
How to Convert a Free User to a Premium User - cuu508
https://chagency.co.uk/blog/increasing-user-retention/how-to-convert-a-free-user-to-a-premium-user/
======
dgudkov
The article doesn't answer the most important question about the fremium model
-- how to balance it? Because the best possible conversion rate is only
possible when the fremium is balanced correctly. I've been experimenting with
fremium models for a few years and understood that the key to balancing
freemium correctly is to precisely understand the value that your product
creates. Then the balancing becomes simple: if a user doesn't see much value
in the product then it's free. If the product creates significant value for
the user then it's premium.

Giving away for free a product that creates significant value is charity.

Trying to charge a user for a product that offers little value will limit your
user base and market awareness.

If you don't understand exactly the value your product creates then you are in
trouble and not being able to balance fremium correctly is only one of the
problems in this case.

~~~
gnicholas
We attempt to do what you describe: charge users for whom we create lots of
value (power users), and give it away for free to others (casual users).

The difficulty is that if you want word to spread among communities of people
that contain your power users (and would-be power users), then by charging
them money, you're constraining growth in those key communities. Any thoughts
on how to deal with this specific tradeoff?

I'd be interested to hear more of your insights, especially about how the
balance might change over time. Do you give away more for free in the early
days, to raise more awareness? How do you know when it's time to stop giving
it away for free?

~~~
dgudkov
>The difficulty is that if you want word to spread among communities of people
that contain your power users (and would-be power users), then by charging
them money, you're constraining growth in those key communities. Any thoughts
on how to deal with this specific tradeoff?

We gave away premium licenses for free (no strings attached) to some socially
active power users. It helped us to increase awareness.

Also, I found that premium users are more loyal in general and more willing to
share the knowledge about our product.

>Do you give away more for free in the early days, to raise more awareness?

We surely did give away more for free in the early days. Partly, because we
still figured out the product/market fit. As we pinpointed the PMF and added
new features we periodically rebalanced the free offering. Since many new
features became also available in the free edition we reduced some limits and
capabilities of the free edition.

>How do you know when it's time to stop giving it away for free?

We never stopped. We still have a freemium model [1].

Overall, we try to keep the ratio of premium to free users at around 1:5. With
my previous product, the ratio was 1:50 which was too unbalanced as I realized
later.

[1] Comparison of our free/premium editions:
[https://easymorph.com/buy.html](https://easymorph.com/buy.html).

~~~
gnicholas
How much do you think the ratio of free/premium should depend on the cost of
providing services? Obviously if there are large hard costs associated with
each user, the ratio can only be so high. But if there is a low cost of
service to free users, what's the next step in figuring out the right ratio?
Is 50:1 always too high?

~~~
dgudkov
I believe the answer is not in the cost of providing service but rather if
your product creates value more than its price or not. Just a few questions to
think about: why are there so many free users? Is it because the premium can't
provide enough value for them to justify purchase? Is it because the need in
general is not significant so no matter how good your product is its
conceptual value is not significant? Is it because the free users simply are
not aware how to extract more value from your product with the premium
version?

I suppose having answers to such questions would give a better understanding
of the most efficient free/premium ratio.

Feel free to reach out to me by <username> at easymorph dot com for a chat.

------
cuu508
This article really resonates with me: it puts into words how I've been
feeling about handling SaaS pricing and product features.

My main takeaway is: don't squeeze money out of your customers by severely
limiting the free plan. Focus on delivering as much value to your users as
possible. Help them grow so you can grow together. You will get happy
customers who will be happy to recommend you, and happy to pay for your
service.

