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Every time I have a conversation with someone who supports and strongly believes in a freemium model, I hear two main revenue streams attributed to freemium customers:
- Initially customers do not know they need this product but when then start using it they fall in love with it and upgrade from free version to paid version.
- Customers that adopt early and fall in love generate considerable WoM marketing for the product
Since there are two levels (o and 1) for these two states, any user can be in any one of four following states.
After a few months, anyone continuing to use the service and not generating any WOM revenue is a freeloader. Only when your users start paying they become your customers. When freeloaders generate WOM marketing (preferably revenue) they become do-gooders. When users become customers and generate WOM marketing, they are your apostles. These state transitions and triggers are shown in the next image.
- Do you know what percentage of your users will end up in each state?
- Do you know how long anyone will spend in the freeloader state?
- Do you know how you can facilitate the triggers out of Freeloaders state?
- Do you have a model for WoM marketing revenue that a Do-Gooder will generate?
- Do you know how to keep customers and apostles in their states without sliding back?
If the answer to any of these questions is
- anything that is not expressed in numbers (I will take 90% confidence numbers )
- not specific to your business
- based on cost arguments
- something that uses Evernote or Dropbox numbers
Are you sure you should be adopting this model, or even undertaking this venture?
Now my selling points:
- what is the information worth to you before you invest resources?
- what if I told you I have a predictive model for finding the probability distribution of where a user will end up?