The Ultimate Guide To Freemium Model

The freemium model has become widespread in business field, turning a freebie into millions. In conditions of massive competition among apps, consumers are becoming savvier and more skeptical when it comes to a purchasing decision. They are eager to know what value and benefits they will get beforehand. In this vein, the freemium model is what you should pay attention to.

The Ultimate Guide To Freemium Model

Here OpenGeeksLab will disclose what the freemium subscription model is, why it matters, and how freemium products work illustrated with renowned market players.

What Is the Freemium Business Model?

The freemium business model offers basic content/services/features for free to convince customers to purchase a full app version.

The freemium subscription model is a shareware business model, which key feature is the coexistence of free options, where functionality is stripped down, and fully-functional paid premium product versions. When a person hits a usage limit, they should purchase a full version. Generally, freemium products are split into these types:

1. Limiting Features

Functionality-limited yet usable version comes free, while extra functions and advanced upgrades have to be paid.

2. Usage Quota Limits

Users are limited in data storage limits, minimized monthly credits, restrictions on data processing usage.

3. Limited Support

Consumers receive tiered access to support services.

The State of Successful Freemium Models

According to a survey, the freemium version was among the most used mobile app business models along with subscription and advertising models as of 2019. Apps with the freemium revenue model came in second place with a 54 percent usage rate among app developers and a 33 percent monetization rate.

Benefits of the Freemium Model

Consider some freemium subscription model benefits.

The freemium revenue model would not have been this popular if it did not work for both businesses and regular users. For business runners, the freemium strategy allows paving their way to gaining profits via premium conversions. Consumers, in turn, get access to freemium products and do not pay a cent unless they need some advanced features.

Here are core benefits the freemium model brings to businesses:

1. Reducing Barriers to Market Entry

The freemium subscription helps in reducing entry barriers, thereby showing users that they do not risk anything by downloading your app. “Try-before-you-buy” concept is a perfect marketing combo. Freemium approach is continually moving consumers deeper into a sales funnel turning their “No” into their “Yes.” Accordingly, you can focus on upgrading your existing loyal customer base instead of asking newcomers to convert.

2. Increasing User Base and Monetizing It

The more people use your freemium products, the more customer reviews you get, and the more positive your brand’s reputation is. The more people spread the word around your service when making purchasing decisions, the more customers you gain who may become your brand advocates and paying customers. But be attentive to consumers, their wishes, making sure you deliver value.

3. Virality

The freemium business model allows unlocking viral growth potential for your product and generating buzz around it. Even more, the freemium model, if chosen adequately for viral growth, besides generating extra revenue, builds better brand equity.

4. Cost Savings

With freemium products, you gain momentum quickly without investing in expensive advertising and distribution.

5. Free Beta Testing

Freemium business model gives you a perfect opportunity for free beta testing of new products & features.

Big Market Players

Here are some bright use cases of freemium model adoption.

The freemium model is not suitable for every company. However, correctly using it, a business runner can build a robust sales system around their products and take a worthy place in their market. Today, many use the freemium model, but not everyone can cause genuine delight among customers. Beyond, we have picked some examples of how successful freemium models work.

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1. Evernote

Evernote is a note-taking app, founded in 2008, was one of the first big freemium players. This service allows creating and storing notes on the go in the form of a fragment of formatted text, an entire web page, a photo, an audio file, or a handwritten recording.

With Evernote freemium, one can create 250 entries (as in paid version), upload 60 MB of content, and remotely work with documents together with other users. Nevertheless, free use functionality is limited. For paid subscribers, they promote new product features and capabilities. Evernote Basic users do not have, for example, access to collaboration notebooks or the ability of offline working. Evernote Basic also has a limited number of notes and monthly downloads.

2. Join.Me

Join.Me is a communication service and a web conferencing tool. Completely free, you can communicate with your colleagues using voice communication, hold conferences, collaborate on any projects. Basically free product indirectly sells path to the premium version. It often uses a “foot-in-the-door” strategy in which, by gradually complicating tasks for clients, you can achieve their loyalty. They opt for cross-selling. The idea behind this method is simple: if you can get people to agree with a small commitment, you can earn their trust. Once you have their trust, they will agree with another (larger) proposal.

