Choosing the right pricing model for a product or service in the B2B space can be a real challenge for many companies. For starters, the product or service needs to be something that makes sense and matches the expectations of the ideal customer. It’s important to offer something that solves a clear need. Another important consideration is the pricing strategy. Companies need to make sure they’re not underselling the value of their product or service, so competitive pricing is key.
Despite the price, one of the biggest challenges is getting people to purchase and actually start using the product. This is where the “freemium” business model comes in. This pricing strategy has been successfully adopted by many companies, including popular sites like Spotify, LinkedIn, and online newspapers. The word “freemium” is a combination of “free” and “premium. With this model, users can sign up for a free account and later upgrade to a paid (or “premium”) plan to unlock more features and functionalities. It’s not just B2C companies that use this pricing model. Many B2B businesses also offer free plans to generate new leads. Let’s take a closer look at how this works.
Firstly, it can lower customer acquisition costs (CAC). By offering a free version of the product, it eliminates any barriers to entry, making it easier for people to try it out. If they decide to purchase it, they only need to provide their payment details since the business already has their name and email address.
Additionally, providing a free version of the product can give businesses access to valuable data on their users’ behavior. This data can be used to identify which features of the product are working well and which ones are not. Furthermore, businesses can segment their user base by market segments or buyer personas to see who benefits the most from the product.
Another advantage of offering a freemium model is that it can build trust with potential customers. For larger software-as-a-service (SaaS) or technology platforms, prospects may want to try the product before investing in it.
However, providing a freemium model also comes with risks. Users may expect to receive more features and benefits from the paid version, so it’s essential to clearly communicate the value of upgrading. Additionally, freemium products, especially in the B2B space, require upfront investment, and converting trial users into paying customers can be challenging.
To make the freemium model work, businesses must focus on their “freemium-to-premium-customer” conversion rate. They should nurture trial users through the sales cycle using in-app notifications, highlighting the benefits of the paid plan, and converting them into paying customers. By doing so, businesses can reap the benefits of the freemium model while minimizing the risks.
Here are a few examples of companies which offer a freemium plan. (It’s important to note that some of these companies target both B2B and B2C customers, or require individuals to sign up before upgrading to a paid plan for their entire business.)
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