In a saturated, competitive marketplace, giving away your service or product at no cost seems like a crazy idea. Yet the freemium model is one many companies are increasingly turning to. It involves providing a basic product and then allowing people to pay for added services. From gaming to software, it can be found in all industries. We discuss the freemium revenue model in the article below.
What is Freemium?
Freemium is a term that melds the concept of free and premium. It has come to describe a type of income generation, in which selling a simple product is not the focus of revenue generation. Instead, a basic model is provided for free. Money is generated from selling additional products and services related to it.
In the age of the internet, this is becoming an increasingly popular tactic. Spotify will allow users to listen to music for free. However, when they pay for the service they can cut out adverts and have more functionality. You may sign up for a software service such as an antivirus. It may be free, but paying could add services like VPNs and backup.
An example can be found in some of the best poker apps, which offer premium models to players. This is a game where winning money is the final goal, so having a free model seems counterintuitive. However, there are many free-to-play online poker apps available, many of them just as good as the ones that require cash. These are often run by well-known brands, such as the World Series of Poker and Global Poker. One major advantage is that people can enjoy the service and build brand relationships without wagering.
The Advantages and Disadvantages of a Freemium Business Model
Freemium has several advantages, though it is not for every business. Its biggest advantage is in building customers and product users. By giving away the model for free, more people are willing to try it out. Once they do, it is just a case of convincing them to convert into a paying customer. This can quickly turn into word-of-mouth marketing, and the sign-up can snowball.
However, the model does have many drawbacks. The first is that you have to scale up your operations and be able to physically handle the number of new sign-ups. Many of them will not be paying either, so your budget has to match this. Even if you are selling a physical product, then you have to pay to make it and give it away. You also have to deal with customer services for non-paying customers, just as you would with any business.
The key is to not make the levels of free to premium overly complex. Don’t go into massively confusing tiered systems, but keep services to a free level, and then one or two higher grades. Make sure the basic service is functional and useful, but leave out just enough that people want to upgrade. With the right work, freemium could turn around your business.
