Benchmark Bytes: How Important are Freemium Pricing Models?

As part of the ritual of examining local commerce and SMB Saas strategies, Localogy goes right to the source: SMBs themselves. How do they feel about marketing and operational software? What features do they want? And how has their hunger changed during a global pandemic that has hit local businesses hardest?

Localogy’s Modern Commerce Monitor (MCM) wave 6.1 answers these and other questions across the SMB SaaS product set, which we preview in this Benchmark Bytes series. After the last installment examined various SMB SaaS pricing models, we now drill down into success metrics of freemium models.

As we examined last week, the most prevalent pricing model for SMB SaaS services is freemium, with 33 percent of respondents saying they purchased something in this manner. Going one level deeper, this segment of the SMB sample stresses the importance of freemium pricing in impacting their buying decision.

Specifically, 44 percent of freemium purchasers claim that they would not have purchased the product without a free trial. This was balanced with 43 percent who say the free trial wasn’t necessary… they would have bought the product anyway. 13 percent say freemium made it easier but it wasn’t an absolute influence.

Localogy members can access full charts and SMB survey reports.

What Does it All Mean?

Going a bit deeper, a few things jump out at us:

— Not only is freemium an important pricing model that eclipses other models in our SMB survey, but a meaningful portion of businesses claim its absolute importance.

— 42 percent is high considering the absolute nature of the sentiment: the free trial was the primary factor in swaying them.

— But counterbalancing that is the equivalent sentament (43 percent) that say a free trial was not necessary.

— Synthesizing these two opposing forces, the takeaway is that it’s strategic to offer freemium pricing because it can sway such a large portion of businesses (again 42 percent).

— For the remaining businesses that don’t see freemium’s importance/impact on their buying decision, a freemium model doesn’t hurt anything. So it should be used.

— Notably, 42 percent of SMB Saas purchasers said that they bought a service from a company that they also use to market or advertise their business.

— This is validating of the ongoing concept of bundling and one-stop shop appeal in SMB Saas services.

— There is a trust relationship, and a conventience factor, which drives SMBs to use existing providers for adjacent software

— Bundling and expanding into such adjacent services is also strategic in that it can boost ARPU and retention, the latter being a funciton of a greater lock-in effect from additional operational functions.

Time to Shine

Stepping back, SMB online services adoption tracked by MCM continues to grow rapidly.  SMB SaaS startups and online services providers are correspondingly thriving with exit velocity, funding, and public-market performance. SMB SaaS is becoming a leading subsector of the broader SaaS universe.

Meanwhile, new SMB SaaS users could represent permanent adopters — a concept that’s accelerated in the Covid era as SMBs are forced to boost their digital transformation. This sends them into the arms of SaaS providers to accomplish a range of operational and marketing functions.

We’ll return in the next installment to go deeper on other areas of SMB technology adoption. That will include the types of SMB SaaS software that resonate most. Let us know what additional insights jump out at you from the above data, and stay tuned for more breakdowns in our Benchmark Bytes series.

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