What is freemium?
The word freemium is a combination of words “free” and “premium”. Freemium business model offers basic services for free and any additional features or services are charged.
When you decide to adopt the freemium approach, you lift the burden of education off your sales and marketing team. The customer is responsible to do their own research and pick either a free or premium option.
The freemium acquisition model aims to decrease customer acquisition costs. Offering a free version of your product or service makes it more available for a vast amount of clients.
How to get freemium
It is fairly simple to implement this business model. After achieving success with your product or service you need to place limitations on the free-tier users. This allows them to decide if they want to invest in premium features.
There are three types of limitations you can use but businesses usually implement a combination of them.
- limited support – different access to customer support through tiers
- limited features – offering additional or extended features for paid upgrades
- usage quotas – restricting the number of users, storage quota, etc.
Examples of freemium
You can see freemium products in real life quite often. Many software and internet-based companies that have broad markets and offer ongoing value to their clients heavily utilize the freemium business model.
Let’s have a look at a few of them:
This web app that allows its users to connect various digital tools through sequences of automated triggers – “Zaps”. In the free tier, its users can create five Zaps which gives them the taste of how powerful this application can be.
Limited premium features include:
- number of Zaps
- syncing interval – time at which the Zap checks for new data
- the number of users – for large organizations Zapier encourages upgrades as they offer collaborative tools and shared folders
Zapier is a great example of a freemium company that uses a very targeted approach to boost its revenue and encourage free users to upgrade to the premium version.
One of the most well-known and most successful freemium apps is Spotify. It allows users to stream music from their computers or phones. It employs a simplified freemium acquisition model by simply providing a more enjoyable experience if users switch to the premium version.
The premium version includes:
- improved sound quality
- offline playlists
- streaming without interruption – users don’t have to deal with ads every few songs
- Spotify connect – enables users to connect the app to their smart TVs, speakers, etc.
This email marketing software allows its users to collect the email addresses of their subscribers, send automated newsletters, and many others. You can sign up for free but for a successful email marketing campaign, most marketers decide to opt for the premium version.
Among its paid features you can find:
- A/B testing
- Advanced segmentation – allows you to target users based on flexible and unlimited conditions
- custom branding
- customer journey builder – sending automated targeted messages based on how your customers interact with your business
- behavioral targeting
- 24/7 email and chat support
Advantages of freemium
This approach works the best as a customer acquisition model even though it can be used to boost your company’s revenue. Your business can attract a broad audience of users. You can build a relationship with your customers without requiring them to pay for your services if they don’t wish to do so.
Furthermore, users can discover your products through first-hand experience and then spread the awareness to their social circles. This allows you to increase your conversion rate without additional costs.
While paying customers generate revenue, you can collect user information and data through the free version. This data is valuable for analysis which can be applied to show targeted ads.
The freemium model is ideal for smaller companies or startups. It provides a huge amount of brand awareness without spending too much of your budget on marketing and sales.
How to get freemium users
There are many ways to acquire freemium users and they greatly depend on your company’s approach and needs. That being said, there are a few tips you can use to get your initial users to convert into paying customers.
Create a sense of urgency. Let your user know that the free tier is limited and if they want to enjoy your services, they need to upgrade as soon as possible. The period you provide for free is based on your business’ buyer persona, but the most commonly used are 7-Days, 14-Days (Dropbox), or 30-Days ((LiveAgent, Netflix, HubSpot).
You can also use an email drip campaign. Send follow-up emails to your customers through the free period to keep them engaged with your product. These could be simple “Thank you!” messages or even tutorials on how to upgrade to the premium version.
Another way of converting users is to offer them a discount or a promotion. You don’t have to offer it only to heavy users. You can simply send emails to lots of users with a time-sensitive discount or a gift if they sign up for the paid plan.
What is freemium monetization?
Simply put, it is the way your business can earn money utilizing the freemium model.
The idea of this form of marketing is to acquire as many users as possible by providing a free version of your product. The important part is to keep them engaged and enticed so they opt for the premium paid version. This approach offers a great opportunity to monetize and have a sustainable revenue stream.
What percentage of freemium pays?
Generally, you should aim for a modest freemium conversion rate of 2 to 5 percent of users. There are some companies like Spotify which have a much higher conversion rate of 46%.
Of course, these statistics are greatly dependent on various factors like your customer base, app purchases, and the types of users your app attracts.
