Freemium model is a customer acquisition strategy where basic features are offered for free and more advanced features are offered for a premium. 

Users basically get to try out a new product for an unlimited amount of time and make a decision on whether or not to purchase a premium version of the same product.

There is no deadline as they can just adjust their plans and use the same free version. It is an increasingly popular on-boarding strategy for desktop and mobile softwares and applications. This gives an immense amount of power to the user, as they are free to choose whether or not they wish to get the ad-on services.

 It reduces the barrier to entry to practically just the hardware required to run it. The user gets enormous flexibility from these features.

Benefits of Freemium Models:

1 . Revenue

Revenue: One of the most important aspects of any business. But, how can a free service generate an income? Processes like, data management, metric calculations and advertisements can generate revenue for the companies, even from the free users. Advertisements (Banners, front/side display, pop-ups) may force the users to purchase the premium version (due to annoyance or other use based hindrance), which are usually ad-free. 

Once at scale, these may prove to be valuable sources of revenue. Once the customer buys in, the payments can be automated, with a subscription service, generating a stable periodic income.

2 . Low Acquisition Cost

Freemium model is a great customer acquisition strategy and not a monetization strategy. 

There is no monetary entry barrier, which allows any users with a need for the offering to be able to use it, who would not have been able to otherwise.

3 . Ease of Conversion

Freemiums models are designed to meet the most basic customer needs. When customer needs exceed the basic features and they are happy with the service, they will purchase the premium version of their own accord. 

The paid users and the free customers both find the quick and easy conversion to premium very attractive.

4 . Low Barrier to Entry

Freemium models need neither a limited time onboarding, activation, nor the payment information. This creates an extremely low barrier to entry of new users. Freemium might push more users to try and use the product, which will offer the company a very low customer acquisition cost. The acquisition cost is limited to the infrastructure and labor necessary to maintain the service.

5 . Freemium Marketing Model

➣ To Build Customer Habits

Freemium model helps the user get acquainted with the user interface of the program and its available functionalities. With prolonged use, the user is more likely to continue using the product or service and make plans for the upgrade.

➣ For Expansion

Since the freemium model is used as an advertising and a customer acquisition strategy, it aids the organization in expansion.

6 . Competitive Advantage

High competition in an industry for the same service, at identical quality, creates a race to the bottom for pricing. The companies that offer a freemium model get a pricing and reach advantage over its competitors who do not offer a freemium model. They have already managed to get the prospective customer to use their product, what remains is upselling. A freemium service will have a higher number of users than its paid alternatives.

7 . Growth

Companies and startups alike prefer to use freemium pricing to quickly gain a broad customer/user base. Network effects, referrals and word of mouth marketing influence a lot of this early growth. It is an aggressive marketing strategy.

8 . It’s free!

As the name suggests, the freemium service is, in fact, free. Ok, it has a version that is free. This is the greatest strength of the freemium model.

9 . User Retention

The longer an user uses the freemium model, the more reliant they will grow on it. Users are less likely to change the service providers after using the services for a long time. This creates a moat against the competitors.

10 . Upselling

Upselling is selling products or services that are one tier above the current tier, to the existing users. There is no initial sale.

In the freemium model, we can easily upsell an existing user, rather than acquiring a new one. If focused on retention and reducing churn, the users are sure to grow with the business.

Selling to users who are already familiar with your product and know what it can do for them, are extremely likely to make a purchase decision. Users find themselves increasingly turning to freemiums, due to the flexibility that this business model provides them with. It empowers the users by giving them the freedom to choose between the two broad categories of offerings. It is one of the fastest growing SaaS offerings in the industry.

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