Freemium is a business model that combines free and premium services. The free service only consists of basic functions, which you can supplement with extra functions that you have to pay for. The idea behind Freemium models is to attract new customers by tying them to a free service, and then entice them to become paid users.
The model is popular with start-ups, software and internet companies. Some well-known organizations that use the Freemium model are Spotify, Evernote, and LinkedIn.
How does Freemium work?
The idea behind Freemium is to offer a product with basic features for free, but make it clear that there are other, more robust features available. To use it, you need to upgrade to the premium version or sign up for a subscription. The trick is to make the base version good enough to get the user used to the product, but not so feature rich that there is no motivation to upgrade.
Freemium model vs. free trial
There are also companies that offer a trial period. For example, customers are given 30 days to decide whether they want to pay for the product. The user enjoys full access to all (or most) functions, and temporarily experiences the maximum value of the service or product.
While the free trial effectively converts users into paying customers with at least a 30% conversion rate, they may not convert if they don’t have enough time to experience the full value of the product. This is where the Freemium model can make sense as long as users are willing and able to subscribe to premium.
How can Freemium improve your recruiting strategy?
The Freemium model capitalizes on the fact that people are attracted to free products and services. Therefore, companies using this model experience more successful customer acquisition at the beginning of a marketing campaign. If the product then becomes an essential part of the user’s workflow or daily life, they will upgrade to the full version.
How can I convert free users into paying customers?
There are several ways a company can convert free users into paying users:
Give the free version the proper restrictions
If you want users to upgrade to a paid account, your free version must have restrictions. If a free plan provides all the value users need, then customers are not motivated to move to the premium version.
Get a fully featured free trial
Freemium and “try for free” are two different business models, but that doesn’t mean they are mutually exclusive. You can have a fully featured free trial while still offering a limited free-forever plan. The free trial allows users to experience the full functionality of the product and see its full value before making a purchase.
Focus on customer success
Help customers get more value from your product. Answer their questions, send newsletters with tips and inspiration to new users and highlight new, important features with a notification.
Provide regular upgrade notifications
Constantly remind users that they can also subscribe to a premium service that gives them access to additional features. You can do this by sending periodic email notifications showing what a user would get with a premium plan. You can also highlight specific limitations of the free plan via in-app notifications.
What are the pros and cons of Freemium?
1. It creates brand awareness
Free attention to a product attracts the attention of potential customers and thus creates brand awareness.
2. You can earn from advertisements
With the Freemium model you give away free services, you can compensate for this by selling advertising space in the free version.
3. The cost of customer acquisition is lower
The cost of customer acquisition is lower, because you sell your premium version to the free users.
4. Less marketing effort is required
Recruiting free users for a new product or service requires less marketing effort.
1. Limited Features
Restricting features in the free version is crucial in the Freemium model, but it can cause users to become bored and lose interest in the subscription.
2. Low conversion rate
It can be difficult to turn free users into paying customers. Especially if you don’t restrict the right functions.
When should you not use the Freemium model?
In a number of situations it is better not to use the Freemium model. For example:
- If your company has a limited product range – The Freemium approach is not viable if your company has a limited range. Premium users expect improved or different versions of what they got in the free plan.
- If your business has low customer volume – The Fremium approach is not viable if your business has only a few users. This is because an average of 2% of users end up subscribing to a paid product.
- If you mainly sell to corporate customers – If you sell to corporate or enterprise customers, the Premium approach may not be ideal. These customers usually just have a budget to purchase products or services. So free offers will not attract them.
Best examples of the Freemium model
Several companies have embraced and successfully implemented the Freemium business model. Below are the free vs paid features from well-known companies using the model:
Dropbox started out as a place to back up documents, but now you can store and share all kinds of files there. The basic version allows you to upload 2GB of documents, images and videos. For most people, that’s not enough: they have to choose which media to upload, or pay a modest fee to upgrade. For that reason, they opt for a paid account with more storage space.
LinkedIn is a professional social network and B2B database. It is mainly used to establish your authority, find work or find qualified leads. Free users can connect with colleagues and classmates, search and view profiles of other members, and save three searches and get a weekly notification. The Premium version of LinkedIn allows users a subscription< /a> to choose one that suits their needs.
The paid version has Premium features for almost every use: Premium Career helps with job searches, Recruiter Lite is for finding and hiring talent, Sales Navigator does the heavy lifting for sourcing qualified leads, Premium Business provides detailed Business Insights and LinkedIn Learning provides a platform for everyone to learn and improve their skills.
Evernote is an app for taking and organizing notes. You can create different notebooks, on different devices. Free users can only sync notes across two devices, contact customer support through self-service forums, and cannot access linked notebooks. Also, they cannot work offline in the app. The basic version also has limitations on the maximum size of notes and the number of monthly uploads to the app, but if you upgrade to a Premium version, you will no longer encounter those limitations and you can sync across multiple devices.
The Spotify app allows users to stream their favorite music from their computer or phone. The free version can stream music, but there are commercials between the songs and consumers can’t jump to specific songs. The Premium version, on the other hand, has offline playlists, allows individual track selection, and consumers can connect to other devices, such as smart speakers.
Zapier allows users to link different digital tools together, through a series of automatic triggers. Free users can only create Zaps at a time, while Premium consumers can access multiple steps and thus perform more complex automation. For example, a first trigger would be a survey, which is submitted on Google Forms and a subsequent task to transfer that survey data to an email contact database.
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