Freemium model is a basic version of an app or program available at no cost. A business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. It allows users to utilize basic features of a service for free, then charges for "upgrades" to the basic package.
Basically, freemium is a two-tiered user acquisition model that splits users into either a free tier or a premium tier depending on whether or not they pay for an account. Free users have limited access to product features while premium users gain greater access to features.
How is the freemium model beneficial for business?
It takes a lot of educating and relationship building in order to convince leads to make a purchase. This is usually done through expensive advertising, sales demos, and other marketing campaigns.
However, using a freemium acquisition model can reduce the cost required to acquire new customers. The main goal of using a freemium acquisition model is to decrease the customer acquisition cost (CAC) for your business. By eliminating the cost to sign up for an account, you're effectively lowering the bar to entry for new users starting to use your product. The freemium model creates a natural lead nurturing process that offers users the opportunity to discover your product and its capabilities on their own.
After achieving success with your product, free tier users will eventually reach the limits of the free-level account and decide to invest in a premium account in order to gain access to the full set of features and value that your product provides.
Freemium vs Free Trial:
Firstly what is the difference between Freemium and Free Trial?
Freemium is a customer acquisition model providing access to some of a product to a potential customer for free without a time limit.
A free trial, on the other hand, is a customer acquisition model providing a partial or complete product to a potential customer for free for only a limited amount of time.
Both models have their own benefits.
Benefits of Free Trial Model: Free Trial Model leads to a higher product engagement rate because you're only left with paying users, and these users will be more likely to seek out and extract all the value that they can from your product since they're not getting it for free. A higher product engagement rate can lead to a longer customer lifetime, which translates into more revenue over time.
Free trials are generally much more effective at converting users into paying clients — especially when a credit card is required to sign up for the free trial.
Benefits of Freemium Model: When we consider user acquisition, the freemium model has an extra edge on the free trial model because it does not ask for your credit card details for sign up. Freemium tends to be the option that is easier on the customer.
Free trials create a lot of pressure up front because they typically require a credit card to sign up, and the free period is only for a limited time, after which the user must make a decision. Freemium, on the other hand, creates a pressure-free environment for new users to explore your product without being forced to make a purchase decision before they're ready.
Freemium also allows your solution to scale in parallel with your users' needs. A customer may not require all of your functionality when they first sign up, but as they grow, their needs may evolve as well. This makes it easy for your product to become integrated into your users' normal workflow, making the limits that you've placed on your free-level plan more effective because it is much more painful to switch to something else.
Few successful products which adopted the Freemium model are: Evernote, Dropbox, Spotify etc.