Why we have a freemium model
Our freemium model is not only a great engine for growth, but it also enables us to help more people with our product.
It’s the right thing to do.
Arno is a platform that helps people prepare for the Duolingo English Test (DET), an English proficiency test that is a lot cheaper than other ones and that you can take from home. So, it especially appeals to people who don’t have a lot of money and/or who may not be able to make it to a testing site, which are typically in cities. Some countries don’t even have testing sites!
Many of our users are young people from developing countries who have not been given many opportunities but are nonetheless chasing their dream to study abroad and advance themselves. By offering a generous free tier, we can help these students who very much deserve help.
Selfishly, knowing that we are helping people in real ways brings great meaning and motivation to our work.
It creates “word of mouth” growth.
This was one of our primary reasons to go with a freemium approach, and I’m proud to say that it has turned out very well. About 50% of all new customers hear about Arno from someone else. By giving people access to a lot of value for free, we acquire a lot more customers, which, in turn, brings us even more customers.
This is especially important for us because we have users in virtually every country in the world. We wouldn’t be able to reach all of these users with content marketing alone because they speak so many different languages and are part of so many different small, online groups.
It undercuts our competition.
In our free tier, users get unlimited practice questions for every question type. Our competitors charge for this. This gives us a huge advantage: Why would someone pay for something that they can get for free?
In our case, the core value prop of our free tier lends itself to a straightforward tagline: “With Arno, you get unlimited practice questions for every question type, for free.” With just that one sentence, we can convey to our target customers why they should not use our competitors and instead sign up for Arno.
Such a concise value prop also makes it easier for users to tell other people about Arno. This helps our “word of mouth” growth.
The unit economics makes sense.
We are able to provide unlimited practice questions for free because there is effectively zero marginal cost to provide a practice question to an additional user. If we get a ton of new, free-tier users all of a sudden, we don’t have to worry about costs suddenly exploding.
We can monetize effectively in other ways.
We’re bootstrapped, so we need to be profitable now. We monetize by charging for access to premium features like feedback on your grammar and vocabulary (powered by LLMs), full mock tests, and premium content.
Also, this forces us to step up our game. Because we’re not going to monetize on the easy stuff, we have to ship excellent premium stuff. This fends off competition. If other companies want to compete with us, they have to build a great product too.
We can do great in-app marketing within the free tier.
The best example of this is when someone answers a practice question that requires them to provide a written response. For their first 5 responses, we give users, for free, an estimated score and feedback on their grammar and vocabulary.
After that, each time they answer a practice question, we can remind them that if they purchase credits, they can once again receive an estimated score and that helpful feedback.
Because we showed them what the feedback looks like already, they know exactly what they are missing out on. We don’t have to try to tell them with a list of value props, which is a lot less effective.
It forces us to design a great experience.
Some products intentionally make their free tier annoying to use as a way to force you to upgrade.
I understand why other products do this (it works), but we didn’t want to take this approach. We wanted our free tier to be a truly delightful experience — in other words, to be rightfully considered a complete and valuable product. Instead of pushing users out of the free tier by annoying them, we have to pull them to the paid tier by making them understand the value they would get by paying for advanced features.
This is more challenging. But, it’s an interesting challenge! And, honestly, it feels good to know that we’re providing a product that is, hopefully, delightful to use for all our users, instead of something that creates annoyance and frustration for those who aren’t able (or willing) to pay.
Also, our free tier is our #1 user acquisition channel (via word of mouth), so we want it to be great so that people tell others about it.
The End
I hope this post helped you think through whether a freemium model would be right for your business. My New Year’s resolution is to publish one of these posts a month, documenting our journey building Arno and sharing what we learned. If this sounds interesting, please subscribe 🙂
Also, feel free to say hi, share your feedback, ask any questions, etc.! My email is otto.nagengast [at] gmail.com. I love hearing from readers because it always blows my mind that I can type something on my laptop as I sit in my kitchen in Philadelphia that could be read by people around the world.
P.S.
Here are some questions related to the topic of a freemium strategy that didn’t fit into the main article.
Do we have a referral system?
No. The main reason is that we don’t want to invest time into building and maintaining it. Second, half of our users already come through word of mouth growth. That seems quite high.
But, I’m sure we will implement one at some point.
How do we measure where our users come from?
Determining how you acquired a certain user (which is called “attribution”) is a notoriously difficult problem in marketing. We followed the advice of Nilan Peiris and we ask users how they heard about Arno after they sign up using a multiple choice question.
Do all your free tier customers generate a bunch of customer support work for you?
Yes. This is one of the main reasons why so many indie/bootstrapped companies do not offer free tiers.
Thankfully, our product is simple enough that users don’t need much help. We also don’t have tons and tons of users. While we would definitely have less customer support work if we didn’t have free-tier users, it’s still a manageable amount — certainly worth it to us for the reasons laid out above.