![\"Freemium](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_Freemium_01@2x.png\")
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Amongst SaaS companies, the freemium model is a well-trodden path. So much so that it\u2019s become a given that most SaaS companies have some sort of \u2018free\u2019 option – whether as a permanent free tier or as a trial<\/a>. <\/p>\n We have our own free tier<\/a> \u2013 anyone, whoever they are, however small their business, can get access to our Analytics product to monitor their website in real-time. <\/p>\n One of the big drivers of a free tier is its effectiveness as a marketing tool. <\/p>\n You can show off your product whilst still holding some value back. You can be on the journey with a customer as their business, and therefore their use case, grows. You can gain access to a wider audience which in itself provides great marketing and brand awareness opportunities.<\/p>\n The data suggests that freemium conversion rates generally fall somewhere between 2-5%<\/a>. Whether this is worth the cost of running a free tier for your business is something only you can answer. But, this post discussing the pros and cons of a free tier<\/a> might help. <\/p>\n What we can do is help you to understand one of the key blocks that stops your free tier users from becoming fully paid up users. And, more importantly, how you can get around it.<\/p>\n This mental barrier in the minds of our audiences is something called the Penny Gap<\/strong>. <\/p>\n A term coined by Josh Kopelman<\/a>, the penny gap is the space between something being free and something being very cheap. The theory is that it is harder to get a customer to pay 1p for something they are used to getting for free than it is to get someone to pay an extra \u00a310 on a \u00a3100 monthly bill. <\/p>\n Think about how you react to paywalls on digital publications and blogs you read that ask for a tiny fee per month. <\/p>\n It\u2019s an important aspect of consumer psychology that we can\u2019t ignore. <\/p>\n It\u2019s clear why this is an issue for all of us that have implemented the freemium model. By giving away some of our product for free are we creating a mental barrier against paying for it? <\/p>\n NB<\/strong>: If you are at the stage of evaluating the freemium model for your business make sure you\u2019re clear on the difference between value and price point<\/a>. <\/p>\n A common strategy for free tier products is to leave your own branding on. Think about how free versions of products you might use have \u2018powered by\u2019 tag lines somewhere visible. <\/p>\n The customer they are still getting what they want for free. <\/p>\n The business they are getting plenty of backlinks around the web (great for SEO), and the marketing power of being a trusted partner of another brand. <\/p>\n On your free tier this branding should be compulsory. <\/strong><\/p>\n You can go one step further and offer your paying customers customisation. <\/p>\n Removing or replacing your own branding is the most obvious one, but it\u2019s not the end of the road. Think about how you could make the product more customisable. Perhaps paid users have a choice in the layout or colours of the product, how the product is delivered, access to an app rather than a web-based product. <\/p>\n It\u2019s not only additional features that can trigger an upgrade. Don\u2019t neglect the power of design and branding. <\/p>\n A great way to encourage your free tier customers to convert to your paid tier is to start them off on a full free trial of the premium offering before moving them to your free tier. <\/p>\n This is fairly common practice amongst SaaS companies, but outside of those first weeks, it\u2019s rarely used.<\/p>\n What\u2019s stopping you from dangling this carrot at other stages of the customer lifestyle? <\/p>\n When you notice that someone is coming close to hitting the limits of your free tier option – gift them a 2-week upgrade to the full version as a taster of how much easier life would be if they upgraded. <\/p>\n Depending on the issues your business is trying to tackle this could work for churn-risk customers, new customers, or to reward loyal customers.<\/p>\n When designing the free tier of your product it can be tempting to entirely remove the premium features from view. <\/p>\n Don\u2019t.