Cloudflare, one of the examples mentioned in the article, is also a hero of
mine, in terms of how much value they offer for free.

~~~
cosmie
It's also not even completely altruistic. The free accounts on Cloudflare
serve as an incredibly diverse source of first party signal intelligence,
which directly impacts the quality of the offering they're able to provide to
paid accounts.

The fact that there's at least nominal value to Cloudflare in having me as a
free customer gives me confidence and reassurance in using their product, as
it lends credence to the long term availability of my free tier account and
that I won't suddenly be the victim of a shift in their marketing and sales
development budget.

I'm not sure what the right term for that type of incentive alignment is, but
it reminds of me Geico auto insurance. As a business, their goal is to provide
a long term and stable source of float to Berkshire Hathaway[1], not quarterly
profits. To do that, they've optimized their business to capture and retain as
much market share as reasonably feasible. Their rates are truly reflective of
the actuarial expectations of insuring you - there's virtually no profit
margin baked in because that could prevent marketshare growth, and you won't
get bitten by shady exclusions buried in the fine print that you only find out
about when you try to file a claim, and you won't get hit with an unexpectedly
huge rate increase at renewal time due to a slightly worse than expected
quarter and the need to engineer short term profits. The "gotcha" with Geico's
pricing model is that they're using my business as leverage for other purposes
(premiums as float to provide leverage to BH).

I do a lot of work in optimizing monetization strategies and
developing/optimizing business processes, so I may be an atypical consumer.
But I have far greater adoption of services when I understand the value
drivers of the relationship. If you're not directly making profit off of me,
I'm either a marketing expense in your acquisition process or you're using our
relationship to derive profit elsewhere. If I'm a marketing expense I'll try
to avoid building reliance on your product into my life because the stability
of our relationship is unknown. And if you're deriving profit from our
relationship and I don't understand how, I'll default to assuming an
adversarial relationship where either "I'm the product" or there's a hidden
catch coming in the future. Whereas if I know that you're not directly
extracting profit from our relationship, and I understand how you're
indirectly driving profit from our relationship, I'm far more likely to trust
you and integrate your product into my life.

~~~
sonnyblarney
" If you're not directly making profit off of me, I'm either a marketing
expense in your acquisition process or you're using our relationship to derive
profit elsewhere"

Or there's the 'conversion option'.

A freemium user at any given time has a probability of conversion, and that
probability is an option on future cash-flows.

Surely, the probability is highest somewhere near the start of use, but not
right at the start, as most users probably start with freemium anyhow.

With products like Dropbox which are in some cases 'shared' \- there's a
material network externalization as well, which is a probability that a
freemium account will bring in others. This goes beyond referral/word of mouth
to the extent that the product is naturally networked.

For this later reason - social media sites are almost always free because the
economic potentiality of the network beyond 'you' is always considerably
greater than 'just you'.

Also, as you hinted at in your Geico example, is that there economic realities
to incumbency and market share. Once something becomes a market leader and the
'de-facto' option, then there can be incredible leverage, especially in
networked situations. What is the current alternative to Facebook today? Not
much.

Obviously the dynamic changes once market share is established but before
that, there's an impetus keep prices down.

Venture Capital is keen on that to the point wherein one might consider that
VC money is just really a form of 'economic dumping' , i.e. money getting
thrown into markets to sell stuff below market value to obtain market share.
It's illegal in some ways!

~~~
cosmie
The 'conversion option' is just a bottom of funnel component of your
acquisition strategy, and the costs to support those freemium users is still a
component of your marketing spend.

For established marketing channels/user segments, you should be able to
identify your response curves and probability of conversion at each stage of
your marketing/acquisition funnel, including from freemium to paid user. If
freemium conversions is a component of your sales process, you should
absolutely be attributing the costs associated with supporting freemium users
towards marketing, net any freemium-specific revenue streams such as ads. It's
a fairly substantial component of the fully burdened cost per acquisition, and
by allocating the expense towards marketing rather than diffusing it into
operations, you get a much more actionable view of your true CPA. Being able
to do so at a granular level requires putting in effort to integrate your
marketing analytics with your operational analytics. But even just looking at
it in aggregate is beneficial to understanding acquisition costs.

Network effects complicate that calculation a bit, depending on the nature of
the network effect. Freemium Dropbox users sharing files could lead to net
sign ups, as you mentioned. But the value from that is incremental user
acquisition, and is still solidly a component of your marketing/acquisition
costs. Contrasted with your social network example, where there is intrinsic
leverage afforded by the size of the network that's independent/distinct from
the potential to drive incremental user acquisition.

VC is its own beast. As you said, it's essentially a form of economic dumping.
They prioritize growing market share first, and identifying network effects
and associated leverage potential after the fact. Only _after_ all that do
they really mature their business model, and does it make sense to try to
understand what component of network effects is a marketing benefit vs. a
product benefit. Uber is a perfect example of this - their original pitch[1]
was very solidly as a taxi app, and one that used exclusivity as a selling
point no less. Virtually all of their pitched areas of growth were around
potential for optimizing personal transit, with only a single mention of
branching out their infrastructure to other location based services
applications. Now they've distanced themselves as much as possible from their
identity as a taxi service and repositioned themselves as a logistics and
transportation juggernaut. And the ubiquity, availability, and consistency of
their network is a core component that enables that product identity.

[1] [https://medium.com/@gc/the-beginning-of-
uber-7fb17e544851](https://medium.com/@gc/the-beginning-of-uber-7fb17e544851)

------
antonkm
> “Provide incentive for prospects to sign up for freemium but do not provide
> too much value so that free version of the product is enough.”

For me, Dropbox, Spotify and GitHub all do this - naming them as examples of
companies that don't is plain wrong to me.

Dropbox: 2gb of storage is nothing (weird and a bit sickening, but still).

Spotify: The ads experience in Spotify is probably one of the worst user
experiences I know - so no real value here.

GitHub: no private repos for free users (might have changed?) made me choose
Bitbucket. No use without private.

All in all, I don't really agree with the article: I actually do believe that
a not-amazing-but-still-great experience is the way to go. See: Asana. It's
OK++ for free, but I pay because it's better when I pay.

