34 min read

How to use a freemium model to make millions with your business

Learn how to implement a freemium model that'll help you attract more users and increase your brand's revenue.
How to use a freemium model to make millions with your business

Free’s come a long way in the last few decades.

From free samples in a supermarket aisle to freemium offerings that are in and of themselves complete products. I’m always mesmerised by how people leverage them to grow their business.

Because on the surface of it all, free shouldn’t work.

Everywhere I turn the common advice for small businesses, consultants, and startups is to “raise your prices”.

“Gurus” push the idea of charging more as one client at $10k is 10X less hassle than 10 clients at $1k.

And I get it.

But some of the world’s most successful brands are built on a robust freemium model.

We’re talking brands like...

  • Spotify (valued at $67B)
  • Grammarly (valued at over $1B)
  • YouTube

All of the above (and plenty more) build incredibly profitable businesses by giving away a tonne of value for free.

And even when you look at smaller companies like…

  • UberSuggest (now owned by Neil Patel)
  • Growth Tools (from Bryan Harris)

They’re generating money hand over fist by going against common advice and giving away high-value content, services, and solutions for free.

Not in a “try this for 2 weeks and see if you like it” model. But a “here’s a solution that will do everything you need it to. And it’s free” approach.

Which is crazy.

It brings to mind the famous Jeff Bezos quote of “your margin is my opportunity”.

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Here’s the thing though.

We all know we should offer value for free to get the name known and draw people in.

And this is true whether you’re simply producing blog content to grow your email list, offering a few tool features to draw customers in, or simply offering a free consultation to show your experience.

That’s the (comparatively) easy part.

The difficult questions come in when you start asking things like…

  • What’s a free offer that will generate interest without bankrupting me?
  • Where does my free offer end, and my paid offer begin?
  • What format should my free offering take?

These are not easy questions to answer.

I want to help you figure them out. So this Growth Study edition is focusing on exactly the above issues.

I’m going to templatise key elements the above-mentioned companies use to generate huge numbers of qualified signups for their business.

Here’s what a month of deep analysis of these brands has taught me.

Best in class freemium models

10-Second Summary

  • Freemium models both increase reach and help disqualify poor leads.

  • Freemium isn’t just for SaaS, it can be leveraged for almost any business model. 

  • The core consideration when implementing a freemium model is finding the line between free value and the desire to sign up to the full version.  

30-Second Summary

  • Freemium models are most often thought of as a way to generate more leads to sell to. But it should also be used to disqualify people who would never pay for your premium offer and find key usage/engagement stats for better marketing segmentation.

  • Any business model can and should be running a freemium model to generate that reach and disqualify poor prospects. Even if it’s as simple as giving away free advice to help people solve a problem on your blog.  

  • You need your freemium model to offer enough value to make people want to use it. However, you need to stop short of giving them everything they need so they have a need and desire to sign up to your paid offer. 

Downloads

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  • A spreadsheet of best in class freemium models and how they drive free users to the paid offer

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Offering value for free isn’t anything new or novel in marketing.

The blog you’re updating is, in effect, free value.

Those lead magnets that require nothing more than an email to access are free value.

Videos, social updates, and so much more that we all push out into the world is a type of freemium model.

You’re using publicly available content and ideas to display your brand’s expertise with the hope it’s enough to persuade someone to sign up to your paid offer.

This needs to be remembered.

When researching this piece and explaining it to a couple of people, I mentioned freemium models and the vast majority of people thought I was looking only at SaaS brands.

I get it.

But freemium models can be used for so much more than a software platform.

To kick things off I’ve collated a list of some of the best freemium models out there.

There’s a full list in the downloads, but I’ve taken the time to explain the key archetypes below.

But first…

The “red thread” of freemium models

The “red-thread” is a fancy way of saying you need to look for the common theme or message that permeates an asset or approach.

We’re looking for the thread that connects different freemium models so we can better understand WHY they work.

On the surface level, freemium models offer value to users to…

  • Build trust (making the sale easier)
  • Pique user interest in the full service, making them want to upgrade

We all know this.

However, there are a few other elements that are rarely, if ever, talked about.

Freemium models increase brand reach

Regardless of your business model, free offers are often easily scaled.

Whether you’re doing it as written content, releasing a sub-set of tools/features, or simply offering an insight into what the paid offer provides, it’s either a 1-time creation or a simple curation of your paid offer’s contents.

Here’s the thing though.

People love anything that’s free.

By offering a segment of your expertise or service for free, you massively increase the number of people you can reach.

The free users feed into the paid users.

So the larger your reach on free, the greater your gains in paid.

