What are the disadvantages of offering a Freemium model for B2B SaaS software?

This has already been discussed in Quora here: With a great answer from , a real expert on SaaS pricing.

Here are some obvious and not-so-obvious disadvantages: Lose some customers who would have bought a small plan Burden your support with users who are not paying for support Lose some enterprise customers who want to watch a demo instead of trying it out themselves Some potential customers won’t take you very seriously I don’t know many companies which have a freemium plan and charge good money (compared to their competitors) I expand a lot about those in this post:http://weeklygrowth.com/saas-freemium-or-free-trial-complete-guide/On the other hand it certainly has some advantages in some cases and contexts. For example, if an industry has some leaders already, the only way to break through and penetrate the market might be through offering a freemium plan…Hope these help, good luck!

"Freemium model" can take a variety of forms but let's assume we're talking about a SaaS that is free for some number of users or that lacks some of the features of the pay version (and is also unsupported). The general challenge here is getting the balance of Free and Paid right. Make free too "good" and your conversion rate to paid might not be big enough--even among people who would have been willing to pay. This is the issue with a lot of open source-based business models. Not enough users are willing to pay for service and support or, perhaps, even additional features through an open core approach. On the other hand, cripple the free version too much and it becomes uninteresting in its own right. So you don't drive the big usage funnel that's one of the big reasons you'd consider a freemium approach in the first place. B2B covers a lot of range. With small businesses or individual/small group usage within a larger business, the situation isn't all that different from that of consumers. See above. With enterprise-level software (think Salesforce), the disadvantage of Freemium is it doesn't buy you a lot. At that class of software, signing up for a demo or trial account or something along those lines may be more practical. It's unlikely anyone would seriously use the Free version but any restrictions placed on it are going to make it harder to evaluate.

There is a good blog post that breaks down SaaS Freemium Pricing in to "The Good, the Bad, and the Ass Backward" (I love the Ass Backward information - Mailchimp did things differently with their freemium but have been very successful with it): https://www.chargify.com/blog/saas-freemium-how-to-succeed-and-how-to-fail/ (with SaaS Freemium) A couple of the biggest disadvantages: - Free isn't free (there are always going to be costs associated with supporting free users) - More users doesn't equal more profits. Freemium offerings can definitely drive traffic and increase your user base, but having more users doesn't mean you have more profits.

I am not a fan of free B2B software.  IMO, it devalues the product and the service.  Businesses that offer "free" are leaving money on the table that can be used to better the product and grow the business.  Free trial - sure.  Free to use and never pay - no. I would much rather pay for the service and expect good support and growth because I do believe you get what you pay for. We offer tiered pricing because our client base is vast.  We have small startups that do not have a lot of money to spend so we have a plan that fits their budget.  Then we have a middle tier and a higher end tier with more enterprise type features. Bottom line - I want my vendors to thrive because they play a role in supporting my business grow.  I don't know any business owner who would not agree with that statement. Stop giving it away for free.  If it really solves problems and makes lives easier within the business, it is worth money.  How much to charge is a whole different topic.

To answer your question specifically, Freemium works less well with large enterprises. This is because each employee in a large enterprise would not have the freedom to sign-up to these services. Either they are not authorised to pay, or SaaS itself is not a preferred way to handle the enterprises' sensitive data. Apart from that, I can't think of a specific disadvantage of offering Freemium in B2B.

The list of disadvantages includes: Fooling yourself into believing that because you have a long list of freemium users, that any of them will be guaranteed to become paid users down the line. Having to offer customer support time to users that will never pay you any money. Churn is higher with freemium users than with paying customers. I've discussed a lot of the pros and cons of freemium here: http://paweljaniak.co.za/2015/07/17/some-thoughts-about-freemium/

One point to consider when going freemium is how that will affect your sales hiring.   The difficulty with going freemium on a product that requires technical resources is that the implementation or setup must occur before the sale. This means that you’ll need sales engineers on hand to assist free users, and that your sales people will require a higher technical comfort level.   A traditional sales cycle goes something like this: 1)  A lead comes in and is qualified by an SDR 2)  The SDR hands off the lead to a Sales Rep 3)  The Sales Rep shows the lead a demo, perhaps with the assistance of a sales engineer 4)  The Sales Rep negotiates the deal, paid in-full, up-front, with an annual commit and no trial period 5)  The deal closes and the client is on their own to get up and running. The Sales Rep is no longer involved with the deal, so has very little vested interest in the quality of the implementation.   The Sales Rep, in other words, really just plays referee and negotiator. His job is to look for buying signals, hunt for needs and pitch benefits, name-drop competitors, and navigate the decision-making and budget discussions. He does not really need to understand the product in depth.   With a technical freemium product, the process is much different. 1)  A lead comes in and is qualified by an SDR 2)  The SDR hands off the lead to a Sales Rep 3)  The Sales Rep shows the lead a demo, perhaps with the assistance of a sales engineer. The main goal of the demo, beyond further qualification, is to get the lead to integrate the product. 4)  The Sales Rep oversees the integration process, with the assistance of a sales engineer. A poor implementation leads to a lost deal, so the Sales Rep is motivated to make sure the implementation is executed well. 5)  The Sales Rep works to help the lead see the value in their implementation, which requires familiarity with the product. The focus is less on the negotiation, because presumably the client is happy with the product – when they go over their free limit, they will simply pay or lose access.   The Sales Rep, in this role, is playing more than referee and negotiator; the Sales Rep is playing consultant.   Here at Mixpanel, we’ve taken a different approach – we’ve hired very smart, technical Sales Reps who can serve as experts and consultants throughout the implementation process. We don’t charge fees for these services. Finding these people has not been easy, however; we’ve interviewed hundreds of salespeople over the last couple of years, and only hired a handful. Luckily, our product is really, really great :)   So, consider this: how hard is it to get up and running?  If it’s a great product, and easy to get started (Dropbox, Docusign, Yammer) – then by all means, go for it! If it’s a bit trickier to implement, do you think you can find the salespeople you’ll need to be successful?

Ultimately, freemium requires two things to be successful: (1) Unconverted users (free users) have to cost you little to nothing because they will be the bulk of your users. (2) There has to be a compelling advantage to going to paid to get ANY conversion at all. Freemium on SaaS is a difficult model to make work because SaaS generally involves all users using resources that you have to pay for.  A better solution is usually "free trial" where they only get free service for a very limited time and then have to buy or leave. The other option is to have a way to directly monetize the free users.  One way can be advertising IF the free users cost you little enough that the tiny drips of money you cna make on web adverts at least pay their costs.