Freemium Model: A Brief Introduction In 2021

07 May

Marketing

Businesses these days are on the constant lookout for innovative ways to attract new customers & keeping prices at the lowest.

Unfortunately, these two objectives are normally mutually exclusive - acquiring more clients without investing more money is kinda difficult.

And with the customers getting savvier and wary of conventional marketing approaches - it's getting even tougher.

You see, consumers these days like to see what they're buying before making a purchase. Thus, it takes a lot of education and relationship building to move them to the final stage of your sales funnel.

Typically, it is accomplished by costly ads, sales demos, and other marketing efforts.

However, there’s one way with which many brands have been able to acquire a massive loyal user base without burning a hole in their pocket — The Freemium Model.

Some of the top tier, industry-leading Brands like HubSpot, Buffer, Trello, and MailChimp have been using the freemium business model & have reduced the cost of acquisition of new customers by shifting the education burden from your sales and marketing teams to the customer themselves!

But what exactly is the Freemium Model? How does it work?

What Is The Freemium Model?

Freemium serves both as a marketing tactic and a business model, where mobile app development companies offer both free & paid (premium) versions of the same product. Thus, Free-mium!

Dropbox, Spotify, Evernote, Candy Crush, and others are well-known Freemium practitioners. Candy Crush Saga, in particular, began using the freemium business model in 2012, and it has proven to be extremely successful for them.

They used the freemium approach in their apps to encourage users to interact with the free product without paying anything.

The users will only be paid if they want to access certain features in the app, such as Playable Items in Candy Crush, Ad-Free Music in Spotify & more storage in Dropbox.

The key aim of a freemium acquisition model is to lower your company's consumer acquisition cost (CAC). By removing the expense of sign-up for a premium account, you're potentially lowering the barrier to entry for potential customers who choose to check out your service.

This allows you to concentrate on building loyalty and highlighting the importance of your product to free-tier consumers by real use rather than conventional overspending on paying media platforms and convoluted sales processes.

How Does Freemium Work?

After your product becomes popular, free tier users will inevitably hit the limits of their free account and opt to upgrade to a premium account in order to gain access to the array of features and value your product offers.

Thus, to make your acquisition model a success, you must limit some facets of the offerings.

This can be accomplished in a variety of ways:

Features Limitations:

The first option is to halt the features your free users are getting. By offering them extra features, enhanced functionality of available features, or ad hoc paid upgrades, you can entice them to upgrade their plans.

Example:

Spotify lets you use the basic features of their app i.e. listening to music for free, but if you want to download songs onto your device, you will have to upgrade to the premium plan.

Usage Quotas:

By putting a limit on their usage of services, such as storage limits, monthly credits, number of swipes & data processing quotas.

Example:

Google Drive gives you a free 15GB online cloud storage. However, you will have to pay for the extra storage when you run out of a free quota.

Limited support:

Keeping tiered access to customer service and support resources is another amazing way to get your free users converted as the premium ones.

Example:

WordPress offers special customer support for the users of their premium plugins.

You generate friction for free users by restricting access or using your app, allowing them to move to your premium tier.

Often, mobile app development companies will combine some of these restrictions to increase the impact, so feel free to be experimental. The most important thing is that the limitations will make people desire more, but not to the point that they lose sight of your product's core value.

Pros Of Freemium Model

The freemium platform points to a number of factors that make the model appealing to entrepreneurs. Some of them being:

No Usage Barrier

You know the consumers today are inundated with hundreds of items to sample. Furthermore, the allure of mobile apps has contributed to the growth of all forms of apps in recent years.

As a result, users must browse through various products to find what truly works for them. So how can you have the app noticed in the sea of apps they call app stores?

By using the term "FREE."

According to Professor Dan Ariely's study, the word "free" has a particular charm for consumers and is inviting. This explains why companies that sell a freemium service initially draw a large number of customers. This leads to the next point: the user base.

A Loyal User Base

When you give your stuff away for free, it's relatively simple to build a huge customer base. When you're first starting, your free users might turn into paying customers in the longer run. When they move to a premium version, these consumers will become a source of income for you.

Furthermore, you can use free to raise the brand value, which you can then use to increase cross-sales or update opportunities.

User Data Collection

Since the free model easily draws a wide audience, you'll have many user data and reviews to help you refine your target ads, fine-tune your perfect consumer identity, and identify premium levels.

Cost Saving

Customers who purchase premium applications want the mobile app developers to have a certain degree of support and loyalty. This will entail lower prices and fewer downtimes in the event of a crisis. As a result, free users can update and get developer support.

This is particularly true if the service is critical to the user's business operations. WordPress plugin developers, for example, usually provide premium support to paid plugin customers.

Cons Of Freemium Model

Sustaining The Non-Paying Customers

Freemium has a fundamental weakness as a business model. The most serious flaw is that a company's cash savings will be quickly depleted by serving a vast number of non-paying clients.

Furthermore, non-paying customers often need more funding, which may necessitate diverting the team's resources away from the application's growth.

ROI Demands A Massive User-Base

“The best way to get 1 million people paying is to get 1 billion people using it,” Evernote CEO Phil Libin said. Due to low conversion rates, the free user population would be 100 to 1000 times higher than the paying user population.

This will raise the expense of running a freemium, and the public does not even tolerate such figures for niche businesses.

Conclusion

To conclude, the freemium pricing model can be a game changing strategy that would take your business to the next level.

With it, not only people would be more willing to subscribe for your services but odds of your business retaining them & turning them into loyal customers will grow manifolds.