Not only does it increase the number of people who are getting fed your paid offer. It does so at a massively reduced cost.

Free tools get shared like crazy and see immense traffic gains compared to paid only offers.

Which brings us to point 2.

Freemium models help disqualify poor leads

If you’ve ever run a paid course, offer, or service before you know that there are customers and clients who are a nightmare to work with.

In my experience, these customers and clients generally fall into one of two categories…

  1. They don’t want to spend any extra money than they have to
  2. They’re not serious and just testing the waters

Freemium models cut a huge number of both of these customers from your paid offer.

For the price conscious, they get enough from the free offer to cobble something together themselves.

For the not-yet serious, you give them enough information to sate their fleeting interest.

The extra benefit here is that a freemium offer often builds up enough brand trust so when the price conscious buyer gets some money and the not-yet-serious customer becomes serious, you’re the first offer they think of.

Freemium offers that discourage some customers might seem counter productive, but it actually ends up saving a lot of time, money, and effort on your part while building longer-term trust.

Freemium models help with segmentation

A good freemium model will help you collect more information on each user.

Which allows more detailed segmentation for more effective marketing.

Whether it’s a complex tracking system to see which features a user prefers in-app or a simple UTM that tells you which freebie was the one that led to them signing up, you’re got more options and a greater breadth of data to pull from with a freemium model.

Take my short Growth Strategy Quiz as an example.

I can add tags to subscribers based on their answer selection.

In the above, I might then promote…

  • Our Morning Brew Growth Study to those who answered they’re a media business
  • This Freemium Study to SaaS and platform brands
  • The LinkedIn Authority System to service based brands
  • Our GoPro Study to product brands

It simply allows me more granular targeting to run more targeted promotions. Which will result in higher conversion rates.

Freemium models offer a lot of different benefits.

However, finding the line where you should separate free from paid is the difficult part (more on that later).

Whatever your business model, the main goal is to offer just enough free value that the user can solve a simple problem, but not so much that they don’t need your paid offer.

The general rule is to help people get off the mark and see a small result. You want to take them from 0-1.

For example, that might be…

  • Giving the information to identify a problem and it’s scope but not solve it
  • Craft a basic asset that works as a wireframe, but not the finished product
  • Help them make <$100 but nothing more yet

Let’s put the concept into real terms and look at real businesses across product types and how they’re doing this.

Freemium for information products

This is probably the most common form of “freemium” you’ll see.

With an information product, building trust is simply a case of producing content and information that…

  • Highlights you as an expert
  • Helps people solve basic problems

But if you want to make this work you MUST ensure that the free content you’re publishing is very closely related to your paid offerings.

One of the best examples of this I’ve seen is with Mirasee - a company that produces courses that train others how to launch successful online courses.

The Mirasee team produces a lot of free content on their blog that takes aim at the widespread questions course creators have. For example, this piece on running an effective beta test for your course to validate the idea properly.

The piece is comprehensive enough to solve the problem for many.

However, there are also strategically placed CTA throughout that help users who want or need more help to progress to the next stage.

That CTA leads to more value and would likely end in a CTA to get the paid version of their trainings.

Let’s break down what Mirasee have done.

  1. They identified a basic issue a lot of their ideal audience experiences and have crafted a free answer for it
  2. They’ve made that answer completely free and thorough enough to help the user get results
  3. They offer a “next step” solution that requires an email submission to access.
  4. The next step offer promises a major benefit and is very closely aligned with the free solution

Or to sum up:

  1. Freebie: Gives readers a guide to running a beta test for an online course.
  2. Next step: Stay on board and buy the full course about how to create a successful online course.

They’ve hit the primary needs we mentioned above.

They’ve offered enough free information to help the freebie seekers which might pay off later down the line.

They’ve also offered a relevant next step to qualify the serious leads to hit with a paid promotion.

In short, the model looks like this.

Freemium for communities

Premium communities are seeing a huge boost in interest at the minute.

However, they can be difficult to promote through freemium models. You either give access or you don’t. Right?

Not necessarily. The Trends.vc team do a great job of this.

Every week Dru from Trends sends out an email which offers a little insight into what’s happening in their community.

The email itself offers value, but also alludes to what you’re missing out on.

In the edition on Social Coins, you’re greeted with the below.

Half of the content is free and offers value whilst also building curiosity.

Half is locked behind their paywall and requires a pro-subscription.

What you’ll notice is the Trends team keep the information that could help the user profit behind the paywall.

In addition, they also use FOMO elements like the below to build interest.

“If these guys are getting the information, why aren’t I?”.

And of course there are CTAs throughout to sign up for the paid version.

