Is freemium the right model for your business?

Is freemium the right model for your business?When building a business from the ground up in this day and age, there are so many possibilities to consider, in terms of how you’ll roll out your product.

Gaining a large consumer base right off the bat, is an almost impossible task. Customers that buy into something new are essentially taking a risk, as they’re unaware of the experience it offers; nobody has been able to feedback to them as of yet.

So, getting a large amount of traction to the thing you’re selling is important, but how is it achieved at such an early stage?

Freemium is becoming the answer to that question for so many businesses around the world.

What is the Freemium model?

Freemium models are essentially products that offer the customer a try before-you-buy type of transaction. As the consumer, you can normally expect to download a version of the application (or whatever kind of product it is you’re considering purchasing) you’re wanting to try out, absolutely free of charge, but without some of the extra features the full price version will be packed with.

This is the reason you’ll often see these sort of trial versions named the ‘lite’ or ‘basic’ version of a product. For example, Dropbox offers a free app that allows you up to 2GB of storage, compared to 2TB of storage with a premium account.

Freemium – who’s it working for now?

It isn’t just Dropbox that’s offering its customers the chance to upgrade to premium after trialling the free version of their application, it’s so many other businesses that offer products or services as well. In case you’re wondering whether or not you should travel down the freemium business route, here’s a quick run down of some of the larger companies finding success with freemium services at this moment in time.

Spotify –  

Streaming has unquestionably taken over the entertainment world in recent years, in all forms, though music is the one industry it has had the biggest impact on and created the biggest changes within.

Spotify itself is one of the most popular music streaming platforms in the world right now, boasting a whopping 271 million monthly active users by the end of 2019. Though, the important thing to consider here is that of those 271 million, a massive 153 million had ad-supported accounts, leaving 124 million premium accounts to make up the rest of the user base.

This shows how important the freemium model has been to this business. Many would likely choose to never pay for Spotify if it didn’t have a freemium model that allowed an ad-supported trial version first.

The way the free version of Spotify works is that every couple of songs a user listens to on the streaming platform, they’ll be forced to hear an advert before they can continue consuming music and podcasts. It is interesting to see how different companies have their own unique approaches to developing a freemium business model that feels natural to their audience.

SurveyMonkey –

The free version of SurveyMonkey allows its users to ask up to ten questions per survey, collecting up to 40 responses after doing so. For small businesses that are searching for feedback on a product or service they offer, this is a good starting point, as if they find success through doing so they’ll likely want to explore the opportunity on a larger scale.

That’s the beauty of a freemium business model when correctly deployed, it can entice the customer/user and leave them wanting more. That is when they’ll hopefully opt to purchase the paid for version of your product.

With a reported 17.5 million active users, the company that was founded in 1999 by Ryan and Chris Finley, has found its success by allowing small businesses the opportunity to test out the product and see if it works for them, before making the decision to purchase one of the multiple subscription packages it has to offer. This is yet again an example of how a freemium business model that offers basic features for free or free trials before demanding payment, can grow your business.

Skype –

Not all freemium models are the same, sometimes you’ll see that the paid for version and the free version of the same product is aimed two completely different groups of people. Skype, for instance, seems to fully accept that the vast majority of its users will only be interested in the free model of the video calling application and therefore spends a lot of time and effort making sure its free service is as polished and accessible as the premium offering it also provides.

The paid for version of Skype not only comes with no advertisements, it also allows its users to make calls to any and all landline and mobile numbers in a country of their choice, through the application itself. This model is more aimed at businesses that will rely on long distance communication than its average, member of the public user, that wants to simply chat to friends and family via video call or voice chat.

This is another example of how premium, on many occasions, is simply used as a way for the consumer to gain an ad-free experience, which instead makes up for the money the business would receive for displaying those advertisements, and more. Users not only want, but also expect as safe-feeling, polished-looking experience from online businesses in 2020, so if you have a page full of adverts you could potentially be deterring your consumers.

