Freemium is a “business model that works by offering a game, product or service free of charge (such as software, web services or other) while charging a premium for advanced features, functionality, or related products and services.” (Wikipedia)
David Rogers’ article How to Make Piles of Money from Charging Nothing sums the concept up nicely:
“The freemium business model works like this: Everyone gets your product or service for free, forever. But those customers who really like it, and find most value in it, will have a strong temptation to upgrade to a “premium” (paid) service which has lots of additional goodies. It is, at heart, a strategy of pricing by customer segmentation. It also requires a lot of insight into your customers and how they use your product.”
Spotify let’s you listen to a certain number of songs for free, with a premium paid option for heavy users. Skype lets you call any computer in the world for free, with a premium paid option for those who want to call a real phone.
But this concept isn’t just limited to software and websites. Freemium is more than just a business model, it’s about the fundamental shift in how buyers expect to interact with and sample products and services. Whether you sell software or consulting or custom kitchens, if you compete with other companies that give away content for free in order to engage an audience, you are officially in the freemium business.
And the sooner we wrap out heads around the fact that our business model has changed, the better content marketers we’ll be. Effective content marketing works because it allows people to try out your solutions (ideas, insights) for free, with a premium paid option (your products and services) for those who value them most.
Why it’s the future
The freemium business model in one sentence: “Acquisition (attracting customers) comes first, and monetization (turning them into revenue) is second.” (Rogers)
Content marketing works the same way. You create content that attracts and engages your audience by first solving specific problems for free. Then over time, if your solutions are good and your paid products and services are epic, a portion of your audience will pay the premium for them.
The difference of course is that your free “version” is your ideas, not your services or products.
What makes all of this generosity on your part possible?
- Scalability. Online content delivery is essentially free. You can reach one million readers with your blog and white paper just as easily as you can deliver it to one reader.
- Value of content in search. Content does more than just give buyers a taste. It also functions as an essential part of your inbound search strategy and makes you much easier to find through search engines and social sharing.
- Amount of effort ratio to value delivered. If you were to conduct a live, 60 minute workshop with 5 people that takes you 20 hours to prepare for, your time spent per person would be about 4 hours. On the other hand, your 60 minute on-demand webinar may take you 30 hours to produce, but if it is viewed by 100 people, your time spent per person is only about 18 minutes. Online content multiplies the reach of your effort and delivers more value to more people in less time.
Why is Free So Scary?
When you trade in ideas and solutions, there’s a legitimate fear of giving away any of the answers for free and having nothing left worth paying for. But the truth is that for every few readers who will be perfectly happy consuming your ideas, making them their own and going on to tackle the problem alone, a portion of your audience will want the personal attention, the hand holding, the automated software, the customized plan. Your value is not limited to your ideas, but only to how well you are able to apply ideas to the specific needs of your paying clients and customers.
Your blog may teach me ways to streamline my sales process, but your software will fix the process automatically. Your white paper might teach me how to set up a will, but your document website will walk me through the process and let me print up the forms. Your webinar may teach me about new tax laws that could aversely affect my company’s profits, but your consulting will take all the guesswork out as you help me work through each step.
Another source of resistance is having to hold back and not always go in for the kill. Acquisition first, monetization second takes faith, a planned process, long term thinking and commitment. Many sales and marketing teams operate under a different set of realities, one that measures your performance by monthly goals and deals closed. Your CEO may not be interested in hearing that you are “nurturing your audience” by creating solutions…for free.
This, of course, is an internal cultural issue. The preferences of your C-suite has no affect on the realities of the marketplace and the expectations of your buyers. Your prospects couldn’t care less that you are under pressure to close sales.
They do care about whether they can trust you. If you’re not willing to earn that trust with minimal risk to them, they’ll simply move on to a competitor that is (assuming they ever found your site to begin with).
Why Adopting a Freemium Mindset Works
The good news is that despite the fear and obstacles, adopting a freemium mentality can give you an incredible competitive advantage.
- Build customer access. Content marketing is a lot like publishing your own trade magazine through which you are free to offer any of your products and services whenever you want. After all, it’s your adspace to do with as you wish. The potential ROI is massive.
- Testing ground for new and better products and services. One way to look at building a freemium model (content marketing, social media and community management) is as your own low cost R&D lab. Knowing that your products and services inevitably evolve or perish, building a large, targeted and engaged audience allows you to quickly and easily test new ideas and offers, get fast feedback from the right people and quickly learn which features have the greatest chance of succeeding in your market.
- Customer insight. Your freemium business model gives back far more than it takes by making it easier to listen to your customer base, discover opportunities and find new problems to solve.
- Competitive advantage. How? By greatly reducing the risk of engaging with you and solving problems up front, not just after the sale.
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