Building a Freemium Model

Monet Davenport:
Welcome to Press The Issue, a podcast for Master WP, your source for industry insights for WordPress professionals. Get show notes, transcripts, and more information about the show at masterwp.com/presstheissue. Freemium is the idea that a product is free with the goal of upgrading customers to a paid or premium version. It’s a common model within the WordPress ecosystem. In this episode, Nyasha and Rob discuss what goes into building a freemium model using their own firsthand knowledge.

Nyasha Green:
Hey Rob, how are you doing today?

Rob Howard:
Hey, I’m great. How about you?

Nyasha Green:
Doing well, doing well. I’m really excited to speak with you today. It’s been a little while since our last podcast and just what we’re going to talk about today. I know it’s not only going to be educational, but fun as well.

Rob Howard:
Yeah, I’m excited.

Nyasha Green:
Awesome. Awesome. What inspired you to go in the direction of building a freemium model?

Rob Howard:
As a lot of people know, we run Master WP, but really we are primarily a web development company, in terms of where most of our company revenue and most of our staff resources go. What we have as a vision for the future is we’re always going to do web design and development, we’re always going to be an agency, but we also want to expand and diversify our horizons a little bit, in terms of the various different ways that we can engage with the community, bring in revenue, and have fun as members of the WordPress community, members of the tech industry in general.

About two years ago, we embarked on a mission to start building what are essentially a variety of products that help designers and developers beyond just our services, so that was the jumping off point and to where we basically said, “Okay, well, we want to expand our horizons. We like building stuff, and in order to build stuff, you have to figure out a pricing and business model for that.” From there, we basically transitioned away from… We’re not really transitioning away, but we’re adding to our existing pricing model, which is all about client services and with Master VP with WP Wallet with Understrap, we’re building new models that don’t necessarily rely on clients, but instead bring in developers and designers and other people in the tech industry as our customers.

Nyasha Green:
Nice. And did you have any specific inspiration for it? Was it based on any other companies that you’d seen do before? Was it a mixture? How were you inspired into this, basically?

Rob Howard:
Yeah. There’s definitely a lot of companies out there that have done this over the years. There’s a company that runs Basecamp called 37 Signals, and as much as they’ve been in the news for somewhat questionable stuff recently, if you look back at where they were in 2005, they very much were an agency who was building their own stuff and then essentially said, “Well, in addition to client work, we’re going to start selling and publishing our own stuff.” And I think that a lot of similar products and services essentially arise from people who are scratching their own itch as client services companies. I think WP Wallet is a great example of that for us, where it allows us to better manage our plugin licenses and invoice clients and stuff like that.

Understrap was a big one because we were using that theme framework already. The people who were running it wanted to sell it or stop working on it, so we took it over and essentially acquired that open source project and rolled it into our company. So, to some degree, the inspiration is wanting to create new revenue streams. But the other thing that has been really a pleasant surprise is that by working on all of these other projects that are cool and even semi-famous in the WordPress and tech space, it’s actually been really fun and a huge morale boost for everybody on the team.

And I wasn’t really expecting that to have such a big impact when I started this process a couple years ago. But now we’ve discovered that people just enjoy this and have fun with it. A lot of people who do client services eventually burn out because it’s just not that fun. It’s not that inspiring. We have some great clients, but also we also have some boring projects, and that’s just the nature of the business model when you’re doing client services.

So, by rolling these other things in, it really makes day to day life more fun. I’m sure you can speak personally to that, doing a lot of work for Master WP. We have other developers and team members who contribute to Understrap or who are building other stuff, and it’s just cool and fun to do that. So, we’ve actually found that rather than it being a replacement for client work, it really is a complement to client work, and it makes day to day life super fun at the company. Even if you happen to be working on a client project that’s not incredibly inspiring, you can go write an article, you can go contribute to something else that people are using all around the world on hundreds of thousands of sites. That’s super cool. And then, also, that leads us into this conversation of “Well, how do you then monetize those essentially side projects in a way that is going to allow them to grow bigger in the future?”

Nyasha Green:
Yeah. And you are absolutely right, working on MasterWP has been such a joy for me, personally. I always joke with you that I have two fans. I think I have three now, so that’s always great, too.

Rob Howard:
I mean, I think you have a lot more than that.

