Limited Paying Customers

If your building a niche product and using either the Freemium or the Freegrade business model, this might be an interesting strategy to quickly convert your non-paying users into paying customers and charge a premium while your at it.

The idea is to limit the number of paying customers you will accept for your niche product. For example, if your targeting a very small niche, you could limit the number of paying customers to something like 99.

That way:

• The non-paying users feel a sense of urgency to convert into paying customers, and
• making it exclusive means that you might be able to charge a premium and maybe in return also customize the software for the paying customers.

If your familiar with the psychology of persuasion, then you'll recognize this as an applications of the principle of scarcity .

I came up with this a few days ago and haven't come across anyone doing this yet, but I have a feeling it will work because:

• I think you can make more money by doing less, and
• doing less per product, frees you up to build more niche product to improve your odds of success.

Think it'll work?


Some References:

• Available for a Limited Time Only:
  
  

  The Long Tail world is built on scarcity. If you have valuable niche information, charge more for it and offer it to only a certain number of buyers. When you hit the number you set, pull it off the market. You might just find you made more money than if you had offered the same product to all takers for a cheaper price.

• Overcoming Bias: Scarcity
• In short supply: 5 ways to use scarcity and exclusivity to fuel sales and boost your bottom line
• Book: Maximum Influence By Kurt W. Mortensen
• Book: Influence: The Psychology of Persuasion by Robert B. Cialdini

The Freegrade Business Model

Provide free accounts with limits (on the number of things like photos, emails, users, etc. or on storage) with an option to upgrade to a paid monthly subscription account without or relaxed limits and maybe even additional features. Once you upgrade to the paid account, you must either pay to continue or stop using the application.

Works best if you have a product that users get hooked to and will pay to continue using once they have exhausted the limits. Interestingly, the exhausted limits are a good indicator that the user is hooked.

This is different from the Freemium Business Model, in that the differences between the free and paid accounts are in the limits and not necessarily in features alone. It is also different from the Free Trial Period Model that usually has a limit on time, which might result in prompting the user to upgrade to a paid account before they are hooked. I coined this term primarily to differentiate it from these models.

Examples: Wufoo, Flickr, Basecamp

The word freegrade is a portmanteau created by combining the two aspects of the business model: free and upgrade.