Free to Freemium: What We Learned from Changing our Pricing Model
From free to freemium… and to profitability: here's what we learned along the way.
When we first started WooRank and launched our website analysis tool in January 2010, the service was entirely free for unlimited use. Being a bootstrapped startup, however, we needed to generate revenue fast to stay afloat. Initially we made money by charging customers to generate white-label SEO reports while at the same time adding useful new features to the product.
In March 2012, our core product had matured enough for us to comfortably charge customers for an upgraded, premium service, especially the heavy users who we knew were making (more) money for their own businesses with our product. These users were typically digital agencies using WooRank to run instant website reviews for their clients in mere seconds, enabling both better service and the acquisition of more customers.
Despite this, the reality at the time was that the company was in jeopardy, and needed to find a better way to generate revenue not just to stay alive but to grow. We weren't in dire straits yet, but we realized something needed to be done to fine-tune the freemium model.
Our options were two-fold and based on capping usage:
- Limit the number of website reports our users could generate (e.g. only 1 full report per week).
- Limit the content of the reports by showing less data and fewer actionable tasks.
We quickly decided to go with option one, because we wanted to:
- Make sure every business customer had access to a full rather than a 'crippled' report.
- Be able to demonstrate the full capacity of the software to every free user.
- Charge for heavy usage of the product as we were giving those customers a lot of value.
It was a quick decision, but that doesn't mean it was an easy one. We feared that we would make a lot of our users unhappy, and that's the last thing we wanted. We were also afraid that we would lose out on a lot of the traffic that helped us get to where we were in the first place.
What actually happened:
- Traffic did not drop much at all (phew).
- Sales multiplied three times in just one month.
We went from being close to running out of cash to profitability in a short period of time, allowing us to grow the team exponentially and significantly improve our product and customer service.
There were also a few unexpected consequences. We noticed that after our decision to start charging some of our users, searches for things like 'WooRank alternatives' and 'WooRank clones' shot up.
That was good news for us, perhaps counterintuitively, because we know how difficult it is to build a high-quality website analysis and SEO tool, and how impossible it is to simply clone it. We were sure that people who tried these lower-quality alternatives would come back to us eventually, due to the quality of our product; speedy results that are at scale and with a much higher level of accuracy (and care), thanks to our phenomenal developer team.
All things considered (and in hindsight), we made the right choice in going from free to freemium because we did it for all the right reasons. The assumptions we made out of fear turned out to be wrong, and in the end we learned that people appreciated the great service we offered at a reasonable price point, even if it took them some time and trying out of other products to realize it.
Starting to charge professionals and other heavy users allowed us to stay alive, and it not only helped these users make more money and win more clients over time, but it also allowed WooRank to continue offering once-a-week full reports for casual users free of charge. It was a win-win-win situation.
Has your company experienced anything similar? Or is your company in a similar state of transition? We're interested to hear your thoughts and experiences in the comments below.