All they’re doing is giving you an insight into the…

  • Conversations
  • Member wins
  • Information

That’s available on the inside. A simple weekly curation and it brings more people in.

And it’s incredibly persuasive.

Here’s a summary of the key steps.

  1. Identify trending and highly useful community convos
  2. Curate a short version of those persuasive elements
  3. Add curated summaries and “sneak peek” of content to send to non-members
  4. Link to a sales page
  5. Repeat with the new members

Freemium for software

Software is one of the easiest business models to implement a freemium offer.

You already have the completed product. Offering a section or sub-set of features to users at no cost (despite an email opt-in) is going to help you…

  • Attract highly qualified leads
  • Prove the value of your product
  • Give you data on how people are using your product and which features people who end up paying prefer

I could point to a hundred or more software companies that do this well.

However, it’s Canva that I want to focus on in this section.

Canva have a free plan you can access with only an email opt-in. And their free plan is all the amateur designer would need to churn out above average images and designs.

Honestly, their free offer is better than all of the other free options out there (and many of the paid options).

Here’s how Canva encourage people to upgrade to the $10 / month plan.

Certain elements will have a little “Pro” icon next to them.

To use these in your design will cost you $1 per element.

So, an image that has 5 of these will cost $5 to create.

What’s really great is you can add these elements to your image to see what they look like without paying.

You only have to pay once you try to expert the image for external use.

It’s a great way to show the real value of what the paid offer would be.

For the user though, the $1 individual assets can add up quickly.

Users can remove those $1 fees by signing up to the $10 / month plan.

And that’s where the magic is.

As the user creates more images they’re going to either…

  • Pay more than $10 / month for all those elements making the subscription offer a no-brainer
  • Become so frustrated that “premium” elements aren’t available to them and see that the subscription offer is the best value for money
  • Continue to use free elements only

2 out of 3 of those results end with Canva getting paid a monthly subscription.

The other result is a self-disqualification of what would likely be poor-fit users.

Canva offers 90% of their product for free.

What I love is how they let you see exactly what you could get if you paid. They don’t hide it behind opaque pay-walls and sneak peeks. It’s right there with a little sign saying “get this higher quality element” for only $10”.

To me, this is the perfect freemium model and, if you’re going to copy one, it’s this. Here’s a quick summary of what they do.

  1. Offer a subset of the “most commonly used” tools for free
  2. Tease the “pro tools” and features within the free subset
  3. Encourage users to check out the premium features
  4. Promote upgrade with a limited time offer

Freemium for services

Freemium services are difficult to run effectively and profitably.

In the service world there’s a common saying of “never work for free”. And I agree with this.

However, that makes marketing yourself and getting new clients when you’re starting or when stepping up a level in your business hard.

Fortunately, there is a way to offer a “free service” without breaking the bank and at scale.

And that’s to build in public.

One of the best examples of this I’ve seen is from a chap called Pedro Cortés.

Pedro helps SaaS brands improve their conversions by working on their messaging.

Which is a super-specific and personalised service.

There’s not a lot he could do here to offer something for free. So, what he does instead is complete messaging breakdowns and analysis of large brands and puts them up as free video content.

Pedro publishes these both on his website…

… and also on social media.

Sure, this isn’t a “free offer” in the same sense as the others. However, what Pedro manages to do here is along the same lines.

These videos…

  • Explain how to make meaningful changes for the DIY crowd that will never pay him (but will like and share his content to increase reach)
  • Prove his expertise for people who want to outsource it
  • Offer a scalable version of his service. He creates one explainer video and can use it multiple times across several channels to bring in new “free users”

Here’s how it would work in a step-by-step method.

  1. Identify a common problem in your industry and find a big player who suffers from it
  2. Create a free asset that explains how to solve it
  3. Offer a CTA to request your help that links to a lead capture page for sales follow ups

The core of freemium models

What this all comes down to is audience.

Freemium models are a highly optimised method of growing an audience of relevant potential customers.

Giving part of your offer away for free naturally attracts people who might one day be able to pay for it.

The trick is in finding an element that’s scalable and desirable enough to your ideal audience.

At the same time, freemium offers also prove the value of the product to that audience.

They do everything to attract and warm your potential audience to your paid offer.

The only thing missing is the conversion process of turning free users into paid.

I’m going to get into detail on the conversion aspect shortly using Spotify as a model.

Before I do, I want to run through an acquisition loop I once set up with a SaaS brand that led to incredible growth.

Attracting new users to your Freemium offer

10-Second Summary

  • Make sure your freemium offer helps users go from 0-1 and get a clear, measurable win if you want it to be successful.  

