How To Become Profitable With Freemium Software Offerings

I’m a huge advocate of free. My most important piece is called “The Future Of Freemium”. My most viral piece is called “How To Convert A Free User To A Premium User” β€” and, in a nutshell, I’m talking about how it’s about giving everyone what you do for free so you can help them get off the ground.

Search “free” on my blog and you’ll see more articles than you can read in a day.

There’s a big question every time I impose my “free” agenda on people, which is:

Okay, Daniel, I understand. Free means you trade short-term money for more valuable stuff: a very tight relationship, data, user base, a community etc. But how will I make money? You know… in the future, not now. How do I get to become profitable eventually?

There’s no cookie-cutter answer, of course, but here’s something that might guide you.

The answer is a balance of the two articles I linked above:

On one hand, give enough “free” to people that want to get started. Help them get off the ground β€” they’ll be grateful enough so that, those 1 in a million that make it through and make it big, will remember it.

On the other hand, there are those who want to get started and those who have already made revenue. Their company is looking for expenses, so as to grow (and reduce that tax bill πŸ˜‰). They need this free thing you offer but either:

  1. The same product, but with more power
  2. The same product but mutated so that it’s tailored specifically to them

I haven’t said anything new so far. You might have already known these two.

Here’s the deal: the more “free” you can give, the bigger your eventual prize will be in this second category of paid people.

Why? The reason is simple:

When you give away free stuff, you’re trading that for more exposure, a bigger user base, higher growth numbers etc. As a consequence, the longer you hold your breath with free, the more “high-paying users” will know about you.

It makes sense. If you offer something for free that’s not fantastically valuable and only for 6 months β€” how many Fortune 500 companies will know about it?

If you offer something really valuable for 10 years β€” how many Fortune 500 companies will know about it?

Look at Taobao. This piece deserves a longer article since some of you may not know all these bits that I’m putting together β€” I promise I’ve just added this piece to my list of “turn this into a longer written piece”.

Taobao is, for what I can tell, offering as much free as humanly possible. The only way they make money is through search-word ads β€” like Google. Want to be #1 for “t-shirt”? Pay for it. But if you don’t β€” it’s all free.

However, Taobao is cool but because of the high number of small businesses that are there, Nike and Celine don’t want to be there.

So TMall is the upscale version of Taobao β€” and it’s not just a matter of branding. It’s a matter of tools as well. Yet the brand is the stronger call: customers who want something of high-quality won’t think of Taobao first.

That’s how Taobao is worth the huge bleed of money.

So, the answer? How do you become profitable while giving free?

The answer is that you don’t know the answer. But it will be shown to you if you arm yourself with enough patience to find out the real answer for yourself.

If you do what everyone else does, which is call it that “you made it” when a company 2 leagues above you wants to collaborate based on what you do β€” that’s fine.

But you can hold your breath for longer and have the highest league of companies reach out to you. IF you play it right.


About Ch Daniel

I run Chagency_, an experiences design agency β€” we help SaaS CEOs reduce user churn. I write daily on this topic and in similar areas. Here are my best pieces.

If I’ve helped you, follow me here and reach out: LinkedIn | Twitter | Email | Quora | YouTube 

I’ve also founded an app that went 0-200K users in its 1st year β€” The Legit Check App. See everything I do here: Chdaniel.com

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