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What is a freemium?

Freemium, a combination of the words “free” and “premium,” is a type of pricing strategy that lets customers sample limited and basic services at no cost. The company then charges money for access to more advanced product features or services.

Over the years, freemium has become one of the most popular business models among startups and other similar types of businesses. The two-tiered structural split between free and paying users reduces the cost of starting a business and acquiring customers by essentially forgoing expensive sales demos and marketing campaigns. As a result, companies and small business owners can focus on other aspects of their sales process, such as building trust with potential customers.

Freemium model

A freemium model lowers the bar to entry to just about anyone willing to try out a product for free. That said, a freemium model is only as effective as its ability to attract new users.

From the start, you’ll need to generate as much traffic as possible to your business before you think about converting leads. During this initial phase of the funnel, your free offerings must be compelling enough to draw attention from your target market. At the same time, you’ll want to provide them with the right amount of sample size that won’t give too much away.

Once users reach the limits of their free account, they are more likely to make the step of purchasing a premium account in order to gain access to all the features. This also translates into a high conversion rate, or the percentage of free users who become premium account holders.


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Examples of freemiums

01. Wix

One of the world’s most valuable companies, Wix generates a lot of buzz due to its professional website builder and inimitable commitment to helping everyone create their own site. Catering to small business owners, artists, freelancers, designers, educators and many more, the company meets the needs of a diverse and growing clientele.

After going through a simple registration process, users can start with a free template and connect their site to a free domain and free hosting server. Afterwards, they’ll have the choice to upgrade to more advanced features. For instance, by purchasing an eCommerce account, users can set up an online store and start managing their own business.

02. Spotify

Since its inception in 2008, Spotify’s audio streaming services have been embraced by artists and fans alike. The company’s vision to make music universally accessible goes hand-in-hand with its freemium model.

Spotify’s premium subscriptions comprise 91% of its total revenue, while the remaining 9% is generated by its ad-supported service for free users. In other words, people are getting hooked early on and becoming paying customers in no time. For example, someone with a free Spotify account can stream music in a very limited way, but by upgrading the service they can enjoy a complete audio experience.

03. Bumble

Bumble is a popular dating platform that lets women initiate the conversations, and has since opened its services to same-sex dating. While its core features, such as the ability to swipe and message other users, remain free, Bumble also released a line of premium add-ons, known as Bumble Boost.

Some of Boost’s features expand on the app’s basic functions. For example, users who pay for Boost gain more swiping options. On the business side, getting users to upgrade to Bumble Boost takes them one step closer to purchasing the more costly Bumble Premium package.

Freemium vs free model

The main difference between freemium and free models lies in how they are monetized and the features they include. Let's break this down.

With a free model a product or service is offered completely free of charge to users. The company providing the product or service does not charge any fees for its usage. The goal of the this type of model is to attract a large user base and generate revenue through alternative means such as advertisements, sponsorships, partnerships, or upselling other related products or services.

A freemium model, on the other hand includes both free and premium/paid services.

In this model, a basic version of the product or service is offered to users for free, providing essential features and functionality. However, there are typically limitations or restrictions in place, encouraging users to upgrade to a paid premium version to access additional or enhanced features, functionality, or content.

The freemium model aims to attract users with a free offering, allowing them to experience the product/service and understand its value. By offering a limited but functional free version, companies can attract a larger user base, build brand loyalty, and potentially convert a percentage of free users into paying customers who want or need the premium features.

Related Term

Business-to-Consumer (B2C)

Related Term

Software as a Service (SaaS)

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