Freemium SaaS: The 4 Rules For Creating A GREAT Business Model & Product

Dan Martell

Mon. Jun. 27, 2016 12:56pm

Are you building a SaaS / software company based on a freemium model? Can you sustain its product growth? In this video, I show you what you need to do for a freemium pricing model to work and sustain.

Ben @ Mailchimp on Freemium
What makes freemium work (lessons from Dropbox, Evernote, etc)?

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Nothing frustrates me more than a founder using Freemium - not charging - as a business model without understanding the mechanics behind it.

Why do they do this?

Simple. It’s safe!

Without charging for their solution, they don’t have to feel bad when people don’t buy, because the barrier to sign up is low.

It sucks because it slows the founder down from learning if their product is actually any good.

If people don’t sign-up, they pass it off as they didn’t have the need.

They look at companies like Slack, MailChimp, Dropbox, or Evernote and think they’ll just implement a freemium strategy and WIN!


Here’s the truth.

Freemium is a marketing decision.

It’s about distribution.

On top of that, many of the companies - like MailChimp - started off as a PAID ONLY solution for almost 10 years.

It was only AFTER they truly understood their unit economics that they realized strategically it made sense to go freemium to capture more of the market.

They used the premium part of the business to start, then added freemium as a marketing decision.

In this week’s video I go over the rules that make freemium work, and why you need 3 out of the 4 to be successful in your SaaS product.

Here’s what you’ll learn in this video:

1) The number of potential users in your market
2) The specific market advantage required to win
3) The max complexity of your product and how it works
4) The specific cost each additional user can have

I consider this my official answer on the Freemium question going forward.

My hope is to help future founders from making the deadly mistake of assuming freemium is the way to go and waiting months to find out the model would never work for their solution.

All that being said, when it works, it’s POWERFUL!

It’s just the exception - not the norm - when building a SaaS product.

Be sure to leave a comment with your thoughts or feedback!

Have an incredible day!

With gratitude,

– Dan

P.S. Here's the blog I mentioned from Ben Chestnut of MailChimp:

P.P.S. Don't forget to share this entrepreneurial advice with your friends, so they can learn too:


“You can only keep what you give away.” That’s the mantra that’s shaped Dan Martell from a struggling 20-something business owner in the Canadian Maritimes (which is waaay out east) to a successful startup founder who’s raised more than $3 million in venture funding and exited not one... not two... but three tech businesses:, Spheric and Flowtown.

You can only keep what you give away. That philosophy has led Dan to invest in 33+ early stage startups such as Udemy, Intercom, Unbounce and Foodspotting. It’s also helped him shape the future of Hootsuite as an advisor to the social media tour de force.

An activator, a tech geek, an adrenaline junkie and, yes, a romantic (ask his wife Renee), Dan has recently turned his attention to teaching startups a fundamental, little-discussed lesson that directly impacts their growth: how to scale. You’ll find not only incredible insights in every moment of every talk Dan gives - but also highly actionable takeaways that will propel your business forward. Because Dan gives freely of all that he knows. After all, you can only keep what you give away.

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