~~~
vortico
Maybe in your opinion these are all true because you seem to be a "power user"
of any service you use. But for the large majority of people:

\- 2GB is more than enough for Word documents and a few pictures.

\- Listening to ads is totally normal because what's the alternative to
Spotify? Radio.

\- Most programmers have a job that pays well (and if not, they're in
education), so they just need an online git repo for their hobby open-source
projects.

~~~
chdaniel
True, when it comes to radio, we don't have the luxury of complaining about
ads. Sure, you can switch to another station but what if you're driving...?

~~~
taneq
Press a button on the steering wheel to switch to playing music off my phone
via Bluetooth?

------
lubujackson
A few days ago there was a Medium post from the founder of GumRoad where he
talked about companies create value but only ever capture a small portion of
it. Combined with this post, I think there is an argument for always doing
whatever creates the most overall value between the company and its users.
Worry about capturing it later (as long as you can survive) but if a choice
increases the company's overall value creation, it is probably the right
choice. It makes a simple decision out of many complicated scenarios.

~~~
chdaniel
thx for the comment. yep, it's exactly about worrying about how to capture the
value later. but through equality of opportunity, more often than not it will
make its way to you (this captured value)

as I mentioned in the article, it might be hard to grasp for someone who
didn't experience it

------
blackbrokkoli
Nice article, bad examples.

Spotify restricts the amount of songs you can skip to 10 in the free version.
And next they play you an ad where they stage the (premium) feature of
unlimited skipping as some revolutionary game-changer for music players. This
anti-feature has literally no other upside for Spotify other than annoying
users into subscribing. Which is all completely fair, since it is free after
all but I can't find any mechanism which is more to the point of

    
    
      “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.”
    

I'm on the fence about the assessment of Dropbox as well, it has a load of
dark patterns like nagging or bait and switch even and especially for paying
users, so I'm not sold it wants to be my friend...

~~~
WWLink
Historically, some spotify ads would straight up say they were being annoying
to get you to subscribe. "if you subscribe you don't have to listen to these
ads anymore!"

~~~
Insanity
I believe they still do, at least the Dutch advertisements.

Personally, I am more than happy paying for Spotify family.

------
aelhaji
The elephant in the room is the lack of true dynamic pricing in SaaS. Dynamic
pricing optimizes value capture and at the same time unlocks more value to
users who otherwise would be stuck in the free tier. Of course, dynamic
pricing is not easy to implement and might result in perceived price
unfairness. But done right, you can immediately increase your revenue and
drastically reduce the number of free users. True dynamic pricing involves a
mechanism, such as the Vickery auction, to measure a user's maximum
willingness-to-pay instead of A/B testing different price points. In an ideal
world, every active user pays a portion of their maximum willingness-to-pay
(perceived value).

Disclaimer: I'm the co-founder of Veylinx, a platform to measure maximum
willingness-to-pay of users.