3. Dropbox

Dropbox is a smart workspace in which users collect data, leverage useful tools, keep everything important in order and in plain sight. Dropbox freemium model is one of the most widespread and successful tactics. It is called Classical Freemium and is starting with a very simple model in which you have only one segmentation parameter. The amount of memory that Dropbox Basic provides in-app for free creates an ideal segmentation setting. The more users use Dropbox, the more space they probably consume. Ultimately, they will start a premium account with Dropbox Business.

4. Spotify

Briefly summarizing Spotify freemium model’s main advantages, this service offers legal and free listening music from all over the world, anytime, anywhere. Spotify earns revenue from paid subscriptions, as well as from advertising, which is placed in free accounts. However, paid subscriptions are still a music service priority. The company’s management is doing everything possible so that users of free services pay for a premium subscription. In free accounts, users can listen to only four songs per hour and after each song, they are faced with advertising. In addition, free account owners have certain restrictions when using mobile service on devices.

5. Zapier

Zapier is an online service for automating processes of downloading/uploading files between two services or applications in a few clicks. Zapier’s freemium model offers users to try app features, which at first allow creating only five Zaps. The company also imposes restrictions on task completions, synchronization interval, and a number of people who can log in and work with their account.

Users are encouraged to switch on paid tariffs to save time and data. Zapier paid features provide more sophisticated automation. This way, after updating to the highest level of premium class, users get unlimited access to all application features. Limitations of this freemium model are a great strategy to encourage users to pay for services. Seeing what your product is capable of, users will want more.

5 Tips to Tap Into Freemium Revenue Model

Some basic steps to generate revenue from the freemium model.

As Rob Walling said, “Freemium is like a Samurai sword: unless you’re a master at using it, you can cut your arm off.”

1. Arrange Adequate Limitations

If users receive everything they need from your app freemium version, then they do not need buying premium options. To track what may be in your free plan and what may not, do thorough market research. Also, do not forget to monitor your product use data in order knowing precisely what changes are worth making and to encourage users to buy.

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2. Provide Free Trial

To showcase all benefits of your app paid version, you can offer customers a free trial period. Using premium for free, consumers will be able to fully appreciate its benefits. This will help to encourage customers to switch to a paid version with no restrictions.

3. Drive Value

An essential aspect of your product success is customers’ interest in it. If your product is useful and beneficial for them, then this increases the chances that free users will switch to paid ones. But for this, they must discover your product value immediately after registration. To ensure sufficient user experience, you can:

  • send a welcome letter or onboarding email series;
  • make a series of prompts and notifications on important functions;
  • do not leave issues on your product unresolved;
  • provide an additional level of support;
  • design newsletters to boost clicks and engagement

4. Notify Users About Updates

Find a way to notify consumers about hitting a usage limit and that they can pick an unlimited paid version. You can send in-app restriction notifications, remind via support messages, or email. This tactic can help encourage users to become paid users.

5. Internal Sales

An effective internal sales strategy is whereby you can capitalize on the freemium model and increase conversion rate. You can do this in these ways:

  • Find out how to effectively identify high-priority potential customers. And then let an internal sales teamwork.
  • Monitor user activity within an app and push the most active ones to purchase.

Is the Freemium Model Suitable for Your Business Goals?

To make a choice that works well, ask yourself the following questions

1. Does your business need freemium products? Who will be your target audience?

Your product should be able to meet high demand and deal with a huge customer base.

2. What benefits do you get by using a freemium strategy? How does a free customer acquisition plan work?

Pricing and determining the boundary between paid and free service are what will affect conversion, virality, and revenue.

3. What will make your users switch on a paid freemium version?

Your paid service should be of direct value and usefulness to your customers. Otherwise, users will be satisfied with free options.

4. How to monetize free users?

Review your freemium plan and your income strategy. Think about how to force free customers to pay for your app full-version.

5. What is the revenue generation system?

Without a real idea about revenue generation system and network impact data, a business with freemium is bound to fail.

Make Your Business Profitable With Freemium Strategy

As you can see, freemium is a reliable tool for app monetization. The key to the freemium model success is a fantastic product that is becoming loved and used by people. But this strategy is not suitable for every business. The main thing is to determine your business goals, target audience, customer expectations to give them useful products. Then choose the freemium model type that best suits your business case. And drop us a line without hesitation. We will guide you through all the ins and outs to develop a promising solution covering your targets set.

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