Nyasha Green:
Okay, five. But I definitely agree with you. It’s been a really good morale boost, but also it complements learning. As developers in the community, we’re constantly learning. Nobody is a WordPress expert, especially when things change, so it’s really helped to do these projects along with contributing to WordPress and meeting more people in this space. And I feel like my WordPress knowledge has gone up so much just by doing that. You’re absolutely right. That was leading into my next question of what the different models that we’ve tried here. I know you spoke a little bit about Understrap and MasterWp. Did you want to speak a little bit about the others that we’ve worked on?

Rob Howard:
Yeah. So, my philosophy is essentially that you really don’t know what’s going to be a hit with your audience until you get it out there and start asking people to pay money for things. We try to launch very fast and if necessary, fail fast, but hopefully succeed fast. A lot of people say there’s this idea of failing fast in the tech industry, and you should get your stuff out there and see if it works. I think that there’s some nuance to that that is not captured in the one sentence of failing fast. But the big idea is, basically, that we can theorize all we want internally, but ultimately we need to put our ideas out there and see if they stick, see if we need to pivot, et cetera.

And what I’ve actually discovered in the past couple years is that my predictions are often wrong. I would not have predicted that MasterWP would be as much of a runaway success as it is. And the flip side of that is that we are not having as much success with premium memberships on WP Wallet as I would’ve expected. If you had asked me two years ago which one of these things would be bringing in more revenue and more sort of attention and doing better from a marketing standpoint, I probably would’ve guessed the opposite. That being said, it allows us to easily shift gears, to pivot, put more resources into one thing versus another thing, because we’re actually getting customer feedback.

One of the things that we’ve experimented with is essentially a variety of types of business models. The client services is super easy. I’m going to do some work, you’re going to either pay me by the hour or pay me on a fixed project fee, and that’s that, right? There’s really not a lot of significant experimentation that goes into that except potentially just your price point. Are you going to charge 75 or 100 or 150 per hour, or are you going to do project fees? Et cetera. That’s something we talked about in some of the freelancing courses and workshops that we have. But fundamentally, that’s not really a pricing model experimentation thing.

But what we have been playing with on our other products is different ways to present opportunities to pay us while still giving away a significant amount for free. That essentially is the freemium model. With Understrap, we have an open source theme framework that anybody can use, but then we also have paid courses, and eventually we’re going to be releasing paid add-ons and plugins and stuff like that, that are associated with Understrap.

With MasterWP, we have a free newsletter you can also upgrade in the sense of joining the premium program, you’re going to have no ads in your newsletter, you’re going to have free access to all the workshops as part of that membership, or you can just buy individual workshops. Each one of these, essentially, is a different way of stepping up the experience with us to a point where now you switch from a free customer to a paying customer. And all this also plays into the WordPress plugin space where most WordPress plugins are freemium. You’re going to get an open source thing for free, and then you’re going to, eventually, some portion of your user base is going to upgrade to that paid model.

Nyasha Green:
Nice. I really like that there’s something for everyone, people who, if they cannot afford it, they still get a piece of the pie, and I think that’s awesome. You have talked with us, I know at the company before about freemium, versus free trial, versus money back guarantees. What’s your take on them and which one do you think are the best, if any? Which ones do you think are the worst, if any?

Rob Howard:
Yeah. This is an area that we’ve done a lot of research on, and it’s one of those things where, again, there’s no real right answer. It depends on the product, on the audience. For example, we use some tools that are financial tools. The thing that we use for invoicing and time tracking, for example, and they do a free trial. They basically say, “There is no free version of this product. You can try it for 30 days, and then you have to either pass or not.” And I think we mentioned Basecamp earlier, they have a similar model. Lots of companies have this free trial model as opposed to having a free tier of their business. That’s one way to do it. I think that that works best with things that are clearly a direct financial benefit to your company. If you think about accounting software, stuff like that, those are areas where I see the free trial working really well because they’re basically saying there’s no level at which you should be using this for free because it directly helps you make more money.

However, I would add that that’s not really compatible with the mindset of most WordPress developers and designers because they’re very used to the freemium model, which comes from lots of themes, lots of plugins, where they’re basically saying, “We’re going to give something away completely for free, and then you can upgrade it.” In my experience, that is a difficult sell if your audience is already committed to this. There’s got to be a free version or a free tier. One of the things with WP Wallet is that we decided not to go at the free trial, and we instead decided to go with having an actual open free tier. Maybe we’ll change that at some point in the future as we continue to experiment, but our of best guess was that having a free tier would not only allow people to use it in a limited way, which is, I think, good overall and allows the word to spread, but also that WordPress community members are not used to being forced to pay for things.