~~~
gingerlime
Veylinx looks interesting, but no pricing info on your website I could find...
Is it also part of extracting maximum value? ;-)

In all seriousness though, I think your service is something I'd be curious to
find out more about and try. But we're a very small company (B2C in higher
education), so upfront pricing really helps me gauge if it's something I can
realistically explore, or if it's those typical "enterprise: call us"
scenarios, then it's just never going to happen.

~~~
aelhaji
Sent you an email.

------
goldcd
As an end-user - make it cheap and as frictionless as possible (and to
providers, my take would to be sacrifice pretty much anything on this altar).

I'm not a provider, so can only provide anecdotal advise.

1) Google Drive. I started out (along with I suspect most people on Drop Box).
DB blew my mind - it was novel. Then google rocked up and did the same thing.
Then I got more capacity for stuff like "doing a security checkup",
"integrated with gmail" then "free uncompressed 4k off your new Pixel phone"
\- and now I pay them cold, hard, money each month. Drop Box just sat there
doing little in the meantime apart from asking me for money. Think it all
boiled down to me considering them all the same, but google kept me engaged,
gave me more every so often - so when I needed it, they were what I was using
day to day.

2) Plex. Liked the free version and started using it. More importantly started
finding free version kept on creeping into my stack-solutions I was building.
"Free really good, but would really find that 'premium version' useful" Then
bit the bullet on a "discounted unlimited version for life". Know for a fact
there are 4/5 people out there that did the same based on my
recommendation/server, and presume it's organically growing on from there.

3) Feedly. Switched to it as a replacement for Google/RSS Reader. I love it to
bits and use it daily. Never given them a cent. There is a premium version for
$5 a month, which has features I don't need. Seemingly no way to give them
beer-tokens, a dollar a month. THE most frustrating use-case. All I can do is
recommend them to others, and hope one of them pays (and T&C change doesn't
leave me moving on and regretting my recommendation.

4) Spotify. I just paid from the start. Never even tried the free version. I'm
'happy paying'. Maybe similar to Netflix. I'll hand over an extra few dollars
for a family plan or a 4k one - but I'm in. Please don't screw me, as the pain
of moving isn't something I'm planning for my next month.

5) Patreon. I'm pretty sure I dislike everything about them - but they do
provide a very easy/universal way to send a single dollar a month to somebody
I admire. I pretty much loathe the politics associated (I'm a defend free-
speech even though I detest it) sort of a person. BUT no better option yet
(wanky youtube $5 a month for an icon in chat, is not what I'm looking for).

~~~
chdaniel
Two of your examples are tightly correlated to some other articles of mine.

The Google Drive example — I said this:

"If you’re in a monopolistic environment and you’re successful, others will
come. You can start building the experience right now in order to widen the
gap between the next newcomer and you."

[https://chagency.co.uk/blog/experiences/what-makes-or-
breaks...](https://chagency.co.uk/blog/experiences/what-makes-or-breaks-the-
long-term-status-of-a-company/)

Dropbox was in a monopolistic environment, you called it as well saying it was
novel. In the meantime, GD came and ate them. Instead of "staying there doing
nothing and asking for money", they had time to widen the gap between them and
others.

Where are they nowadays? They're doing good but they had to remarket
themselves towards artists and creatives. I'm not sure where they would have
been today had it not been for Apple, Amazon and Google coming up but that's
the situation.

> 5) Patreon. I'm pretty sure I dislike everything about them - but they do
> provide a very easy/universal way to send a single dollar a month to
> somebody I admire. I pretty much loathe the politics associated (I'm a
> defend free-speech even though I detest it) sort of a person. BUT no better
> option yet (wanky youtube $5 a month for an icon in chat, is not what I'm
> looking for).

I've only briefly read about the controversies with them and I know Jordan
Peterson is looking to create his own Patreon-like platform. Which leads to my
(so far two-part) posts around "Don't hold your user hostages"

[https://chagency.co.uk/blog/increasing-user-
retention/dont-t...](https://chagency.co.uk/blog/increasing-user-
retention/dont-take-your-customers-hostages-facilitate-their-exit/)

In this case, Patreon holds their users hostages — just like you said, you
dislike everything about them but it's the only far ———— so far. As a
consequence of the controversy (i.e. we, Patreon, do this), at least one more
platform will come out. And the guy has some following.

Thx for the comment!