To put things into perspective, 54% of app developers use the freemium model and 33% of businesses make the most money out of it.
Optimization of freemium conversion rate
Finding out what motivates users to become paying customers can be a tricky task. You need to dive deep into what drives your customers to upgrade and what makes them continue to pay the price of your services.
Here are a few tips you can use to boost your freemium conversion rate:
1. Create a great product
Ask yourself, what pain points does the product solve? Why would customers pay for it? And what motivates them to keep using it?
Using LiveAgent helpdesk software as an example, let’s answer these questions.
LiveAgent provides easy access to customer service. It helps streamline customer interactions through various channels (email, social media, etc.).
Customers pay for premium features because they help generate more revenue. With powerful tools like automation, advanced reporting, ticketing software, and many more, it plays an important role in many businesses’ customer success.
Users keep coming back to it because they receive access to customer service which is a great value for their money.
2. Give customers a reason to upgrade
Create reasonable limitations on your free services. You can analyze data from your competitors to figure out what you need to keep free and what to put behind a paywall. The trick is to let customers see the immediate value you offer when they upgrade.
3. Make upgrading as easy as possible
Remove obstacles that may deter users from upgrading to the paid version. Make onboarding as easy as possible and offer additional customer support during the transition process.
4. Promote the premium version
Keep the users engaged. Often highlight the benefits of upgrading to the paid version. You can do this through targeted notifications or follow-up emails.
5. Ask for feedback
Show your customers that you value their opinion and encourage them to send you feedback.
Can freemiums lead to a loss of income?
Theoretically yes, they can. This can occur if their conversion rate to the paid version is too low. This means that the majority of users stick to the basic features instead of upgrading to the paid advanced features.
You can find ways to enhance your freemium conversion rate in the paragraph above.
Differences between free and freemium
Free service doesn’t have a paywall that divides its features into the free limited version and the paid premium version.
On the other hand, freemium does just that. It allows access to premium content for a subscription fee customers have to pay.
Is a free trial a form of freemium?
While they share some similarities, a free trial is not a form of freemium. The basic difference is that a free trial lasts for a certain period (30-day free trials) whereas, in the freemium model, a free plan lasts forever. Furthermore, a free trial allows for actual usage of all (or at least the most) features the system has to offer. On the other hand, there are various usage limitations in the free plan in freemium systems.
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Watch a video about freemium
Freemium and LiveAgent help desk software are two great ways to give great support to customers. Freemium offers basic services for free and has limited features, but it’s ideal for small businesses and support teams who don’t have the resources to invest in a full help desk software package. LiveAgent offers all of the features of a full help desk program, including ticketing, customer surveys, and knowledge bases. It has a range of pricing plans available so businesses can select the features and services they need. Both solutions are great for providing comprehensive customer service and support.
- Freemium business model
- Rules for using freemium for SaaS companies
- Importance of having a simple and straightforward value proposition
In this video, the speaker discusses the rules and considerations for using a freemium business model in SaaS companies. He emphasizes the importance of having a potential user base in the tens of millions, free distribution being a competitive advantage, the product having a simple and straightforward value proposition, and the marginal cost of serving additional users being negligible. The speaker warns against using freemium without considering these rules, and advises companies to use a free trial to paid or paid-only business model if the rules don't apply. He cites examples of successful freemium companies like Mailchimp and Evernote, but states they are exceptions rather than the norm.
Frequently Asked Questions
What are freemium services?
A freemium model enables you to convert leads into paying customers without additional acquisition costs. In this revenue model, the most basic features of the service are free while all the additional premium features require customers to pay a tiered subscription fee.
How do you get freemium?
You need to tailor your approach to your company as well as to your target audience. To simplify the answer, you need to create a successful product and then put a paywall on some of the more sophisticated features. This will entice users to convert into paying customers.
What is the example of freemium?
Many companies use the freemium business model. Some of them include Spotify, Trello, LinkedIn, WordPress, Mailchimp, and Zapier.
As an award-winning specialist in call center, live chat, and help desk solutions, I believe that Freemium is a great way for businesses to try out software before committing to a full subscription. It allows for a risk-free trial and can lead to long-term customer satisfaction.
Would you like to stimulate customer purchases? Read about how to use customer incentives and improve your customer service with LiveAgent.
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