They’re used to upgrading for enhanced service in some ways, so we wanted to make sure that we weren’t introducing something that was totally unfamiliar or totally different than what you might expect. And I think MasterWP as a newsletter is similar. If you think about the freemium model for newsletters, it’s something like what Stack is doing or what Ghost is doing, where it’s like, “Hey, you can see six articles for free, but then you have to pay for the rest.” And I mean, even the New York Times to some degree has the metered paywall, which is essentially a freemium model where you can read X number of articles, but then you have to pay if you want to become a power user.

And we were thinking about that from MasterWP. Again, there’s this interesting dynamic because so many WordPress developers and designers are already bought in to the idea of things being open source. Unless there’s a good reason for it, the information should be free. There’s definitely competition in the WordPress news space that is free. So, I strongly considered doing a freemium article model on MasterWP, kind of like a Substack.

But eventually we decided to go with a route where our writing and articles and podcast were 99 to 100 percent free, and the value add would be the workshops that we’re now doing, which are really additional education, a deeper dive, a more personal experience with your instructor. And so far, that’s actually been really successful. And I think that in this case, the free thing is valuable in and of itself, and also is an entry point into doing more WordPress education. We’re actually seeing already… This is being recorded in early October, so we’re just starting our workshops, but we are already seeing tons of engagement, tons of purchases, tons of uptakes. I think we’ve actually hit on a really cool formula for essentially monetizing a WordPress newsletter in that we are creating deeper, more interesting workshops that then can be essentially promoted through the newsletter.

Monet Davenport:
Thank you for listening up to this point. Press The Issue by MasterWP is sponsored by LearnDash. Your expertise makes you money doing what you do now, let it make you money teaching what you do to create a course with LearnDash visit learndash.com. Our mission at MasterWP is to bring new voices into WordPress and tech every day. The new MasterWP workshop series does just that. Our new live and recorded workshops on everything from code to design to business, turn WordPress fans into WordPress experts. Find the workshop for you at workshops.masterwp.com. Use the code podcast10 for a 10% discount. Now, back to the podcast.

Rob Howard:
And I think I missed… Oh, the one thing I missed that you mentioned was the money back guarantee. This is actually one of my favorite ones because we do this for everything, including our client services, which most people think we’re insane for. But we actually provide a 30 day money back guarantee when you start working with us as a client. If you’re a new client and you come work with us for a web designer development project, we will actually guarantee everything for 30 days. If on day 29 you’re just like, “This is horrible. I’m not getting what I want. I don’t like working with this company,” then we’ll actually just be like, “Okay, you’re good. Have all your money back, keep the work, and it’s on us.”

Obviously, that’s a huge risk. But the important thing is that I think whenever someone is working with your company for the first time or buying from you for the first time, you should really take all the risk. We actually take many thousands of dollars of risk every time a new client comes in. And it works out really well because that shows them that we’re serious. And if there really is a problem, then it’s okay, we have a deal already in writing, and it’s very easy for me to then end that relationship in a relatively amicable way. That really doesn’t happen, but there are times when we are like, “Wow, this client is not what we expected. They’re being super rude during meetings,” or whatever, and we’ll just say, “Okay, we’re going to enact the guarantee at this point.” So, it actually is a nice escape hatch for us. And it also gives the client that comfort. And it’s what they call risk reversal in sales where you’re saying, “There’s actually no risk to you try it, get your money back and keep the thing as a free gift.”

You see that on commercials and stuff like that, but we also do it with our client services and now also with our workshops and plugins and themes and all the premium stuff that we’re doing. So, in addition to the freemium model that comes from the free newsletter or the free tier of WP Wallet or the open source tier of Understrap, anytime you buy something from us, you also get this 30 day guarantee on it. It’s essentially a free trial, but flipped around. You are paying, but you can get your money back instantly anytime in the first 30 days, as opposed to a free trial where you don’t pay until after the 30 days. We’ve found that this is very powerful, just as a sales tool or a mechanism for getting people to be comfortable with the investment.

And it’s pretty rare, but there are some times where people are like, “Hey, this course about Understrap just wasn’t what I was expecting. Can I get my money back?” And we just say, “Yes, that’s the deal.” I actually find that that is really the most powerful of the three. You can debate free and premium tiers versus free trials all day, but when it comes down to it, the guarantee is really, to me, the most powerful and interesting of all of the different pricing and sales tools, because it just shows the customer or the client that you mean business, and you’re willing to, as we say a lot, put your money where your mouth is. And this is just one more place where we’re able to do that.