------
gnicholas
> _When I pay them I do so happily as I support their cause._

This surely happens, but if it were common then wouldn’t donationware be more
successful than it is? I have used various pieces of freeware/donationware
over the years but they all seem like they’re just scraping by.

~~~
chdaniel
What I was touching is when I move from a free plan to a paid plan. When the
company took the risk. I know a lot of rich people who like to start lean
simply for the sake of seeing proof of concept. They have millions in their
bank yet they ask their cofounder to chip in £5,000 on the idea.

So the company offering the product took the risk (and the cost associated) of
seeing if the idea works. But then, what I say is that they should charge
enough on the premium to cover for all the freemium.

I didn't have in mind donation systems

~~~
gnicholas
You replied to several comment with this anecdote about _" rich people who
like to start lean...They have millions in the bank yet ask their cofounder to
chip in £5,000 on the idea."_

What's the point of this illustration? Are you saying this is a jerky thing
for rich people to do? Or is there some other lesson here? I'm honestly
confused, and it's weird to see it repeated through so many threads.

> _I didn 't have in mind donation systems_

You say to go as free as much as possible, to get people "on your side". This
is precisely what happens with donationware. But people get PISSED when
donationware turns paid. They don't jump for joy and open their wallets. If
this is the case with donationware, why would it be different for freemium
products?

~~~
chdaniel
Nono, don't get me wrong. The point with rich people (which I've reused
because I thought it fit those conversations) is that even if you have
millions in your bank account, you imagine businesses with their own 'pots'.

I.e. even if I can invest say £100,000 into this business to jumpstart it,
I'll first see if it can make some money by itself, just as if I've have had
nothing. So I won't buy the £5,000 hardware (just an example) until I made
£5,000 profits. That means whatever expenses the business made are paid from
the same pot — the one with money the business generated.

Maybe after the business reached a certain threshold (and thus proof of
concept), these millionaires that I've known will properly _invest_.

If that still didn't make sense, imagine you'll be looking for investment. You
won't go and ask for it until you've got proof. In the millionaire case, it
just happens to be the same person who's becoming an investor.

Regarding the second bit, I'm saying this: it can also be freemium and at the
same time a premium plan. Or more premium plans

~~~
gnicholas
IMO, the example would be clearer if you left off the cofounder bit. Otherwise
it puts the focus on their relationship and makes the rich guy seem like a
jerk.

I still don't see how this anecdote is particularly responsive to the various
comments it was used in reply to. So you're saying millionaires want to grow
businesses responsibly? Great! What does that have to do with whether you feel
joy in paying them money — which was what my original comment was about?

~~~
chdaniel
Oh I understand what's unclear now. So here's what I'm trying to connect

1\. These rich people like to start lean (some of them) 2\. This way of
conducting business gives equality of opportunity 3\. Therefore, these lean-
starters will be drawn unto them and use them. Eventually, when they invest in
their own ideas (remember what I said that it just so happens that the
investor is themselves?), they bring their big money to this company

Makes sense now?

~~~
gnicholas
Honestly, not really. I've read it a couple times and run it by a friend, and
we don't understand what you're getting at. But thanks for taking the time to
try to explain.

------
jamieson-becker
We do something similar to this at Userify / ssh key management (disclaimer:
I'm the founder/CEO):

We give away 20 servers for free -- no invoice, no credit card needed,
nothing. Once you exceed 20 servers, we charge (it's about $70/month).

You'd think that 20 servers is way too much to give away, but actually about
76% of our servers are on the paid plan and a huge percentage of our customers
come from the invitation referrals when people change companies or consult for
multiple companies.

(Our pricing might be too low and our product might be a bit too technical and
scare off a lot of people who might not even know what SSH is, but for now
that acts as a filter and keeps our support costs low; it's working for us,
although we'll probably lighten up a bit on the technical homepage in the near
future.) Also, the SaaS product acts as a frictionless testing area for people
who actually just want to deploy the on-premise version, which accounts for
approximately 40% of our revenue.

Our customers like the product and we have grown with many of them from free
to paid. We're growing a startup for the long haul and don't have to
demonstrate any particular growth rate to anyone.

The advice in this article works. Build something that provides some useful
utility to people, and give as much away as you can. Most people will not
abuse it and will return the favor as they grow.

~~~
chdaniel
And that's the wonderful thing Jamieson, even if people would abuse it, you
kicking them is a few clicks away. And given that one provides something of
value, the premium plans will cover for them.

So so glad to see you winning with this "strategy" — it's not a strategy IMO,
it's the forward way of living and conducting business. I'll send you an
email, would like to connect!

> We're growing a startup for the long haul and don't have to demonstrate any
> particular growth rate to anyone.

That's the ultimate level of power and freedom. I wish you well.

Ch Daniel

~~~
jamieson-becker
> even if people would abuse it, you kicking them is a few clicks away

We take a pretty liberal approach to this :) there are a few companies on the
platform now who just create a lot of companies and keep them all below 20
servers (that's pretty easy to monitor) but so far we haven't kicked anyone
yet, and there's also a legitimate reason to do that (if you're an MSP and
have multiple clients). We just send an email to clarify if we think it's an
issue.

