Some SaaS businesses selling to enterprise customers have a freemiummodel, whereby they offer free use of a lower tier version of their product. The goal is to entice the prospect to upgradeto a full-use, fully featured paid product. Does it work? Absolutely. Beloware examples of SaaS IPO’s since 2021 that had a freemium model. Text is taken directly from their publicfilings.
Expensfiy. “we enable a self-service, low-friction modelthat makes it simple for anyone to try and use our platform and then easilyshare it with others. Anyone can easily download our application or go to ourwebsite and sign up for free on their own, and later upgrade to a paidsubscription for advanced features. The adoption of Expensify within anorganization typically starts with the individual employee, who downloads ourmobile application for free and uses it to easily submit expenses to theirmanager with a few taps. After the employee realizes the benefits of ourplatform, they become a champion of Expensify and spread it internally to otheremployees – as well as to their friends in other companies. With multipleemployees using Expensify, and valuable features simplifying the manager’s job,the decision maker often purchases a subscription to Expensify and becomes apaying customer with a few members.”
Gitlab. "We have a simple and easy to understandopen core business model. We offer a free tier that includes a large number ofour features to encourage initial use of The DevOps Platform, solicit widercommunity contributions, and create lead generation. We offer two paidsubscription tiers, Premium and Ultimate, which are based on features availableand priced on a per user basis. Our Premium tier includes features relevant formanagers and directors, while our Ultimate tier includes additional featuresrelevant for executives. Each of our plans provide feature access across everystage of the DevOps lifecycle, making it easier for customers to adoptadditional stages on The DevOps Platform and add more users.”
Hashicorp. “We are committed to an open-source model inwhich we maintain free open-source offerings while developing proprietaryfeatures for paid tiers of our software. These proprietary features includecollaboration modules, governance and policy modules, enterprise use cases, andpremium support and services”
Amplitude. “Our Starter plan is a free-tier,self-service option that allows prospects to easily sign up and begin toleverage the power of the platform in rapid fashion. This plan includes coreproduct analytics with the ability to track up to 10 million events per month.Users of this plan get access to unlimited user seats and are encouraged to addadditional team members across functions to proliferate the use of our platformwithin their organization.”
So is a freemium model for you? Maybe. The advantages are numerous; specifically freemium: i) is anexcellent lead-gen tool; ii)creates advocates for your product at all levels; iii) allowsyou to refine the ICP; iv) drivessimplified pricing; and v)establishes your go-to-market as thoroughly enterprise. That said, it requires more dev and product resources,could attract leads that are not ICP, and requires more sales resources to separatethe real leads from the non-ICP. Overallit’s very resource intensive (it’s effectively its own business line), but ifyou get it right, you go the promised land like the companies above.
Thank you for your readership. Seemore blogs and SaaS data at blossomstreetventures.com. Email the author atsammy@blossomstreetventures.com.