Dear SaaStr: Does Freemium Always Work?
No.
Freemium and PLG models don’t always work. And sometimes, they only work partially.
For Freemium to work, you need at least 2 things:
- The ability to get 50,000,000+ users at scale. Why? Because even with a 2% conversion rate, that only gets you to 100,000 customers. You don’t need to start there, of course. But if you can’t ultimately get 10s of millions of free users, most conversion models just don’t get you enough paid customers.
- A product that is super, super easy to adopt. For sure this is part of most Freemium products we all use every day, from Canva to Zoom to Notion to Spotify. But most B2B products aren’t that easy to use.
If you can’t pull off both points, you’ll most likely need a product with a higher price point and a sales-driven model to support it.
Freemium Is Not a Marketing Strategy pic.twitter.com/wKhObGla3v
— Jason ✨Be Kind✨ Lemkin 🇮🇱 (@jasonlk) November 12, 2023
Even SMB leaders like Monday waited to go Freemium. More on that here. Monday didn’t even add a Free plan until just before its IPO:
Having said that, and importantly, it’s OK if Freemium only partially works — if it’s not your entire revenue stream:
#1. Zoom at IPO got 55% of its customers from a Free session initially. And of course — 45% went directly to paid. It doesn’t need to be 100% Freemium to win:
#2: Asana, at IPO, got 60% of its customers through self-serve, 40% through its sales team. Without self-serve, Asana would be a fraction of its size.
#3. Even today, 85% of MongoDB’s customers are self-serve. We know this is common with many B2D models, but a reminder that freemium works in the enterprise, too.
So it’s not Either / Or for freemium and free editions.
Even getting 8%-10% of your customers from Freemium can be a big, big boost to your growth. Even if it can’t be your core engine.