  • Validate with a small test and ensure the value is there. When it is, promote aggressively to your ideal audience.  

  • Make sure users activate your Key ROI feature and then offer a discount on their first paid upgrade.  

30-Second Summary

  • Before you double down on your freemium offer, make sure the value is there. Talk to customers and ask what would help them go from 0-1. Create it and then get them to test it to validate the idea.  

  • When you have a relevant and valuable offer, make sure you promote it to your ideal audience. Focus on one or two channels to start and track where you get the best responses.  

  • You want to seed yur free offer with CTAs to upgrade or check out your paid offer. For power users, offer some form of incentive in the form of money off or a binus to incentivise the conversion.   

Downloads

Check appendix B for...

  • A list of questions to give to your beta testers and early adopters to find out what works and what doesn’t.  

  • A list of places your ideal audience might hang out with a video guide on finding them.    

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If your offer is good, a freemium offer shouldn’t really be too difficult to market.

Your primary job at that point is to ensure as many people as possible see it. If you can get eyeballs onto the opt-in, the offer should do the rest.

However, let’s not live in a fantasy land where building it ensures your customers come.

Here’s the basic model I have used and would recommend to get people into your freemium offer.

Step 1 - Ensure the value is there

Before you start marketing, run a small beta test to ensure that the value you think you’re offering is understood and received by the ideal users.

Hit up friends, family, and people in your network who align with your ideal audience.

Don’t just set them free on the thing though. Make sure they have a goal and are targeted in their approach.

I would…

  • Ask them to complete a simple task off the bat (to see how easy it is to complete for them)
  • Ask them to then play around in the tool to get a better understanding of it
  • Ask them for specific feedback like…
  • How easy was it to find X?
  • Did you complete the task you wanted to?
  • Would you recommend this to other [AUDIENCE]? Why / why not?

This will give you some initial feedback on how to improve.

Step 2 - Promote it in relevant networks

Obviously you’re going to want to promote this through your social networks.

In addition, I would also look at…

  • Relevant SubReddits
  • Indie Hackers
  • Quora Qs
  • Relevant Facebook Groups
  • Relevant forums, networks etc

Anywhere your ideal customers hang out is where you should be promoting this.

And make sure you focus on the value.

Tell people what they can achieve and how much it will cost them (free).

It’s hard for people to downvote anything that’s free.

Step 3 - Free trials

I’m not referring to the “2 weeks of paid for free” or even the “get 5% of the paid versions features for free”.

I think this sort of approach only encourages people to sign up with multiple email addresses.

The approach that I’ve taken before was to release certain paid features for a limited time based on referrals or key actions.

Back when running this for a SaaS, we incentivised people to refer friends in a couple of ways.

Each time one of the below actions could be proven, we offered 7-days of the paid version for free up to a maximum of 28 days total.

The actions were…

  • Refer 2 friends (easily proven with affiliate links)
  • Write something positive in one of two pre-selected Facebook groups (we tested with multiple groups and settled on 2 that had the best CVR)
  • Leave a review on a relevant review site (this is now a dangerous game to play and can get you banned)
  • Send a Tweet, LinkedIn message, or Instagram post mentioning the brand

A user could take all 4 actions and get 28 days of the Pro level for free as a trial.

It was a small act for them, but one that proved a huge growth engine for us.

We ended up the #1 rated app on the app store within the most relevant vertical. And that drove a lot of our new sign-ups.

It’s a simple way to ensure you get some ROI from the people using your tool for free.

I would do something similar to the above if you’re trying to find new users for your freemium offer.

By asking your new users to help promote you end up with a wonderful cycle of promotion.

The real question though is what you can do to turn the free users - even those who go through the “Pro trial” with referrals - into paying customers.

Converting freemium users to paying customers

10-Second Summary

  • Use emails or in-app messages to ensure your customers get the best ROI possible from your free offer, which will make signing up for paid a no-brainer for them.  

  • Gate next step features or steps behind your paywall. But also let the user see what they’re missing out on. 

  • You can also monetise a free audience if it’s large enough. 

30-Second Summary

  • ROI is king when getting people to sign up for your paid offer. You need to find the key feature / approach that helps the user generate positive ROI and use messages/emails to get them to take that action. The faster they see ROI, the more likely they are to buy.  

  • Gating “premium” features isn’t new and is a great way for a natural paid progression once someone has exhausted the free offer. However, don’t hide the pro features from users. Make sure they know what they could get to increase desire.  

  • Monetising a freemium offer is also possible IF you have the right sized audience. You can do so with everything from ads to sponsorships and even affiliate offers.  

