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Freemium: find out how this business model works

Learn what freemium is and how to implement it in your business.

Freemium – a green background with an illustration of a white square gift box with a bow at the top; at the bottom right of the box, there’s a white circle with a green illustration of a trophy.

Have you, or someone you know, ever used the free version of a service and at some point become a subscriber? If so, you’re already familiar with a business model widely adopted by many brands in today’s digital environment: freemium.

If you’d like to learn more about this model and find out if it’s a good fit for your business, keep reading this article and you’ll learn how to implement the freemium model!

What is the freemium model and how does it work?

Freemium is a business model in which your strategy is based on providing a free product or service and then, as leads use the platform and want to use more advanced features, offering them the paid subscription version of that same product or service.

You can also apply the freemium model when creating online courses and content! Creators can provide a few lessons, materials and info-products for free, while offering access to the complete course through a periodic purchase or subscription.

To help you better understand the freemium model, we have provided a few examples of well-known brands that use this strategy!

Examples of freemium models in the market

In order for you to better understand how this business model works, we have listed a few examples of brands and services that use the freemium model. Check them out:

Spotify

Spotify is a famous example of a service that uses the freemium model as a business strategy.

All users can create a free account to listen to music and podcasts on the platform, but there are certain limitations (the playing of ads, only shuffle play and a limited number of songs that can be skipped on the mobile app).

With frequent use and the increase of valuable content, it’s of greater interest for users to switch from the free version to the paid version and ensure greater freedom within the music streaming app.

YouTube

YouTube contains completely free video content, but in its Premium version, you can get rid of ads during videos.

Another benefit of YouTube Premium is access to YouTube’s music streaming feature and the company’s exclusive movies and series.

Duolingo

Duolingo is a digital platform for learning languages with short and quick exercises. 

The app promises to be free for life, but it offers a premium version with a few advantages for learners and no ads.

Dropbox

Freemium can be applied to many types of service, as in the case of Dropbox, a cloud file storage and sharing tool.

With the free plan, users can store up to 2 GB of files. To gain access to more space on the platform, Dropbox offers a few options of plans for individuals and businesses.

LinkedIn

LinkedIn is a free social network that connects professionals from all over the world. 

With great potential to help professionals find a job, create professional partnerships, and share valuable content, LinkedIn also offers a premium plan.

It provides four plans divided into the individual goals of users within the website: careers, business, sales, and hiring.

What are the advantages of adopting this strategy?

You might be asking yourself, “Why should I make my service available for free and offer a subscription option? What are the advantages?”

It’s time to learn about all the benefits of adopting freemium in your business. Let’s get started?

More brand value

One notable benefit for businesses that implement freemium is an increase in brand value.

A free offer will attract a large number of users which will make your brand more popular, generate leads, and build a good relationship with your audience.

Your business will stand out among others in your niche, becoming an authority and generating brand awareness

Increased user base reach

With a freemium model, it will be easier for users to interact with the service your brand offers. By providing a free offer, potential customers will also feel more motivated to learn more about your business.

You’ll boost the reach of your user base and have a better chance of making recurring sales, since users will already have had an experience with your product or service.

It’s more efficient than the premium model

This business model allows for a closer relationship with your users, as well as conveying greater confidence and security. By using a free service, your potential customers will feel much more motivated to subscribe.

Also, because it has a much larger user base and generates value for your brand, the freemium model is more efficient than merely offering your audience premium plans.

Customer Loyalty

Everyone wants to build customer loyalty, right? 

With in-depth knowledge of what your business offers, and direct contact with your brand, people will not only invest in the premium version, but will also remain customers for longer. This in turn makes your brand more stable.

What are the risks of the freemium model?

Despite being a model that has become quite popular and has provided a number of benefits, freemium requires a certain amount of care. You need to study your business carefully and develop good market strategies. Below are the main risks:

It might compromise your business’ profitability

If you don’t outline good strategies when building your premium plan, your business will face major difficulties when selling the paid version.

You might end up paying to offer a free experience and not getting any return on the investment, which is dangerous to your business’ survival.

Attracting customers without the desired profile

With a wide reach and a significant user base, poorly designed communication strategies and user acquisition plans might attract customers who aren’t part of your brand’s persona.

This is dangerous because these people aren’t in line with the profile with which the brand communicates, and don’t have the needs and desires of those who will invest in the premium plan. This will make it harder to sell and generate income.

Implementing the freemium model

To implement the freemium model, a lot of research and planning must be done in advance.

First, study what your persona’s needs and wants are. List and map out what users want in a free plan, but understand which features could lure them if implemented in a premium plan.

You need to develop quality service in both your free and paid options. Offering a free service that doesn’t provide value for your audience will not motivate new conversions. And offering a premium service that doesn’t meet customer expectations will increase the number of cancellations and reduce your brand’s value.

Another key point is pricing. Correctly identify the prices that best suit your audience and set the payment frequency.

Keep expectations realistic by building a good value proposition, and a communication strategy that precisely informs what the user’s experiences will be with the freemium plan and the premium plan.

Finally, measure metrics and observe customer satisfaction with the services offered, making improvements and adaptations whenever necessary.

Pick the model that’s best suited for your business

Meeting the needs and desires of your audience is essential for those who want solid business results. The freemium model is a great opportunity to please your customers and gain greater market share.

However, you have to be strategic, since this business model greatly impacts audiences.

Research and learn how your brand can implement a freemium model and know how to split the features present in the free category and the paid category without creating false expectations. Be sure to calculate how this limitation of features to attract customers will be put in place, so you don’t run the risk of driving them away.

Subscription services are advantageous and can provide a fixed income for your business. Therefore, we have created a post to teach you more about membership programs!

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