Freemium Business Model - Guide

According to research, the freemium business model, i.e. its application, currently brings 71% of Apple's revenue from the AppStore in the USA. Progress is obvious compared to 2012 when that number was around 50%, and below we will introduce you in more detail to the freemium business model.

What is a freemium business model?

Freemium was created by combining the words "free" and "premium." The offer of the freemium business model is the basic free version, with the possibility of additional payment to access the premium version. The concepts of the modern age that initiated and enabled the development of the freemium business model are the Internet and the digitalization of services. The Freemium business model is most often applied to companies that operate on the Internet and in companies engaged in the development of software applications.

Freemium VS Free trial

As Freemium and Free trial are very similar models, in practice they are often mixed and it is necessary to emphasize that these two models are different. The key difference between these two models is that the free trial provides the possibility to use a partial or complete product for free, but for a limited time, while the freemium model provides the use of the product for free, without a time limit.

The reason why many users opt for the free trial or trial version is access to almost all product features. However, this access to product features may disappear completely after a certain time (usually 14 days) if you do not opt for the paid version. On the other hand, if you opt for the freemium business model, the features available in the free version will be available to you forever. The premium version only increases the range. Therefore, it is up to you to assess which option is more suitable for you and your business.

Advantages and Disadvantages of the Freemium Business Model

The Freemium business model can contribute to building a relationship between the customer and the company based on trust. This business model can bring you the following benefits:

1. Winning users

When customers are provided with free use of a product that contributes to their business in any way, they will not refuse. The mere fact that this move does not require additional costs will attract a large number of people. Also, if their use is not limited to a certain period, that is another positive side.

2. Word of mouth

Sharing the experience of current users with potential users and the environment is very important. It is known that users who use the free version are worth up to 25% more than those who opted for the paid version, due to their product recommendations.

3. Free (beta) testing

Upgrading products or services in the form of various improvements is, in this case, available free of charge. Trying out new ideas that are marketed as part of the free version of the product provides companies with feedback on their satisfaction and usability.

We need to always look at things from two angles. After the good sides of the business model, below we will talk about the disadvantages:

1. Low conversion rate

Conversion or switching from the free to the user who uses the paid version is one of the main problems when it comes to the freemium business model. When you find yourself in such a situation, you need to ask yourself how you will motivate your users to opt for the premium version of the product. For that reason, it is necessary to precisely choose the functions that are available in the free version. Such a restriction, more precisely the inability to access functions that are exclusively part of the paid version, should turn users into those that bring profit to the company.

2. A large number of functions

The next drawback, very similar to the previous one, is exactly the mistake that companies make when selecting features that are part of the free version. So, if very valuable features are available to free users, they will never need to opt for a premium version of the product. This brings us directly back to the reasons why it is very difficult for a company to convert its customers into paid ones, which is explained in more detail in the previous point.

What you need to pay attention to

What you need to pay attention to, properly implement, and maintain a freemium business model is:

1. Quality of free and premium offers

For anyone to successfully apply the freemium business model, it is necessary to maintain the quality of the offer at the same level as the competition. Also, it is desirable to precisely define which functionalities are part of the free version and which are part of the premium version.

2. User significance

Regardless of the industry or activity, the understanding of users or customers is a line of thinking that can set the company apart from competitors. Companies that apply the freemium business model in their business must take into account the data they collect from users, use it in the right way and adjust their premium offers based on it.

3. Costs

We need to be aware of the fact that users of the free version of the freemium business model do not bring direct income.

4. New technologies

Successful companies that are already implementing the freemium business model are constantly looking for new opportunities. To keep up with the times, investing in modern technologies that fully follow modern ways of doing business is a good decision.

Examples of companies using the freemium business model

Canva

Canva is a platform that offers the creation of visual content such as presentations, posters, logos, reports, LinkedIn, Facebook, and Instagram posts. Use of the platform is free, while there are, paid versions of Canva Pro and Canva for Enterprise with additional functionality.

Canva Pro makes it easy for teams to create professional designs, priced at $ 119.99 (1 - 5 people per team) per year. While, Canva For Enterprise allows you to create original content, such as brochures and announcements for various events for $ 30 (1 - 5 people per team) per month.

LinkedIn

LinkedIn is a business social network that allows users to present themselves on their profile, share experiences, share interesting content, find a job faster, and get in touch with employers. Connecting with other people and companies that are close to us and our interests through this application is made as easy as possible.

With over 830 million users worldwide, LinkedIn also offers its premium version. This version consists of additional features such as more detailed information about profiles, interested job candidates, and the status of potential candidates. The price is $ 29.99 per month.

Dropbox

Dropbox is an application for free storage and sharing of data in the cloud. The ability to invite friends to start using this app has contributed to an increase in the number of users. Use is divided into two categories, industry (education, retail, technology…) and personal use (individually, freelancers, teams, companies).

Depending on that, the functionalities and the price change. Payment of the premium version is possible on a monthly or annual basis. Every month, prices range from $ 9.99 to $ 16.58 depending on the package you choose.

MailChimp

By using freemium instead of the premium business model, MailChimp has won a large number of new users. MailChimp enables the creation of branded e-mails, homepages, scheduling appointments on websites, and all this with the help of creative tools. It is suitable for use by agencies, freelancers, startups, mobile and web applications, e-commerce, and retail. The free version provides basic functionality, while the price of the premium version ranges from $ 11 to $ 299 per month. The paid version provides CRM marketing, email support, cover page templates, email templates, and more.

Conclusion

In the business world, there is a constant struggle for survival and competition with the competition. It is very challenging to provide a quality product while meeting all the needs of the users.

For you to succeed on that path, you need to constantly improve your business and be up to date with the changes that are happening in the market. Remember that time passes and technology advances while you stand still.

Your main competitors may have ideas that will turn everything upside down. For that reason, if you think that the freemium business model is adequate for the business and the industry you are in, go to the point, and react immediately with a detailed analysis and prior planning of activities.