Freemium Pricing — Not for B2B!

Lots of discussion in the last weeks about optimum pricing for cloud services for business customers. Trying to balance the need for easy and frictionless user adoption with the need for maximum revenue generation. A thin line to navigate.

A fallacy that keeps coming up is the need to adopt a freemium pricing model, whereby users get significant value for free and may then, hopefully, convert into paying users based on some kind of trigger point (functionality, number of users, amount of storage space, etc.).

This is fundamentally the right approach for consumer offerings and fundamentally wrong for B2B products:

  • Consumers love getting stuff for free. Read up on Dan Ariely’s amazing experiments  if you want to know more. 
  • Business customers, on the other hand, do not want anything for free. Why? Because free offerings come with no guarantees for quality, service level, long-term availability. It’s as simple as that.

Of course business customers do want to:

  • Not pay more than they should.
  • Get a great deal.

This has immediate consequences for your price list design:

  • Have a tiered pricing where the customer can calibrate their own understanding of what they will need. And where they also see that there is an upgrade path in case their needs evolve. Look at the Box.net price list to see what this could look like. Look at the Salesforce price list to see a much more complex example for a much more complex product. Pay attention to how they guide the customer’s interest towards a specific tier.
  • Make sure your prices are at the top end of what you will hope to extract. Any customer that has direct interaction with you or with your resellers will want to negotiate advantageous terms and you need to have the ability to do that.

“Free” does play a role in B2B offerings, of course:

  • You absolutely need to offer a free trial. This will communicate loud and clear that your service is easy to use and does not require complex installation or training. This will give the customer champion a chance to kick the tires and to convince any other members of the buying center. Use a 14-day period if your product is not overly complex and if you have lots of e-mail nudges and inside sales agents who drive the customer along. Use a longer period if you don’t have the resources to follow up actively. 
  • Depending on the product characteristic there can be value in offering a “personal edition” for free. Think of this as a reward for the customer champion who has made the investment to check out your offering. If the personal edition delivers true value for that individual then this could be useful. Makes sense for storage, databases, contact managers, etc. Does not make much sense for anything collaborative, where you would have to think about a “small team” edition.

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