Freebie Fiasco: Why Freemium Might Wreck Your Revenue
When your executive jet flies too close to the sun (part 1 of 3 part series)
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This article is part one in a three-part series on the state of product-led growth onboarding.
Freebie Fiasco, Why Freemium Might Wreck Your Revenue
Choosing between freemiums, trials, interactive demos, and Gary the sales guy
Freebie Fiasco: why freemium wrecks your revenue
The other day, I came across this article written by CEO/Co-founder of Equals, Bobby Pinero:
Ladies and gentlemen, I felt just a wee bit uneasy reading this.
The fallacy of freemium??
Was this - gasp - the end of product-led growth? RIP PLG 2023, we hardly knew ye?
In the piece, Pinero shares an honest reflection on how he decided it was time to go freemium, how everyone seemed to love it, and how it wrecked their revenue.
I’d like to add a few thoughts on what I believe may have led to this revenue collapse and how to think about when going freemium makes sense:
A misunderstanding of when Freemium indeed is the right choice.
Treating a B2B product like a B2C product in regards to friction.
When it is time to abort and when to invest.
To freemium or not to freemium?
A freemium offering works great for a new audience that’s waiting for you to open the gates. Not so much with an audience that you’ve already been catering to — you have that audience locked down already.
Sure, your existing sales-led customers love that you slash prices, but that doesn’t guarantee their conversion after the freemium trial.
It takes time to get traction in a different market, specifically if you go down-market with a freemium offer like this.
When making the change to a freemium offer, you have to change almost everything:
Reworking your onboarding experience. Creating *something* is easy, creating something great is hard.
Using your product must feel similar to a customer’s easy self-serve onboarding. This means you have to open a new can of research you’ve probably not thought about before. “How does our product onboard if we don’t tell you how to use it?”
How sales interact with freemium users. Does sales have easy access to your self-serve funnel? Can they easily tell when an account has been using your product for free and wants to now upgrade? Or do they sit back, play Solitaire, and wait for inbound leads to click on “contact sales”?
Align Sales and Marketing incentives. That’s a fun one. Gary, you’re not being paid for closing but for closing those that expand later on. If you don’t do that they will grab freemium users from the pool because they look valuable but have to sell for freemium prices. Ouch.
I’ve got a hunch that Equals may have jumped the gun here by going from straight sales all the way to freemium. Why not take a detour at good ol’ free trial central?
Making the extreme choice to go freemium forces you to match your pricing to a GTM model you have not tested yet.
Go at it slow, young Jedi — learn much you will.
Verify that you have a product that is indeed suitable for a free version. It might be that it is not possible because your use case is too complex.
Or you are compensating for your product’s complexity over sales and using them as a crutch. If that’s the case you will be disrupted by someone who does it better with time.
In the end, this is what they decided to do now, go with a trial requiring credit cards. I would have probably advised them to do that in the first place.
No, friction is never ‘good’. But it can be profitable
Here’s where I disagree on a technicality with Pinero. He says that there is good friction.
Kind of. What he probably means is that there is friction that is worth having because the payout outweighs the loss of user engagement. Having less friction is better if your goal is to get more user engagement. Except, that’s not the #1 goal.
The #1 goal is to introduce enough friction to monetize (or connect users to actual value), but not too much.
We want to connect as many of the right users to the product as possible. These will also inform us further about how to develop the product, our onboarding motion, and so forth. Friction can help us to filter.
What we learn from friction
Those who pay or go through a specific onboarding flow (by providing a credit card or filling out info about them) are sending us a signal. It’s sometimes even in the interest of the user to go through that friction.
By knowing with whom you deal, you can offer them different setups or side flows. Atlassian is doing a great job with their employee onboarding app, Onward:
When HR onboards a new hire, they’re not putting a developer through the same onboarding flow as a designer or executive. So too with potential customers. By giving away a freemium offering, you lose out on collecting the key info you need to understand your customer.
Collecting this data feeds back into locking in and, if need be, updating your existing Ideal Customer Profile (ICP). We don’t chase the others away but we don’t develop for them.