Downloads

Check appendix C for...

  • The Key ROI email sequence

  • The Conversion email sequence to turn free to paid users

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I’m going to use Spotify as the subject of study for this section.

After signing up for a brand new Spotify account, you’re asked to download the app and log in.

Immediately after signing in you’re greeted with this page.

It might not seem a lot, but they’re doing something here I’ve termed the Key ROI Feature model.

The Key ROI Feature model

In short, you get the user to action the feature the majority of your paying users get the best ROI from.

To do this well, you first have to know your North Star Metric (NSM). I broke this down in the GoPro study and will recap quickly here.

The NSM is your brand’s focus for growth. It’s not revenue, but the metric you’ve discovered that best leads to revenue.

Spotify’s north star metric is minutes listened.

They know if they can get people to listen to music for a longer period of time, they’re more likely to upgrade to the paid service.

So what they do is find the playlists that get the highest listening time and engagement (which is akin to ROI for Spotify listeners) and promote them ASAP.

However, they’ve also covered their bases by promoting playlists that would appeal to several cohorts.

We’ve got playlists for…

  • Summer hits UK (it’s summer and I’m in the UK) - Great for young people
  • Kids favourites - Great for parents
  • 2020 Icons - Again younger people who are up-to-date with their music taste
  • Internet rewind - For older people who want to listen to older tracks
  • House party 2020 - A niche specific playlist

Scroll below the fold and the recommendations continue but focus on things like…

  • Podcasts
  • Classical composers
  • Most popular playlists

As soon as you log in, you’re encouraged to check out the playlists you’re most likely to enjoy.

This feels great to you because you’re getting served the best content.

But it also increases listening time and thus both…

  • The number of ads they can serve you
  • The likelihood of your buying premium

The key action here is to help your users get instant value from your service.

You want them to immediately understand the value you provide.

Free users are fast to sign up and never come back. But if you can highlight the value to them on their first visit and within the first 5 minutes, the likelihood of them returning is massively increased.

This is, in my experience, half the battle with getting people to upgrade to paid.

It is, like everything in marketing, a game of value.

Provide more value than you charge and the purchase is a no brainer.

You just have to make sure the value is immediately obvious to the user.

You can also encourage people to take specific actions with in-app messages or emails.

In-App Messages / Emails

Years back, I helped set up a sequence that improved the conversion rate and LTV for a Shopify app.

Things have changed a little since I helped set up the sequence, but the spirit of it is still there.

You’re first told what the key ROI feature is during the onboarding flow.

And that’s followed up with another valuable feature.

As soon as you log in, you’re greeted with a simple page that allows you to action those key ROI features at the click of a button.

In addition, the welcome email that comes through from the CEO pushes you back to this page.

You can see at the bottom of the email you’re directed immediately back to the feature that helps the user see the fastest ROI and growth for their brand.

Over the next few days, the user receives multiple emails that are laid out as steps.

Those steps help the customer set up an effective process with your tool, which leads to them wanting to sign up for the paid service.

Here’s the thing.

To do this well you have to understand that it’s a sequential action. And that you need people to take step 1 before they take step 2.

The best thing to do here is to keep things simple.

Run with 3 emails per key feature. And try to limit those key features to 3 different activations.

In Recart’s example that would likely be…

  1. Subscription opt-in
  2. Cart abandonment
  3. Flash-sale notification

If people activate all 3, they’re going to make more money than they pay to Recart for the pro plan and thus not churn.

So you send 3 messages that are triggered by the user not yet activating that feature.

As soon as that feature is activated, they get the “step 2” email sequence of 3. And so on.

Visually, it looks like this.

It’s a simple way for you to encourage users to activate the features that will make them money without spamming them.

If a user doesn’t take those actions and enable those features, then they’re never going to become a paying customer anyway.

Gating next step features

Proving the value of your offer is the first goal.

However, it still leaves the customer as a free user.  One that loves your brand and offer, sure. But one that’s a user and not a customer.

A lot of people will never progress past free users. And that’s fine.

You only want the “power users” and heavy users to pay.

The best way to do this is to gate the “next step” features.

In Spotify’s case, one of those key upgrade features is the ability to listen to music offline.

In addition, free users are not able to listen to created playlists in an order they choose. They have to listen to them on shuffle.

Which could become frustrating.

Neither of these reduce the value of Spotify.

You still get access to all the music and value. However, it’s simply not on your terms.

If you want it on your terms and to get the next level usage, you have to pay a premium.

Frustrating free users

You can also try to frustrate free users into signing up.

It’s a little unfair to say that. But it can sometimes feel like a frustration to wade through the ads and distractions on Spotify’s free plan.