<\/p>\n Use this opportunity as a way to remind your free tier customers that there is a more advanced tier of the product with more features and more opportunities for growth. <\/p>\n A customer who is already seeing value in your product and comes across these \u2018feature blocks\u2019 is reminded that there is more to explore. <\/p>\n Without these little reminders, it can be easy for your customers to forget that there\u2019s another option. <\/p>\n Here\u2019s how that looks in our own product. <\/p>\n How you set up your free tier will influence your content marketing strategy. <\/p>\n For example, if you restrict feature use then there\u2019s an opportunity to mention the benefits of your premium features.<\/p>\n A less obvious example might be when your free tier is restricted by volume. Our free analytics tool<\/a> limits users to tracking 10,000 page views per month. <\/p>\n For anyone with a new website or blog, this is great when you\u2019re starting out. For this free-tier customer to become a paid customer they either need to want to use a premium feature, or they need to surpass the 10,000 tracked page views limit. <\/p>\n In other words, our success is tied to their success.<\/p><\/blockquote>\n For our content team, this means writing content like \u20183 unique methods for generating more blog traffic<\/a>\u2019 or \u2018how to get the right kind of web traffic<\/a>\u2019. <\/p>\n The more we can support the success of our customers, the more use cases they have for using GoSquared. <\/p>\n Sometimes it can feel like there\u2019s a logic to giving away very little in your free tier. You don\u2019t want anyone to be fully satisfied with the free version of your product because then, why would they upgrade? <\/p>\n This thinking is flawed from the get-go. <\/p>\n Yes, we want more paying customers, all businesses do. But we also want to create value. <\/p><\/blockquote>\n It\u2019s worth thinking about this dilemma the other way round. If you can\u2019t prove a tangible value from the free tier why would a customer upgrade and give you money? <\/p>\n Instead, what if your customers thought: \u201cwow if this is the value I\u2019m getting from the free version, imagine what the paid product can do for me\u201d. <\/p>\n Remember that your free tier users, whether they convert or not, have a special kind of value. Given the chance, they can become your best advertisers and brand spokespeople. <\/p>\n We offer our free tier users more page views per month if they add a GoSquared badge to their website<\/a>. <\/p>\n We benefit from the backlink from their site. They get more value from our product. <\/p>\n This suggestion is more out-there than the rest. We\u2019d love to hear from anyone who has tried this – so please reach out to us if that\u2019s you! <\/p>\n It\u2019s a simple way to conquer that penny gap. <\/p>\n Charge 1p. <\/p>\n It\u2019s a risky tactic, but could also be a great way to stand out from the crowd. <\/p>\n It\u2019s such a ludicrously small amount of money for your product that it will have a similar effect to a free tier, whilst also being a great talking point. <\/p><\/blockquote>\n The main risk of this is having to deal with the admin of such small payments. Try it out. Call it an experiment. Let us know what happens. <\/p>\n Now, although it\u2019s very rare to see a company charge 1p for their \u2018free\u2019 tier product, it\u2019s less unusual for businesses to run introductory offers. <\/p>\n For example, Ahrefs charge $7 for a 7 day trial<\/a> of their product.<\/p>\nWhat is the Penny Gap? <\/h2>\n
![\"freemium](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_Free1p_01@2x.png\")
<\/p>\nHow can we encourage more free tier members to become paying members? <\/h2>\n
Brand your product, and offer customisation <\/h3>\n
![\"free](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_PoweredBy_01@2x.png\")
<\/p>\nShow them what they\u2019re missing <\/h3>\n
![\"show](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_More_01@2x.png\")
<\/p>\nRemind your customers about premium features whenever you can<\/h3>\n
![\"Remind](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_This_01@2x.png\")
<\/p>\nShow your customers what success looks like <\/h3>\n
![\"show](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_Success_01@2x.png\")
<\/p>\nProve the product\u2019s value at the free tier level<\/h3>\n
![\"show](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_Value_01@2x.png\")
<\/p>\nConquer the penny gap once and for all <\/h3>\n
![\"avoid](\"https:\/\/static.gosquared.com\/images\/liquidicity\/19_05_16_Freemium\/2x\/19_05_16_0_01_01@2x.png\")
<\/p>\nAre you ready to conquer the penny gap?<\/h2>\n