> I'll send you an email, would like to connect!

Sure thing - it's first.last @ userify! Great to meet you Ch Daniel and thanks
for your nice comment!

~~~
chdaniel
I think you meant "who just create a lot of users" (...and keep them all below
20 servers)?

I got mad love for you for doing this. Just tweeted at you but sending you an
email now

------
lbacaj
I love the idea of being generous and having that come back to you. This
notion not only works with products but it works in every other part of life.
You may not believe in Karma but the vast majority of the good will we put out
there will eventually come back to us, at least it is this humble engineers
opinion.

As a little self promotion, and an example of this idea, I recently built an
app that lets people listen to any article, it uses AI to convert the articles
to Audio with some amazing sounding open source models. I decided to give
folks up to 30 free article conversions per month and only charge after that,
if they really love the product. You can try it here
[https://articulu.com](https://articulu.com)

I may at some point be forced to lower that a bit because it does cost a bunch
of money to run TensorFlow in the cloud, but trying my best to keep the karma
goin.

~~~
chdaniel
I'm not religious but I love reading about the history and philosophy of
religion. Piggybacking on what you said about Karma — it's the golden rule.
The intersection of all religions, the bit that's in every. single. holy book.

Do unto others as you would have them do unto you. Do good and it'll come back
to you — you're not the one to keep the bill.

As you said, it's something to be taken out generally in life. I wrote about
it in another post, addressing publicly the tech CEO and how she/he should not
keep the tab. Do have a read if you're interested:
[https://chagency.co.uk/blog/general/dear-ceo-dont-keep-
the-t...](https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-tab/)

(Please let me know if linking your own stuff is not ok on HackerNews, I just
joined the community and it seems lovely)

I'd need the opposite of what Articulu is doing — transcribing my video's
audio into written word. Had a look and it looks nice, will give it a try!

Let's connect, how can I reach you?

~~~
lbacaj
As long as your posts are useful and insightful I’m pretty sure it’s allowed.

You can reach me right on the website, I put up contact info and it works.

Edit: excellent post by the way, loved it and shared it with some friends.
That word of mouth thing is 100% true.

~~~
chdaniel
Very glad to hear that. Will get in touch now. Thanks for sharing it!

------
utdiscant
This quote

"By that I mean the freemium model should offer the client the chance to grow
— equality of opportunity — and if it does happen that they grow and become
profitable, the SaaS starts charging based on that. In a sense, value-based
pricing, or at least as much as it could get with a scalable model."

kinda implies that your client is a business ("become profitable"). We have
teachers as primary users, and I don't think the general arguments apply to
that category of users (although freemium is still a very popular pricing
model).

------
chdaniel
hi guys, I'm very humbled to have my content shared here. I'm very open to any
kind of discussion around this topic. Feel free to reach me at
daniel@chagency.co.uk

~~~
applecrazy
Your description of Mailchimp’s freemium plan is missing, or it doesn’t load
in.

~~~
gnicholas
Didn’t load for me either, and frankly I find their offering to be maddening,
not joy-inducing. Under 2k recipients: free. Over 2k: $780/yr (at least when I
was looking at it). This is way too big a jump from free.

~~~
chdaniel
Thanks for letting me know. I was just mentioning MailChimp as the targeted
audience (tech CEOs) most probably know about the freemium plan, so I didn’t
feel like expanding on that.

After I noticed it caused confusion, I added some extra comments in there as
well.

I see it this way: I know a lot of rich people who like to start lean simply
for the sake of seeing proof of concept. They have millions in their bank yet
they ask their cofounder to chip in £5,000 on the idea.

So the company offering the product (MailChimp in this example) took the risk
(and the cost associated) of seeing if the idea works. But then, what I say is
that they should charge enough on the premium to cover for all the freemium.

Which MailChimp does. I know, $780/yr is a lot — but since they might help you
start from 0, literally from ground level, I think it's reasonable for them to
charge a lot. I don't know their niche so whether 780/yr is fair or not is up
to them

But let me put it another way: if your mailing list is over 2000 people,
aren't there more than $65/mo to be made, more than 8 cases out of 10?