As you’re listening you’ll be hit with 3 different types of ads.

  1. Small banner ads that pop up above the play controls.
  1. Full screen popups that take up center screen when listening
  1. Audio ads accompanied by a full-screen popup

You can’t be too annoyed at this for a free service.

But for the power users it might be enough to make them want to pay for the premium level of service just to remove distractions.

I also think these ads are worthy of note for another reason.

And that’s…

Monetising your free audience

I don’t think every freemium service should attempt to monetise their free audience and users.

For certain brands the payoff isn’t going to be worth the potential annoyance to users.

You have to ensure that you have a big enough user base to charge reasonable advertising fees.

There are no hard and fast rules on what the “perfect” audience size for monetisation is.

However, I’ve noticed it’s significantly harder to monetise a free audience of under 10,000 people.

If you don’t yet have an audience of that size, focus first on building the audience. Then it’ll be way more profitable to cut time out of your growth schedule to figure out how to monetise.

You also have to make sure that the monetisation strategy doesn’t ruin the free user experience to an extent where they won’t buy.

Frustrating the users with ads is one thing. But there’s a fine line to annoying them.

I’ve pulled a couple of examples together of freemium services and offers that monetise their free audience well.

Below are single examples from each and every freemium model outlined at the start of this study.

Monetising a free info product audience

Adam Enfroy has to be one of the smartest marketers people aren’t talking about.

In just a year or two he grew his site to 500,000 monthly readers.

And to monetise that audience he offers a course on how to grow your own blog to make money online.

Here’s the thing though.

Out of 500,000 readers few will sign up for the paid level.

Adam does what we mentioned above with Mirasee.  He provides free value and guides to help people go from 0-1.

This builds trust and grows the audience he could monetise.

However, he also monetises that audience through affiliate offer recommendations.

Take his piece on how he started a blog and made $1M in under 2 years.

It’s a completely free guide on getting a blog up and running.

Adam chooses a couple of smart spots to recommend his “must have” tools to get the job done. Like the section below.

That link will redirect the user to Bluehost. If they sign up using that link, Adam gets a payout (I believe BlueHost is $50 per referral).

The value Adam offers isn’t impacted. But by getting a potential kickback for a relevant recommendation means he can help more people go from 0-1.

With info products, this is the best way to monetise the free audience who views your free training information.

Monetising a free community

You could take a similar option to Adam above and offer affiliate recommendations to your community.

Let’s look at Trends.co (not to be confused with Trends.vc earlier in this piece).

Trends.co is the paid community that’s attached to The Hustle.

The freemium offer is the business newsletter The Hustle sends out daily.

Every so often in The Hustle newsletter they promote Trends.

However, they also monetise the free audience of the Hustle by allowing brands to sponsor the newsletter with ads like the below.

They seem to have stopped the sponsorships since being acquired by HubSpot, but it was a key revenue drive for them to that point.

Monetising freemium software

We’ve already covered this with the Spotify example.

Basically you serve ads to your free users within your platform.

I would, however, recommend making them less intrusive than those used in Spotify.

Monetising freemium services

This is where it gets hard.

And honestly, I’m not entirely certain there’s a good way to do this.

With services the free version of your offer is basically a scalable example of what you do.

There’s little in there that allows for a solid monetisation effort.

However, there’s one or two things you could do.

You could mirror some of the above and simply offer affiliate links or, if you have the audience, a sponsorship type deal.

Harry Dry of Marketing Examples does something similar. His free content that shows his expertise has a little “sponsored by Ahrefs” in there.

If you can’t see a natural fit for sponsorship or affiliates though, I’d recommend simply avoiding monetisation of the free audience.

Nurture and grow paying users

10-Second Summary

  • Churn is a business killer. As soon as you have more people coming in, look at reducing churn.  

  • Ways to reduce churn for various business models. 

    • Info products - Comms on improvements made and new lessons

    • Communities - Leverage “superstars” for better engagement

    • Software - Seasonal updates 

    • Services - Do good work + better communication

30-Second Summary

  • Churn is a silent killer. Too many brands are focused on acquisition and not retention. Reducing churn can be far more valuable than acquiring new business.  

  • How to reduce churn for different models.  

    • Information products - Send emails to your buyers every time you update the program, add a new template, and also when they hit/fail to hit milestones. 

    • Communities - You can’t do it all yourself. Incentivise your most active members to continue engaging by removing their fees and making them mods.  

    • Software - Software is not 100% evergreen. Changes in the industry or time of year should be leveraged to create new templates or features that help people navigate them more easily. 

