{"id":111890,"date":"2020-02-27T13:41:51","date_gmt":"2020-02-27T13:41:51","guid":{"rendered":"https:\/\/staging.wingify.com\/blog\/freemium-business-model\/"},"modified":"2026-09-14T13:46:43","modified_gmt":"2026-09-14T08:16:43","slug":"freemium-business-model","status":"publish","type":"post","link":"https:\/\/wingify.com\/blog\/freemium-business-model\/","title":{"rendered":"Everything You Need to Know About the Freemium Business Model"},"content":{"rendered":"

\u201cFreemium is like a Samurai sword: unless you\u2019re a master at using it, you can cut your arm off.\u201d – Rob Walling<\/p><\/blockquote>\n

Scary as this may sound, you\u2019re in the right place to learn what it takes to work the freemium business model in your favor.<\/p>\n

Definition of a Freemium Business Model<\/h2>\n

A freemium business model is an extremely popular customer acquisition strategy among SaaS business owners. Think Dropbox, Spotify, Venngage, Trello, MailChimp, Buffer, Grammarly, etc. Without spending a penny subscribers can experience the product and test out basic features.<\/p>\n

Basically, a freemium offering helps companies not only amplify their reach and popularity (Network Effect<\/a>), but also create conversion opportunities. How? By activating cognitive biases<\/a>.<\/p>\n

Let\u2019s say you\u2019re a steadily growing small business subscribed to a freemium plan of \u2018product X.\u2019 Owing to free plan limitations you agree to upgrade. But there\u2019s more to this than meets the eye. You pay willingly, because thanks to the Endowment Effect<\/a>, you want to avoid loss of any kind and continue owning the product you\u2019ve become familiar with.<\/p>\n

That said, not every business successfully converts prospects into paying customers. There are some inherent challenges, but more on that later. For now, let\u2019s cover the basics.<\/p>\n

Differences Between Freemium and Free Trial<\/h2>\n

Unlike the freemium business model, the free trial plans give prospects complete or partial access to the product\u2014free of charge, but for a limited amount of time.<\/p>\n

The idea is to get people to experience the product completely and eliminate doubts within a reasonable time frame. A classic example is Netflix.<\/p>\n

When to Opt for the Freemium Business Model<\/h2>\n

Freemium might seem like a good fit for your product, but only if:<\/p>\n

#1 You have a problem-solving product with a huge market<\/strong><\/h3>\n

Phil Libin, CEO of Evernote once said: \u201cThe easiest way to get 1 million people paying is to get 1 billion people using.\u201d<\/p>\n

Certainly makes sense. For viral adoption of your product, it should have a huge market and address freemium users\u2019 pain points. This combination will generate positive word-of-mouth marketing, resulting in engaged customers and improved conversions.<\/p>\n

#2 If your product is easy-to-use<\/strong><\/h3>\n

The easier it is for users to get around, the less intervention on your part. Besides that, users should understand what they\u2019re getting for free as well as the advantages of upgrading. This essentially means you can spend more time and resources on other important aspects of your business.<\/p>\n

#3 If your product isn\u2019t way too expensive<\/strong><\/h3>\n

Consumers are price sensitive. To motivate them to upgrade from freemium to a paid plan, your product has to be within an affordable range, justifying the fee and the value you\u2019re delivering. At the same time, it shouldn\u2019t cost you a lot to support a large, non-paying user base.<\/p>\n

What Should Your Target Conversion Rate Be?<\/h2>\n

Generally speaking, freemium conversion rates are low and hover between 2-5%<\/a>. But that\u2019s not to say that anything lower than that is bad. In fact, you\u2019re better off as long as you\u2019re consistently improving month on month.<\/p>\n

Problem is if your conversion rates<\/a> are either too low or too high. Here\u2019s why:<\/p>\n

A low conversion rate means you\u2019re offering way too many features for free and giving prospects no reason to convert. Conversely, high conversion means your freemium offer isn\u2019t exciting which then threatens future customer acquisitions. So ideally, go after a number that\u2019s neither too low nor too high.<\/p>\n

How to Increase Your Freemium Conversion Rate<\/h2>\n

Convinced that the freemium model is good for your business? Great. Though for it to work, understand that it doesn\u2019t deliver on its own. Put simply, freemium subscribers don\u2019t magically convert into paid users. Yeah, sorry, but someone had to burst your bubble.<\/p>\n

So draft a solid plan to compel prospects to open their wallets and also passionately endorse you. \ud83d\ude09<\/p>\n

Let\u2019s see how you can position yourself better and maximize freemium conversions.<\/p>\n

#1 Review your freemium limitations<\/strong><\/h3>\n

To let users test out your product completely and get a taste of exclusive features of the premium plan, get rid of the limited features restriction. Instead, limit the users or usage.<\/p>\n

On Slack, for example, there\u2019s a limit placed on the number of users, messages, and app installations. Then there\u2019s Dropbox where users are given only a certain amount of storage before they\u2019re asked to pay to upgrade.<\/p>\n

\"Slack
Slack\u2019s a perfect example of how to make paid plans enticing.<\/figcaption><\/figure>\n

#2 Send subtle reminders<\/strong><\/h3>\n

Stop bombarding freemium users with pushy sales emails and in-app pop-ups to upgrade. This \u2018money talk\u2019 can wait, especially if they\u2019re still new to using your product.<\/p>\n