~~~
gnicholas
> _if your mailing list is over 2000 people, aren 't there more than $65/mo to
> be made_

If the click-through rate is around 10% and the conversion rate is around 5%,
then depending on the price point (and whether selling subs or one-time), then
quite possibly no. And even if I can clear $100 in extra revenue/month, paying
more than half of that to an email service seems like too much. Factor in the
cost of my time in building the emails, and I have to clear closer to $200/mo
for this to make sense at all.

And I don't know the precise costs for the higher tiers, but after seeing this
taste of their pricing model, I decided they weren't a good fit for me. If I
ever end up as a subscriber, it will certainly be through gritted teeth, not
the joy that you describe.

~~~
chdaniel
Just checked MailChimp and they've got free, $10/mo and up, $199/mo and up

I know it's the last thing you'd want to hear but maybe the gritted teeth
bring the nitpick and resentment that I see through the posts

~~~
gnicholas
Looks like they have lowered the limit (500 email addresses instead of 2,000)
and the pricing (10/mo instead of 60/mo). So the math is roughly the same as
when I passed on it before.

As for nitpicking, I think you've got me beat with your last comment.
Unfortunately you missed (or purposely omitted) the part about 500 addressees
instead of 2,000, hence this reply.

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EGreg
Go further. Give away your entire code base as open source on github. If that
will attract a community they will fix the bugs for you. And you can still
sell your software to others.

Worried about huge corps stealing your lunch? Use AGPL and I got it straight
from Mr Eben Moglen that the corps wont touch it with a 500 foot pole.

~~~
chdaniel
This comment has too many American insight I don't have and sounds sarcastic,
not sure — if it's not though, let me know what you meant and I'm happy to
have a conversation!

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dagoat
If you're in a niche where there are no freemium models/plans, is it still a
good idea to offer one? It seems to me that many of the examples provided are
of businesses in highly competitve spaces, where free alternatives likely
already existed/were being offered by competitors already.

~~~
chdaniel
Depends on how able are you to offer that, without more background info it's
harder to say. But then it also boils down to intent, just like I said in the
article.

You might have created a blue ocean for yourself and say "I don't need to
offer freemium". But exactly what I'm trying to reach in the written piece is
this idea around the equality of opportunity — "If your intent is to create a
win-win environment and give equality of opportunity so that eventually the
next Leonardo da Vinci will come from under your rooftop (and he won’t forget
that), this is a way to solve the freemium-to-premium user conversion
problem."

------
lucb1e
So in summary, give users lots for free and they'll feel like you're their
friend and recommend you to their friends and happily pay you?

~~~
chdaniel
Yes and no. Give them free so they can start off the ground. When the 0.01%
win (the Da Vinci example), they'll be more than happy to pay you.

Also give them free because word of mouth is on steroids then. To cover up for
the big costs, charge the premium enough. That might not be feasible for
everyone so in the short-term go for the classic approach. But once you can...
boy you should do it

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tomxor
I love it, it's so much more selfless than the titles suggests... and everyone
wins.

In retrospect it seems obvious, I suppose good ideas do.

------
ada1981
He lost me when he began talking about millionaires supporting orphans.

Wealthy people tend to give less as a percent of wealth.

But the general idea is solid.

------
blue4
Make something useful that someone can trial and feel like they've had enough
value from it to pay for it?

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mrhappyunhappy
Easy, limit their backpack space.

------
forgotmypw2
flagged for being an empty page with a spinner.

~~~
chdaniel
my website might be slower now because of the influx of users but it
definitely loads!

~~~
yorwba
I believe they were referring to the fact that JavaScript needs to be enabled
to read anything on the site, despite all the content actually being there.
It's just hidden by some annoying _< div class="mauer-narrator-preloader"><div
class="mauer-narrator-spinner"></div></div>_.

Maybe you think the spinner is a better experience than getting a glimpse of
the partially-loaded page, but I feel like the browser successively displaying
content is a much better progress indicator than some dummy image spinning in
a circle.

~~~
chdaniel
It's a humble Wordpress theme but thank you for pointing it out — I'll check
with my developer, see what can be done. Maybe switch to lazy loading