Nyasha Green:
Yeah, nice. I also agree with you. I think money back guarantees are the best. Just thinking outside of WordPress, as well, when we want to buy stuff ourselves. I’m definitely in agreeance with you, as well. Awesome, awesome.

Rob Howard:
And the other thing that jumps out at me is that there’s so many subscriptions that create what they call roach motels, where you can check in but you can never leave. I recently tried to cancel a New York Times or Wall Street Journal subscription, and it’s just a nightmarish process. But their whole thing is, “Hey, once you’re in, we will literally do anything to stop you from quitting.” And basically making it a miserable user experience as soon as you mentioned that you might want to downgrade or cancel. And I did it eventually, but I also delayed it for months because I was like, “Ugh, I don’t want to deal with that.” And I obviously do not want to do that for my products. I hate that experience as a customer, and I don’t want to do that for our customers. I think creating a system where you can actually trust that you’re able to cancel this thing.

So, we have some workshops where you can always choose to just buy a single workshop, or you can subscribe to all the workshops with an all access pass, so you can actually cancel that pass whenever you want. And that’s a good thing, because that means there’s less support for us, and also we’re not sucking you into this miserable experience when you try to cancel. The flip side of that, of course, is that with any subscription, there’s always going to be the problem of churn, which is people canceling and essentially your new customer acquisition costs exceeding the rated people are canceling. And that can be really challenging for any subscription product.

And I know I’ve seen some people who do business and finance education basically say, “I canceled my million dollar a year membership program because the churn rate was so high that we felt we couldn’t keep up with it.” That’s a big area of concern for any time you’re doing any of these models. And I think we can talk about that a little bit, but that is the aftermath of this initial decision, which is, “Hey, well how should I price this? Should it be a free trial? Should it be freemium?” No matter what you decide, you then have to deal with churn and producing something that is actually good enough to keep those people coming back, if that makes sense.

Nyasha Green:
Yeah, you’re so right. I think that the model that you’re building is really awesome. We’re definitely a learn from our mistakes or learn from what we’re doing company, so I think everything is going to be phenomenal. And I’m really excited about the workshops that are coming out. I’m just really excited. I just know we’re going to do really great things. I’m very optimistic about this.

Rob Howard:
And I think on that question of churn, one of the cool things about the workshops is that I think the whole idea of this enhances everyone’s morale and is fun for everybody, actually really solves some of those questions about, “Are people going to churn out of this? Are people going to get bored of creating workshops?” I think what’s really cool about our company is that pretty much all of us are really into teaching, as well as designing and developing. And that has given us, I think, a really interesting opportunity here where we can basically produce workshops almost every week, kind of like how we’re podcasting every week, and it’s fun and it complements the other client work that we’re doing, and it creates a continuous flow of essentially new, cool things that ultimately we can sell to our listeners and readers and customers.

I think one of the challenges with a membership program is “Why would I stay in this membership program as a customer for a long time?” And I think what’s cool about the workshops is I think we have a really good answer to that, which is that we’re always teaching, we’re always creating, and it’s actually a fun experience for us to make this stuff, and for people to come to the workshops or watch the recordings, or engage with them in any other way. Obviously, you never know. We may look back at this podcast and five years and be like, “Well, that didn’t work out,” and that’s okay. But I think we’re going to be having a lot of fun with it and going all in on the workshop stuff as the main premium model for MasterWP and also releasing some cool new stuff for Understrap in the near future, too.

Nyasha Green:
Yeah, totally. Well, Rob, it has been wonderful talking to you today. I’m really excited with the direction that the company is headed in, and I cannot wait to see what we do next.

Rob Howard:
Yeah. Thank you as always. And hopefully in six months or a year, we’ll look back and we’ll say, “Hey, all those premium and premium ideas worked out really well.” And we’ll be off to the races with all of our workshops and everything.

Monet Davenport:
Thank you for listening to this episode. Press the Issue is a production of MasterWP, produced by Allie Nimmons, hosted, edited, and musically supervised by Monet Davenport and Mixed and mastered by Tyran Bullock. Please visit masterwp.com/presstheissue to find more episodes. Subscribe to our newsletter for more WordPress news at masterwp.com.