What is Freemium Model?

It’s free. It’s premium. It’s "freemium”. 

But what does that even mean?

The freemium model is a business model where companies offer a basic version of their product or service for free while charging for advanced features. With this strategy, businesses can lower customer acquisition costs. It encourages users to explore the product before moving to a paid subscription.

The idea behind the freemium model is to build a relationship with users. By giving them access to essential features, you increase the likelihood that they will eventually upgrade to a paid plan.

Synonyms

• Free-to-Paid Model
• Free Tier Model
• Limited Free Plan
• Free Trial Model
• Freemium Pricing Strategy

Examples of Freemium Models

Many software, mobile apps, and games use the freemium model. This allows users to try the product for free with the option to unlock premium features. Some popular examples include:

• Mobile Games: Free versions of mobile games usually have lots of ads. This can affect the user experience and push users into paying for the premium plan to get rid of the ads. They can also pay for additional in-game features.
• Spotify: Spotify is a music streaming app. It also operates with a freemium model. The free version allows you to listen to music from different artists. But the downside is having ads pop up during your favorite songs. On the other hand, Spotify Premium gives you access to music without advertisements and unique artist releases. 
• Slack: Slack is a team messaging application. Basic functions like file sharing, search, and messaging are included in the free edition. However, group calling and service integrations are added in the subscription version.
• Dropbox: This is an online storage platform that facilitates file sharing, syncing, and storing. Up to 2 GB of storage is available in the free version, with more storage available in the subscription version. Dropbox’s referral program also rewarded users with extra storage for inviting friends.

How Does a Freemium Model Work?

Although the freemium model may seem similar to a free trial, there is a key difference. 

A free trial gives users access to the full product but only for a limited time. While a freemium model offers a permanently free basic version, with users paying only for premium features.

The advantage of the freemium approach is that it allows users to experience the product for a long time. As they become familiar with the product, they will gradually recognize its value. Once they see the benefits, they are more likely to upgrade to a premium plan, which includes extra features, resources, and benefits.

What are the Pros and Cons of the Freemium Pricing Model?

A freemium model is a great choice for businesses looking to pull in more customers. It offers many benefits such as:

• Large User Base: It attracts more people. This increases potential conversions.
• Cost-Efficiency: It is less expensive to sample the product because there is no upfront fee, which makes it a cost-effective customer acquisition technique. 
• Brand Awareness (Word-of-mouth): Customers who are happy with the free version might become brand ambassadors for your brand. They’ll spread the word about it and through word-of-mouth, you will gain more customers.
• Gathering of Customer Information: Businesses that have a huge user base can gather useful information and learn about the preferences and behavior of their users.
• Constant Revenue Source: Converting free users into paid subscribers generates steady income over time. As more freemium model users see the value of your product and upgrade to premium plans, you build a sustainable revenue source. 

However, the freemium model is not without its faults. The following are the disadvantages of the freemium pricing model:

• Cost-Burden: Supporting a large number of free users requires a lot of maintenance. The cost of server space, bandwidth, and customer service can be a lot to keep up with.
• Low Conversion Rates: Many users may never upgrade to a premium plan. If that happens, it will be difficult to generate sufficient revenue.
• Brand Depreciation: Giving something away for free can sometimes make users undervalue the good or service because they believe it to be of lesser worth.
• Risk to Reputation: An excessive focus on converting free users to paying customers may result in aggressive cross-selling or upselling techniques that annoy users.
• Risk of Conversion Rate: Since free users don't immediately generate income, the business model is dangerous if conversion rates fall short of projections.