Slack, Canva, Dropbox, and Zoom have one thing in common.
Besides offering wonderful SaaS software products, these brands successfully utilize their freemium pricing model to drive product-led growth.
In fact, when companies decide to become product-led, 75% of them either leverage a free trial or freemium model.
Could a freemium model be a great fit for your SaaS business?
In this article, we’ll cover everything you need to know about the freemium B2B SaaS pricing model.
Let’s get started.
What is Freemium Pricing in B2B SaaS?
Freemium pricing is a strategy in which you offer a limited amount of your product for free and then charge users for additional features. In this case, the software is offered with limited features, usage limits, and limited support.
Most popular SaaS subscription management systems use a freemium pricing strategy where people can use their software for free but with limited access to features. Here is a roundup post of the best subscription management solutions by Attrock.
Another example of freemium pricing is by Dropbox.
The file-hosting and cloud storage service allows users to sign up for 2 GB of storage for free but when your storage needs surpass that storage limit, you will need to purchase their premium plans.
Freemium vs Free Trial
The two pricing models are powerful customer acquisition strategies in B2B SaaS. They are both helpful in enabling users to experience the value of the product before deciding to upgrade to a paid plan.
Nevertheless, they put usage limitations differently to encourage users to purchase a paid plan.
For instance, the freemium model gives users limited access to basic features for free.
People can use the product for free as long as they are satisfied with it forever.
On the other hand, the free trial model gives users access to all features but for a limited period—which could be 7, 15, or 30 days.
Once the trial period elapses, they need to upgrade to a paid plan or lose usage access.
Benefits of the Freemium Model for B2B SaaS Businesses
Here are the key benefits of using the freemium pricing strategy for B2B SaaS subscription businesses.
Pro tip: Better subscription management is essential for the success and growth of SaaS businesses.
Learn how a subscription management system can help to support growth for your B2B SaaS business in this in-depth guide on subscription management for SaaS businesses.
Improves Customer Acquisition
Customer acquisition in B2B SaaS is a tough and costly task.
Fortunately, the freemium model is an effective customer acquisition strategy.
This is because people like free things. Thus, many opt for the freemium plan but eventually upgrade to the paid plan to enjoy more value from the product.
Leveraging this model can get an edge over your competitors who are using the free trial strategy.
Supports Product-led Business Growth
As mentioned in the statistics above, a bigger percentage of B2B SaaS businesses that want to achieve product-led growth use a freemium model.
This is because the model enables customers to experience firsthand the value of your product for free.
It’s Easy to Convert Freemium Users
The freemium model enables you to show customers the features they are missing out on if they aren’t upgrading to a full version.
Furthermore, it enables you to gather user data and feedback which helps you to understand how to improve, position, or price your product to convert users to paying customers.
Improves Retention Rates
With the freemium model, you can easily retain customers since they can experience your product’s functionality and make informed decisions to upgrade to the paid version.
It’s Cost-Effective
Even though you’ll need to help them learn how to work with your product, freemium users don’t require the same level of support from your customer support team as those on a paid version.
Best Practices for Implementing Freemium Strategy for SaaS
Follow these handy tips to implement the freemium model the right way:
Select the Right Freemium Pricing Model
There are different types of freemium pricing to choose from. To improve conversion rates, consider mixing your freemium plan with a free trial where users get access to premium features for a limited time before they roll over back to the free plan.
Ensure Your Product is Valuable
If your product is valuable, freemium users will convert into premium users. After all, people want value. If they can’t get value in your freemium plan, you will struggle to convert and retain them.
Personalize Your User Onboarding Process
The faster freemium users can experience the product value, the quicker they can turn into premium users.
Personalize the onboarding experience by introducing features based on customer use cases.
Get Feedback From Freemium Users to Improve Accordingly
The good news about the freemium pricing strategy is that it allows you to track product usage and gather customer feedback.
This helps you to understand what customers want (or don’t want) and gain other useful insights so you can fine-tune your offer accordingly.
Pro tip: Starting your B2B SaaS subscription business is a great idea but it’s not always a walk in the park. This post by SmallBusinessHQ compares two popular business formation services that can simplify the process for you.
Conclusion
Is the freemium model right for your B2B SaaS subscription business?
The answer to this question is a “yes” and “no”
Why?
Because it entirely depends on your product and resources.
Even though it helps to improve growth, collect user data and test your product, you should follow the best practices outlined above to improve conversion rates.
Also Read: How SaaS Businesses Can Run An Effective Customer Training Program
