The Freemium Business Model Explained: 3 Tips for Designing One

The Freemium Business Model Explained: 3 Tips for Designing One

freemium business model

Every one of us has probably been exposed to the freemium business model at some point in our lives, although many of us might have never heard of it. Even so, if you’ve ever been offered a free product or service, such as a game or a type of software, while also being given the possibility of buying other features, virtual goods, or functionality elements once you own the product, then you’ve been offered a freemium. This business model can work wonders for the success of your company, if implemented correctly. Today, we’re going to tell you more about it and provide you with 3 tips for designing your own.

What Is the Freemium Business Model?

The word freemium comes from a combination of two other words: free and premium. While some people might wonder how giving away free things is going to help their company, the truth is that a lot of customers appreciate being offered a basic product and then having the possibility of paying for premium features.

To give you a more concrete example of this type of business model, let’s consider Skype. The company offers their core service, which are computer calls, for free. Then, they provide users with the opportunity to buy other features such as calls to landlines, voicemails, and so on. Given Skype’s success and popularity, it’s quite clear that this is a business model that works.

3 Tips on Designing a Freemium Business Model

1. Invest in Your Core Product

One of the biggest mistakes you could make when trying to implement this business model is assume that if the core product is free, users will appreciate anything. In order for people to be motivated to purchase your premium products or services, you have to make the core product excellent. Clients have to be excited enough about it in order to even contemplate the idea of paying for extra features. At the same time, the more thrilled customers are with a product, the more likely they are to recommend it to other people as well. This could save you money on advertising.

2. Don’t Change Your Mind in Time

If you’ve decided to offer a product for free, don’t try to charge people for it later on. This will lose you a lot of customers and could potentially damage the credibility of your brand. We advise you to carefully consider whether or not you can sustain this type of business model in the long run. If all signs point to a no, then it’s better not to offer anything for free instead of only doing it for a short while.

3. Make a Smooth Transition from the Free Product to the Premium One

Now, the most important part of a freemium business model is the transition from the free product or service to the premium one that is going to make your company money. You should make this transition as natural as possible. All the while, try to motivate people to pay for the premium option. Let’s take Dropbox as an example. Users have 2GB of storage for free, and they have to pay a monthly fee if they need more. It’s no secret that this is working like a charm.

Consider implementing the freemium business model to keep your customers happy and satisfied!

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Author: Amanda Knowles