You fly fast, yes, but you fly blind if you don’t leverage this knowledge.
When it is time to abort and when to invest
From that article, it is not clear to me whether their freemium experiment actually failed.
It is also possible that they just did it wrong. Getting a good freemium or trial experience out the door takes time. It’s not a feature you ship, it’s something that needs to be maintained properly.
In fact, it costs so much to maintain that you will have to dedicate product and growth resources to it permanently.
You need to sit down and understand what’s important during onboarding and how we activate our users and their teams. If you’ve got an office full of sales dudes named Gary to answer customer questions during onboarding, then you have no idea if your product activation sucks.
Gary might be cleaning things up, but you better fix all the problems before letting people self-serve onboard.
This makes me think that for Equals, the question wasn’t ‘to freemium or not to freemium,’ but actually ‘self-serve or not?’
And if self-serve, how do you gently introduce it to the business?
Before you go all in with freemium pricing, test your product in the market and how it behaves if you don’t offer hand-holding.
This takes time. A lot of time. Mess with pricing later, fix your product first.
You might need to change your product
This is highly unintuitive to a lot of companies. Getting onboarding and activation right might require changes to your product. You have to make tradeoffs between core features that display the value of your product and separating others in your interface so heavy users can find them but do not lead your free users astray.
In my six hundred years in this industry, I have not seen a freemium roll-out work perfectly right out of the gate. It always takes time. That’s one of the first things I tell clients. It’s highly dependent on your business but we can get there step by step.
Worst case, you’re left with a product that is easy to onboard, best case you found a great new GTM motion. But you have to test it. It’s even difficult for seasoned growth advisors who have done this many times.
The ultimate truth is that your product and company have individual challenges that you can’t copy just over.
Another oddity is that with time, sales have to escape upmarket and target higher value accounts or they become inefficient with time on the same product offering.
Unless you innovate, your market becomes commoditized, and more solutions start to push and offer the same as you, competing around the same people pressuring your price. You might be getting better at sales, but your customer pays less for the same.
Then all we need to do is keep innovating, right?
Yeah…but no. The really annoying thing about any self-serve motion? Tons and tons of data to play around with and better understand your customer. Bummer, I know /s. Even with all the innovation in the world, pure sales-driven companies have a major disadvantage when it comes to how actually effective that innovation will be.
The winners are still those who connect quantitative data from their user base with the quantitative knowledge of their best sales reps.
Your market becomes more knowledgeable and your solution less novel with time. That means customers are more likely to become prosumers around your product. And prosumers love self-serve. They don’t need Gary to tell them what to buy.
Case in point: Tesla
At the beginning, Tesla was innovating and sales-driven. Electric cars were just not on top of mind for consumers. Too complicated… too… novel.
Nowadays the market is much more educated, not just around Tesla but around electric vehicles. This favors lighter-touch sales processes.
Take yours truly, PLG superstar Leah Tharin: I bought my Tesla 3 years ago without ever talking to a salesperson. While buying a Tesla is not exactly a freemium experience it illustrates the point of a lighter sales process perfect over time.
A great product is a table stake for a good self-serve motion
I’m not saying that Equals has a bad product. In fact, it might even be great, but when you dip your toes into product-led growth the definition of what your product is changes.
We understand onboarding as a part of it, and the added experience from customer success as well. We leverage whatever we can to differentiate ourselves from our competition. And a self-serve experience that wows might be just that, before a user even sees your product:
It might come in the form of a recommendation or a glowing review from a free account that loves your product but just isn’t at a scale where it’s worth it to expand. That free account won’t exist if you force him to get through Gary before using the product.
A free account that loves your product IS part of your product and acquisition.
I want to hear from you!
How are you thinking about freemium vs free trial vs sales-led onboarding at your company?
What part of switching over to freemium feels the most daunting?
Have you been part of any switches to freemium or free trial that have worked? That haven’t? In either case, what do you think was the cause?
How do you think about the Equals freemium experiment as a case study?
This article was created with the help of the editing prodigy
Alex Dobrenko` from Both Are True
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I learned all I know about user interviews from Detective Frank Drebin.