    • Services - This is hard because you’re judged on the quality of your work.  Do good work, but also make sure the client knows what you;re doing so they don’t worry.   

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  • Email templates for notifying users of new updates

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Getting people to move from the freemium model to the paid plan is victory #1.

But it’s a single battle in a protracted war with churn.

You have to keep on top of nurture cycles with your customers.

The best way to do this is to simply continue providing value to them.

On a very shallow level that’s going to be as simple as sending a frequent newsletter that helps them solve their key problems.

However, you can (and should) go to the next level if you want to hold on to more of your ideal customers.

Again, I’m going to run through what I’ve seen to be the best ways to provide continued value to paying customers and keep them on your payment plan.

Reducing churn with info products

Information products are an odd one when it comes to churn.

Often, they’re a one sale and done type approach. Someone buys the program and that’s it.

You see a lot of info product creators doing the same thing. They put a tonne of effort into the initial sale and very little into the engagement that comes after.

And that makes sense because you’re primarily after the sale.

But if you want people to rave about your offer and tell their friends how transformative it is, you need them to spend more time within your materials.

The longer they spend consuming and understanding your lessons, the more likely they are to get a win and thus, the more likely they are to promote you.

At the very least you should be sending emails out to prompt the user to log back into your course.

Not basic “log back in now” emails, but something that gets them excited to take the next step or lesson.

In addition, every time you refine the course materials or add something new, you should let them know about it.

Chris Von Wilpert does a great job of this with his Content Marketing Masters course.

Here’s an email I received months after purchasing to let me know of updates.

I also recently did this when I added a number of courses I’ve created in the past to the Membership for Growth Models.

As a result, I received…

  • New subscribers
  • Messaging from existing subscribers asking where they could get the materials

Revenue churn isn’t the issue with an information product.

Engagement churn is.

Keep adding value and keep ensuring people know about it to reduce the number of students you “lose”.

Reducing churn with communities

Churn is a double threat when it comes to communities.

On one hand, you lose revenue, which is a real problem.

But there’s a more dangerous threat to community churn.

Let’s imagine you have a member of your community who…

  • Replies to every question with valuable feedback
  • Asks questions that get other people excited
  • Calls out BS when they see it in the community

This person might be responsible for 20% of the overall engagement within your community.

If they churn, the overall value of your community will decrease and the risk of more people churning increases.

One single loss could see your community implode.

The chance of this needs to be reduced at all costs.

Here are two easy actions to help you reduce the chances I’ve seen work in multiple communities - both paid and free.

1 - Find your superstars

Those people who are driving engagement and are within your community every single day shouldn’t be seen as “just another member”.

They’re driving the growth and engagement within your community.

And you need to hold on to them.

What I’d recommend is either removing or reducing their membership fee, and making them an admin.

The combination of free access and a little extra responsibility will build more loyalty with them.

If possible, also work with them to organise regulated duties.

The best example of this is Reddit.

While free, their moderation team is wholly volunteer based and basically keep the “front page of the internet” working.

It wouldn’t take much to set up. Simply establish basic rules and guidelines to have them stick to.

If something obviously breaks the rules, they have the power to remove it.

If they’re not sure, then they escalate it to you.

Keep these moderation rules crystal clear. We’re talking things like…

  • No promotion of your own products
  • No adult or offensive content
  • No bullying

And so on.

That reduces the grey area to basically nothing and you’ll only then be pulled in to deal with the things that need a more specialist eye.

Let’s imagine that a conversation in your community is getting a lot of comments and traction.

Or that you’ve just published something in there that’s of a higher value than normal chats.

Don’t hit publish and hope people find it.

You need to ensure that your members know this is going on.

All you really have to do is write out a short email and explain what the conversation is about, why it’s going to benefit the user, and offer a direct link to the asset in question.

Trends.co does this well as can be seen below.

Here’s the cool thing.

If you have a team of volunteers moderating the community, task one with identifying trending topics.

Have them shoot you a message when something gets traction and write an email promoting it.

That once again gives the volunteer a sense of purpose and helps set up a nice little engagement loop.

Reducing churn with software

Software churn will generally occur when a user stops seeing the benefit in your tool.

The simple answer here is to ensure that they don’t stop seeing the value.

The approach here is similar to the information product route.

You want to continually add new elements to your SaaS to ensure relevancy and usefulness.

I’m not talking about features that take a long time to create - it could be as simple as seasonal amendments.

Take this example from Recart.

In the run-up to Father’s Day they created a bunch of templated flows for their users to help them drive more sales over the period.

That takes a fraction of the effort to create than coding a new feature, but it offers a tonne of value to the users and gets them back into the tool.

