Freemium SaaS： The 4 Rules For Creating A GREAT Business Model & Product
Episode Stats
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Summary
In this episode, I talk about why you should only use a freemium business model when the following 4 things are true: 1. You need to make sure your potential number of users is in the tens of millions of users 2. Free distribution is a competitive advantage 3. The product has a simple and straightforward value proposition 4. The marginal cost to serve additional users is negligible 5. It doesn t matter how many users you have, it doesn't matter how much money you make If it's free, it's a good business model.
Transcript
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when the following three of four things are true.
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I don't know if you've ever thought about starting
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but I've been building companies now for over 17 years.
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I'm a formal advisor to Hootsuite, one of the largest freemium companies.
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I'm friends with Drew from Dropbox, so I've seen in the early days how they've built that company.
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I even integrated with Mailchimp in my company, Flowtown, so I've worked with Ben personally, the founder and CEO there,
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and watched them go through that transition from paid-only to freemium.
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And, you know, recently I was on a phone with an entrepreneur, and she was walking me through her business model and her pricing plan.
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they were B2B SaaS, and the pricing of the model,
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but right off the bat, you'll never be able to scale this.
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And I was like, freemium in your model's not gonna work.
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And I said, well, you're violating too many of these rules.
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And then I walked her through these four different rules
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and she realized that she had made that mistake.
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And it had been three years that she sat on this
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And I think that conversation really sent her down
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a different path and that's what I wanna share with you today.
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like doctors that do a very specific type of operation,
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And there's a reason why you need tens of millions
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So number one is make sure that the total numbers
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You know, I remember seeing MailChimp when they did this,
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It's like, look, there's all these other email providers
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But they, you know, Ben wrote this amazing blog post,
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I'll link it up below, that walked through his thinking
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and the math and, you know, 10 plus years of data
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if we can increase the amount of people in our trials,
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we know that they're gonna confer at this level
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and overall it's gonna net us ahead from not doing it.
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So it was a very deliberate business model decision.
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And really it's free is a competitive advantage.
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The third one is that your product has a very simple
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or account managers, you do not have a simple process.
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When I'm talking about simple, value, straightforward,
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Think about it, I have a folder on my computer,
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I drop folders or files there and I can share it.
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You know, and that, when you look at all the top,
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I put stuff in here, I can search and I can retrieve it
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on all of my different devices and they're synchronized.
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because the free is kind of taking the marketing spend
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instead of spending it on marketing to get more users,
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getting to that moment of gratification and aha,
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and most of them are free, it will never scale.
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And really quick recap is the number of potential users
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in the tens of millions, okay, tens of millions.
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Two, that free distribution is a competitive advantage
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If you wanted to get 1% to 4% of your users to paid
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So if you want to get one to 4% of your users are paid,
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you would need to get, with a 4% conversion to paid,
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you would need 25 million users using your product.
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Do you have the financial means to scale, to defer,
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to build up, to understand, to build the capacity,
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because only 4% are going to be paying $100 a year?
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I mean, it's, you know, there's companies like Slack
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and so many other incredible freemium companies
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And I think that freemium has caused more harm than good
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of the four of these kind of filters or rules fit
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that you might want to consider going to a kind of a free trial
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Just click right up there to get exclusive content
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And I want to challenge you to live a bigger life
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and a bigger business, and I'll see you next Monday.