How to Make the Freemium Model Work

Filed as Features on September 20, 2011 5:29 pm

The last few years have seen a revolution in terms of online marketing. The rise of new, disruptive technologies such as peer to peer and social media have led to a fundamental shift on how business is done. A model that emerged as a possible answer to these problems is the Freemium paradigm. In essence it relies on gathering a large following and then trying to capitalize on it with low yield methods. Its adepts claim that the high volume will make up for the relatively low profit margin.

Promising as it sounds, this model has lead to multiple business failures. However, there are success stories as well. It’s obvious that the Freemium model CAN work, but only if you know what you’re doing.

This article, although far from a complete guide, will show you several good practices which will increase your odds of success.

Good Practice 1: Do Have an Income Plan

Sounds like such an obvious statement, yet most of the time, new websites built on this model use the premise “get people first, make money later”. This is a counterproductive move, because usually when the “later” part comes about there is a huge backlash from the community.

On top of that, this model also misses the opportunity of integrating the revenue generating methods in the whole website experience. If you design it with such features like micro-transactions or PPA (Pay Per Action) deals from the very start, once the community begins to evolve, these services will naturally evolve as well and become an integral part of the experience. They will add value, rather than subtract from it. Now if on the other hand, the monetizing method will look like an afterthought, you will experience flat out rejection.

Good Practice 2: Consider Getting Money for Nothing

We’d all love that, but community based websites actually have a way of making that happen. The trick has quite an unimpressive name attached to it: virtual items. The problem is that most freemium websites try to use advertising as they main source of income. Nothing wrong with that, but it’s wrong when there’s only that. Virtual items can mean anything from the ability to purchase a special avatar, a customizable title, basically any way to make a user stand out among his peers. Now of course, only a fraction of the user base will use this venue, but that’s perfectly natural. The revenue generated however could well mean the difference between profit and loss.

Good Practice 3: Make Sure You Sell the Right Way

Now what’s that supposed to mean? Well, quite simply it means that you must avoid one-time payments. Something like “pay once, get VIP status for life” is a bad idea. Ideally you would want to charge using the membership model, but that’s not always possible. A midway route is to refrain from selling VIP packages to begin with and focus on consumables. They can function basically in the same manner as a membership, but have a very different dynamic. Instead of selling the right to have someone’s posts highlighted, you can sell “Trumpets” and each time you use one, your post gets highlighted. This allows you to sell each community member the exact service he or she requires and also gives you a better long term prospect.

Good Practice 4: Do Allow the Wealth to Spread

Another benefit of using virtual, consumable items is the fact that these can be traded or gifted between members. A community will establish in time its very own internal structure and delivering the means to allow that structure to become visible will guarantee a more intense use of the advanced, paid services and thus a higher income.

 

This is a guest post from Neil at eMobileScan, A company with sites throughout Europe focusing on offering the latest in label printers like the zebra ZM400 or the TLP2844.

 

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