Why the freemium model DOES work (and how to make it work for you)

A business model that has grown in popularity in recent years is the “freemium” model — where your target market receives free valuable products or services (e.g. information or music or access to a system or whatever), and they also can pay for more products or services, as well. The hope is that your potential buyers will find your free content so valuable that they’ll pay for your paid content. (Read about the 5 levels of online content monetization).

It’s a popular business model that many businesses offer. It’s my business model, too: Business owners can read my content (on my blog) for free and then hire me to engineer their sales funnels and fill their sales funnels with marketing and sales content.

But in an article at BNET, Erik Sherman says that the freemium model doesn’t work. He says that many people will accept the “good enough” free version rather than pay money for the paid version. Sherman draws from a few industries, including the music industry, to talk about the difference between great value of a paid product and “good enough” value of a free product. Most consumers, he argues, will accept the “good enough” free product.

I don’t agree.

First, check out his article then come back here and I’ll tell you why I think he’s wrong. The Future of Content Threatened By The Tyranny of Good Enough by Erik Sherman (at BNET). [Link opens in a new window]

Sherman does make some good points. And there are situations where target markets who are happy with free content won’t go for paid content.

Where I disagree with Sherman is when he talks about what people are paying for.

In his argument against the freemium business model, Sherman compares apples to apples (if you’ll forgive me for using a tired old analogy). He wonders why someone would pay for a song when they can get the song for free. And he wonders why someone would pay for an ebook when they can get the content for free by scouring for it online. Then he concludes: If someone can get a “good enough” thing for free, then there certainly is no reason for them to pay for something that is better… after all, in their minds, good enough is good enough.

Okay, I agree with that part. But here’s where I disagree with Sherman:

It’s not an apples to apples comparison. A person gets music for free on the radio or by searching online, but the reason they buy music is because they want control over when they listen to it and they want to customize their listening experience. Or, a person can scour the web to find free information that they would normally find in an ebook, but the reason they buy the ebook is because they want the information in one convenient location that is easy to read and apply, and it’s targeted specifically to them.

Let’s take this out of the freemium universe for a moment and consider someone who spends $29.95 to buy a book and then hundreds of dollars to hear the same author say similar things at a conference. Many people would spend $29.95 to buy a book and that would be enough for them (just as many people will read free content and find that to be enough). But there are many who want the additional value of hearing the author speak (and perhaps even get the chance to meet the author). It’s not a matter of buying the book and then spending more to hear the book read to them (that’s an apples to apples comparison, which is what Sherman is making). Instead, it’s about buying the book or hearing/meeting the author (that’s the apples to oranges comparison that I’m trying to make).

Sherman shouldn’t make a comparison about free music versus nearly-identical paid music. The freemium model IS flawed if there is only a slight jump from free/”good enough” to paid.

The difference between the free/”good enough” level of product or service to the paid level needs to be ridiculously high… it needs to be unique, focused, specialized, customized, and jaw-dropping. As business owners, we need to show potential buyers that they can get apples for free but they need to pay for oranges… that is, they are paying for something completely different.

But that’s not all.

As business owners, we will only push our Audience past the free stuff with effective marketing and sales content. If someone can’t see the difference between the “good enough” option and the paid option, then the problem lies with the business owner who has not differentiated their offering enough.We business owners need to show our potential customers how the higher value premium stuff is so much more spectacular.

If your business uses the freemium model, you are admittedly risking that some people in your target market will take the free stuff and run. Perhaps many of them will do that. However, if you have an effectively differentiated product or service, you will turn those Audience members into Leads then Prospects then Customers.

Your job is to provide the free content but it is also to explain how your paid content (or service) is worth so much more.

Published by Aaron Hoos

Aaron Hoos is a writer, strategist, and investor who builds and optimizes profitable sales funnels. He is the author of The Sales Funnel Bible and other books.

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