Send an email to users to let them know about these additions with a direct link and boom, you’ve got users who might not have logged in for a while back in your tolol to check out what they can do.

What these updates and templates are really depend on your tool and the niche you serve. A few potential ideas could cover…

  • Seasonal developments (holidays etc)
  • Industry developments (algorithm updates etc)
  • Regulatory changes
  • New feature “quick start” templates

Reducing churn with services

Services on a monthly retainer are a different breed to the above.

The way to reduce churn is to simply continue doing a great job.

If you continually provide a return that’s higher than your fee, the customer would be stupid to get rid of you.

However, in my own experience as a service provider I know the reason most service based relationships break down is thanks to poor communication.

When the client isn’t sure what the service provider is doing, their brain runs to the worst case scenario.

You can repair any damage by turning in incredible work. But you’re better off preventing any cold feet or potential issues with better communication.

And the easy way to do that is to follow these 2 steps.

  1. Create a productised service
  2. Craft templated messages for different stages

The productised service is a study in and of itself.

All you need to do is structure the service you offer so each client is run through the same process.

Once the process is worked out, craft templated emails that let the client know what’s going on.

Bonus points if you personalise ~20% of the content to be relevant to their account.

That’s it for this one.

This is the minimum time investment action I’ve found that generates positive results.

Minimum time investment here is important as well. You need to save as much of your time as possible to get the client results as that’s the best way to reduce churn.

Growth

Once you have people in your offer and you’re helping them get the results they need, it’s time to add that growth machine on the back end.

I’m not going to go into a lot of detail here as we’ve covered this before, and you already have access to the materials.

All of the happy customers you’ve gained should be encouraged to promote the offer and refer their friends.

And the best way to do this is to establish a comprehensive referral hub and system.

If you don’t yet have one set up, look for the Morning Brew Growth Study.

You’ll find an analysis of their best in class referral process with templates and tool recommendations to help you build the same.

The full Freemium Growth Model

Let’s pull all of the various sections together to create one, complete Freemium model and run through everything quickly.

From a high-level, the model looks something like this.

With a little explanation, that’s…

  • Step 1 - Research the basic problems your ideal audience experiences.
  • Step 2 - Collect emails of people who are experiencing the problem to build your list of free users.
  • Step 3 - Create your freemium offer and test it to make sure it helps people go from 0-1
  • Step 3.5 - Run email or in-app messages to prompt people to take the Key ROI action.
  • Step 4 - Promote your paid offer to your free audience with a link that goes to checkout
  • Step 5 - Give full access to the paid product.
  • Step 6 - Collect usage stats, stories, testimonials, and curate key insights from paid users to use in free > paid promotion.
  • Bonus step - Add a referrals program to incentivise paying users to bring their friends into the free offer.

Let’s also recap the model’s steps with simple bullet points.

Acquisition

Follow this process to create a freemium offer that…

  1. Your audience wants
  2. Will provide value that brings them back for more

And some more detailed explanations.

  • Step 1 - Identify a primary problem your ideal audience faces and devise a basic solution
  • Step 2 - Promote your solution in relevant communities and on social
  • Step 3 - Direct users to a simple opt-in form to get access to the freemium offer
  • Step 4 - After signup, let them access the freemium offer

It’s simple, but if the freemium offer really does offer value it should convert well.

Engagement

Once someone is in your freemium offer, you need to make sure that they get the maximum amount of value.

The goal is for the value (perceived or real) to exceed your premium offer’s fee. The best way to do that is with the Key ROI model

Here’s a run down of the steps.

  • Step 1 -  Ask your best users which element/feature they find most valuable and why.
  • Step 2 - Build out a series of messages that encourage and instruct new users to activate that feature/element.
  • Step 3 - Monitor how it affects usage and key stats.
  • Step 4 - Promote the paid offer to your power users

All you’re really doing here is increasing the chance your users get the maximum amount of value from your offer.

If you can do that, then paying for more access or features is less of a risk for them.

Growth

With any freemium offer the growth comes from increasing the number of people who move from free users to paid.

The best way to do this is to leverage the existing paying users to increase the perceived value of the paid offer.

Here’s how.

Here’s how I’d recommend doing this.

  • Step 1 - Implement a simple referral hub that allows people to promote the free offer
  • Step 2 - Collect and curate usage stats, stories, and testimonials from paid users
  • Step 3 - Promote that information to those on the free plan
  • Step 4 - Rinse and repeat collecting and curating new usage information from the paid offer.  This will allow you to generate more interest and users for the free offer. It will also provide you with a constant stream of promotional material that will help turn free users into paying customers.

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