What is Freemium?

Freemium is a business model where basic services are provided free of charge, while more advanced features must be paid for.

Detailed Explanation

In the SaaS world, the freemium model allows users to access a stripped-down version of the software for free, offering additional functionalities or features at a premium cost. A good example is the cloud-based file storage service Dropbox, where users can store a limited amount of data for free, but need to pay for increased storage space.

Freemium Strategy
Freemium Strategy. Source: PayProGlobal

Why It Matters?

For SaaS CEOs and CMOs, freemium can be a powerful customer acquisition strategy. It lowers the barriers for initial user adoption, allows users to test the product, and increases the chances of converting them into paying customers.

Potential Misunderstandings

A common misunderstanding about the freemium model is that it’s not profitable. However, when executed correctly, the freemium model can lead to substantial revenue from premium upgrades. Freemium is closely related to understanding the Subscription Model

Frequently Asked Questions

1. Does Freemium mean all services are free?

No, freemium means some services or features are free, while others require payment.

2. Can a freemium model lead to profit?

Yes, a well-executed freemium model can convert free users into paying customers, leading to substantial profit.