Transitioning users from the free version to the premium offering is where strategic thinking plays a pivotal role. This shift should feel like a natural progression rather than a forced upsell. The key is to create a perception of the premium version as an indispensable tool that's worth paying for.
Effective Funneling Strategies:
A. Feature Teasing: Introduce premium features in the free version in a limited capacity. This tease can create a desire for the full functionality.
B. User Behavior Insights: Analyze how users interact with the free version to identify which premium features will be most appealing.
C. Exclusive Offers: Provide exclusive offers or trials of premium features to free users, making the upgrade more tempting.
Balancing CAC and Maximizing LTV
The beauty of the premium freemium model lies in its ability to maintain low CAC while maximizing LTV. By attracting users with a free offering, you reduce the initial barriers to entry, thereby lowering the cost of acquiring new users. The real magic happens when these users see the value in your premium features and decide to upgrade, thus increasing their LTV.
Balancing the Two:
Data-Driven Decisions: Use data analytics to understand which aspects of your product drive conversions to the premium version.
Refined Marketing Strategies: Tailor your marketing efforts to highlight the value proposition of upgrading to premium, focusing on the ROI for the user.
Continuous Improvement: Regularly update and improve both versions based on user feedback and market trends to keep your product relevant and valuable.
In the end, the premium freemium model is about creating a journey for your users – a journey that starts with a compelling free version and leads to an irresistible premium upgrade. It's about understanding your users' needs and desires, and crafting a product experience that feels essential to their daily lives.
As we continue to innovate and grow in 2024, let’s focus on not just building products but crafting experiences that resonate with our users. Let’s create value at every step, balancing our aspirations with the practicalities of CAC and LTV, and SCALE THAT THING!