On the contrary, go the subtle, non-aggressive route. Integrate your upgrade message intelligently into the product. Sure, it could take longer for users to really consider upgrading, but your subtle hints won\u2019t go unnoticed.<\/p>\n

Spotify does this well, allowing freemium users to skip only 6 songs every hour. The seventh time users are nudged to slow down or get premium.<\/p>\n

\"Spotify
Spotify\u2019s message prompt is simple yet packs a punch.<\/figcaption><\/figure>\n

#3 Conduct thorough customer research<\/strong><\/h3>\n

Products are created with users in mind. The only way yours will be noticed is if you understand who your customer is and what they want. So as step one, conduct solid customer research<\/a>. Think customer interviews, email surveys, analytics, social listening, discussion forums, heatmap tools, etc.<\/p>\n

Finally, let your findings guide you to create and\/or improve your product that immediately addresses users\u2019 problems. Not only will they engage better, but they\u2019ll also provide a plethora of insights on how to keep innovating, show value, and stay relevant.<\/p>\n

For instance, if you notice a consistent spike in demand for certain features, test those to statistically determine which results in maximum conversions.<\/p>\n

#4 Personalize freemium users\u2019 journey<\/strong><\/h3>\n

When freemium users are left to their own devices they don\u2019t learn a lot about the product features. To fix this, tailor your potential customer\u2019s journey<\/a> because each one of them walks a distinct conversion path and has different reasons for why they sign up.<\/p>\n

Using a marketing automation platform, contact them early and often so they learn how the product can add value to their professional lives. And when they complete a task, send them encouraging emails and cross-promote other useful features to help them get more work done.<\/p>\n

Also, personalize the journey of inactive users and stop them from churning<\/a>. Trace their previous activity and motivate them to get back in action.<\/p>\n

Before you know it, you\u2019ll have helped them build muscle memory, a new habit of using your product. Let\u2019s say your prospect used your product to create a quiz. Congratulate them and get them to explore other offerings, such as creating a poll.<\/p>\n

#5 Create product\/feature-focused content<\/strong><\/h3>\n

Make self-learning easy. Produce a vault of content, including blog posts, videos, tutorials, and FAQs. Your efforts to educate your prospects will be appreciated and result in quick adoption of your product.<\/p>\n

Besides, as mentioned earlier, the more they get used to using your product, the stronger the Endowment Effect and the possibility of them becoming paid users will be.<\/p>\n

\"Freemium
Buffer sends product updates over email to engage users and set them on the path to feature discovery.<\/figcaption><\/figure>\n

#6 Create a sense of urgency<\/strong><\/h3>\n

Urgency triggers fear-of-missing-out or FOMO which makes it a powerful conversion tactic.<\/p>\n

One of the ways to create urgency<\/a> is by giving your highly engaged users an attractive, time-limited upgrade discount. Make sure you highlight what they\u2019re going to miss if they don\u2019t go premium. It\u2019s bound to work since they know their way around the product and might want to keep using it.<\/p>\n

\"Grammarly<\/p>\n

#7 Make way for friction-free payment<\/b><\/h3>\n

This one\u2019s a no-brainer. Get rid of every possible barrier on the payment page and make it easier for your customers to start using the product right away. It\u2019ll create an excellent customer experience (hopefully resulting in more referrals), reduce payment abandonment rates, and increase your revenue.\u00a0<\/span><\/p>\n

What you can do:<\/p>\n

    \n
  • Auto-fill data you already have in your database.<\/li>\n
  • Do not kill their buzz with hidden fees.<\/li>\n
  • Give multiple\/preferred payment options.<\/li>\n
  • Recap what\u2019s included in the paid subscription.<\/li>\n
  • Mention when the renewal is due.<\/li>\n<\/ul>\n
    \"Dropbox
    Dropbox\u2019s no-nonsense payment page.<\/figcaption><\/figure>\n

    However, despite this, if you notice users step away multiple times from signing-up, reach out to them and discuss why they\u2019re hesitant in coming onboard. You\u2019ll surprise yourself with the kind of customer intelligence you might uncover.<\/span><\/p>\n

    Conclusion<\/h2>\n

    Hopefully, this guide has helped you get a handle on the freemium business model.<\/p>\n

    Now to sum it up and before you wrap your SaaS product as a freemium offering, make sure it has a huge demand, is easy-to-use, and doesn\u2019t burn a hole in either your or your customers\u2019 pockets. Aside from that, implement the best practices discussed in this post to run a sustainable business.<\/p>\n","protected":false},"excerpt":{"rendered":"

    Want to learn the basics of the freemium business model – what it is, when it works and the pros and cons? Read on for ‘going freemium’ 101.<\/p>\n","protected":false},"author":1591,"featured_media":115113,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"post_read_time":0,"footnotes":""},"categories":[10806,10875],"tags":[10811,10830],"feature":[],"industry-type":[],"product":[],"role":[],"region":[],"class_list":["post-111890","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-conversion-optimization","category-product-optimization","tag-marketing-tips","tag-product-management"],"acf":[],"yoast_head":"\nEverything You Need to Know About the Freemium Business Model - Wingify Blog<\/title>\n<meta name=\"description\" content=\"Want to learn the basics of the freemium business model - what it is, when it works and the pros and cons? 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