Advantages and disadvantages of a Freemium business model for you and your customers

The freemium business model dates back to the 1980s, but it has recently gained more popularity. The basic premise is that a company will offer a free version of its product or service, but the company will also offer an upgraded version of the same product for a fee.

The free version may come with a disabled feature or it may bring less support than you get if you pay for the service. There are several benefits to using this business model, including increased cost effectiveness and improved brand recognition. We will explore whether a freemium model might be appropriate for your organization.

What is a Freemium Business Model?

The word “premium” is a combination of the words “free” and “premium”. It refers to a business model where customers can use a product or service for free, but have the option to pay for additional features or access.

The idea behind this model is that by offering some of its features for free, more people will be interested in what you have to offer – and hopefully some will decide to pay more. Freemium Business Model works for new companies by building and building strong relationships with customers. This works best for Internet-based service providers.

Free trial vs. free trial

The freemium business model should not be confused with a free trial. Many times, companies offer them a product or service for free for a certain period of time. Access to the full range of features can last up to seven days, one month or even six months. With these trials, it is expected that the customer will be charged at the end of the free trial period.

A free trial allows a customer to test a product they want to purchase or have thought about. Customers also feel a sense of control, as they know they can cancel their free trial at any time. In many cases, companies allow the customer to continue using the product before the end of the free trial even after canceling their product or service. This is done in the hope that customers will change their mind and continue subscribing after using the product for an extended period of time.

YouTube Music Premium

YouTube Music uses premium and free-trial models for its premium services

A premium is different in that it does not assume that customers will be charged until they take advantage of other features. They can always opt-in or out using premium features

Here’s how it works:

  • Create your product or service
  • Make the initial version of your product available for free (“basic version”)
  • Offer premium versions of your product that include additional features, services or virtual products (“premium version”)
  • Encourage users to upgrade by informing them about new features through social media campaigns or email notifications and providing incentives such as discounts on upgrades.

The most common one Examples of such business models There are also online games where users can play for free but are offered the opportunity to purchase virtual products that enhance their experience and functionality within the game. Some other examples include:

  • Online Storage Services (Dropbox)
  • Music Streaming Service (Spotify)
  • Music Streaming Service (Pandora)
  • Networking Platform (LinkedIn)
  • Workflow Automation (Japier)

Advantages of Frimium Business Model for Customer / User

1. Low risk

The biggest advantage of the freemium model for the user is the level of risk. With no up-front costs, users feel more comfortable signing up for a product or service.

One of the reasons users opt out of subscription-based products is the lack of return on investment. Users decide that the product or service they are receiving does not meet their expectations or needs. When that happens, many users will ask themselves, “Is it worth it?”

With a freemium model, the decision to use the product or not is not financial. Instead, users can decide based on how much they like or need the product. Without any financial risk involved, users can enjoy the product without the need to evaluate whether they are getting value for money.

2. Customizable experience

The freemium model gives the user more control. A good premium model will give users and potential customers a choice about how they want to enjoy the product or service. This is usually done by offering different levels.

A product may have a basic or free version, an upgraded version and a premium version. Different levels allow the customer to choose the features that best suit their needs. A user may prefer a free version of a product but after six months, decide that they are ready to upgrade because features are not available in their current version.

So now that you understand the advantages and disadvantages of a premium model for the customer, what are the advantages of the business?

Advantages of Freemium Business Model for Business

1. Opportunity to test your product or service

A business may use a freemium product or service to measure their user interest. Since it will be a free version of the product, it will not require much investment. By testing the product as a free version you can see what kind of customers your product attracts. At that point, it may be decided whether to follow your current product or launch something else.

It can also save costs related to the development of certain types of products, such as the need for extensive development time before software programs are ready to launch in the market. Once created, these products usually need to be updated regularly over time with new features / functionality, which adds more up-front cost compared to one-off product development, as the content of books does not change much after the release date.

2. Customer Acquisition

The freemium model is more about acquisitions than revenue. Since the product is free, you will be able to attract a much wider audience, even if the product is set at a lower price.

“Free” is always an attractive selling point. When customers jump into a free product, the business now has a relationship with the user. The company now has the opportunity to turn those free customers into payers.

3. Customer loyalty

Creating customer loyalty is important for cross-selling and user retention. Loyalty makes it easier for your customers to sell additional products and your customers will tell others about your product or service, which will help you gain new users.

The freemium model allows people to try, use and judge how good your product or service is The more they like and use the product, the more likely they are to continue using it.

This is really important with software as a service organization (SaaS). A company can create software that is free for business but will charge once the business growth metrics, such as email subscribers or the amount of invoices per month, are exceeded.

The disadvantage of a freemium business model for the customer

1. Limited features

One downside to the freemium model for customers is the limited features available for the “free” version of your product. These limitations can sometimes be frustrating for users who want to use the product or service casually but may need additional features from time to time.

2. Continuous cost instead of a fixed one

With some freemium models, the customer must continue to use the product. This is easily seen with free-to-play video games. For these games the user must continue to pay for the game after reaching a certain level.

Free-to-play games generated an estimated $ 98.4 billion by 2020. The Fremium game model is a physical game to buy and own and it is much different than playing whenever you want. The downside for the customer is that it is difficult to keep track of how much money and time has been spent on the game.

The disadvantage of a Freemium business model for business

1. The challenge of converting free users into paid users

Converting free users to paying users can be challenging. Your conversion rate is the percentage of people who become paying customers after using your product or service for a certain period of time. If you do not have a high conversion rate from your free users, it will be difficult for your business to survive.

Free users can be difficult to monetize — they use it every day but may not spend much money on your app. But remember: every little thing counts প্রয়োজন you need enough money from advertising and special offers to make at least some profit every month.

2. Success requires a large user base

If you want this model to work for you, you need a large user base This will help you find a large pool of potential new customers each month to grow and continue to earn through special offers for advertising or new products or services (or both).

3. Operating costs are still necessary, even without revenue

This may sound great to attract a lot of users but if most of them are not paid then you may face some problems. One of these problems can be cash flow.

The cost of running any type of business comes. There are financial costs, e.g. Data storage or time spent with managing customer queries. Without paying for those costs, as well as paying for yourself and your team, the product will eventually suffer.


There is no doubt that the Freemium model has been successful for several companies. Advantages and disadvantages will help you determine if the freemium model is right for your business We have seen the most important things to consider before choosing a freemium model This is a great way to attract new users and encourage growth, but it may not be suitable for every business. If you need help deciding which business model is right for you, check out our article on various topics Types of business models with examples Here.

Co-author: Ralph Paul

Jazmin Merriman on Twitter
Jazmin Merriman

Jasmine Merriman is studying to become a writer, family and marriage therapist. She loves to write about minimalism, business, finance and lifestyle. He likes to inspire people to live more intentionally by showing what he does as an example. Feel free to connect on Twitter @MinimalFE

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