The advantages to a freemium business model

There are many advantages to having a business model, though it’s extremely important to understand if it’ll fit your current business venture or not. If not, you won’t be able to cram it into your company for the single hope of it leading to new customers, that will actually likely backfire. There are multiple reasons why a freemium model may not fit your business, maybe you don’t have a product that makes sense to be offered free, perhaps your business isn’t located online, etc.

Though, if a freemium approach would work for your company, then here are a few positives that you’ll be able to soon take advantage of.

One of those said advantages to having a premium business model is that the lack of entry fee will no doubt be a draw to customers that are trying to decide if something will be for them or not. You’ll beat away the competition that are only presenting themselves with a price point while ever you offer a try before you buy option.

Your user base will probably grow if you begin to offer a free product or service. This is especially apparent if your product only offered paid for options beforehand. Users that were on the fence when it comes to buying into what you sell before will almost definitely try it when it goes free, which will hopefully end up awarding you some further paying customers.

You’ll be able to offer different entry points to customers in terms of pricing. This is a great thing for the businesses out there offering subscription services. If you can have recurring payments coming in each month/year at differentiating price points, you’ll display something that appears to be an upgrade system to your customers, enticing them to unlock more features by progressively making their way up the payment ladder within your business. If they already use your product, eventually they’ll likely want the features they’ve not been able to access and begin to enter a payment plan.

Will the global pandemic bring Freemium to its knees? 

The freemium business model is certainly something that is both modern and innovative, but in a time where it’s hard enough to find any work at all, creators may well be discovering that they have to attach a price point to their products, as this simply isn’t the time to be giving anything away for free.

With the state the economy is in at the moment, along with the impending second wave of Coronavirus seemingly ever more likely,  the idea of giving a product away for free, even as a test run at the very beginning of a new venture, seems rather unviable. This could really bring the freemium business model to its knees and spell the end for it once and for all.

Of course, it could be argued that getting people to start using a product or service by offering a free version or free trial may well truly resonate with audiences in this current climate. If people are experiencing financial struggles due to job losses, redundancies and all of the other problems brought on by Covid-19, then gaining something free of charge may well seem appealing to them. Though, this is likely not the way it’ll continue to go because the creators of these said business ideas and products that could fit the freemium format will struggle to stay motivated when they themselves are struggling for cash.

The future of the freemium business model has come to a standstill, as has so many other parts of the business world, due to the current, ongoing global pandemic.

What should you do?

Successful business models come in all sorts of shapes and sizes, and stumbling across the one that’s right for your company will likely take a high degree of trial and error. At times you’ll feel like you’re aiming for a target that isn’t there, but if you believe that you can afford to offer your users a free trial of your business before hopefully gaining funding from them in the future, you should try freemium.

It isn’t just a buzzword, it is a fully fleshed out business model that has successfully displayed in the past that it can build on the size of a business’ audience and lead them to gaining more paying customers in the process. It could even give you a competitive advantage over other businesses that are in a similar field to yours.

It’s planning for the long term and doesn’t guarantee instant success, but it may just be the path your business needs to take, particularly if it’s in need of a shake up and some fresh ideas to draw your audience back in

Is the freemium model coming to an end? 

As we’ve already mentioned, the freemium business model has been a great success for some ventures that have gone on to be a huge global powerhouse in their respected industries. You couldn’t have previously predicted how it would turn into such a money-maker with services such as Spotify and Dropbox, but could you have missed the boat if you’ve not already boarded it? The answer to this question is both yes and no.

Freemium may have gone out of fashion, especially in comparison to what it used to be at the height of its popularity. But, it isn’t as fashionable anymore, does that mean it’ll be less widely utilised? Surprisingly, no. The popularity may have decreased, but only in the sense that it was previously existing within. You see, the freemium model has evolved into a permanent fixture for many business models, rather than a stepping stone onto a monetised product, as we’ve previously witnessed with the likes of Spotify, etc.

It has lead to a recent lack of upgradable business models, and in turn displayed a trend of businesses offering their entire product/service for free, rather than offering both a lite version and a complete version of their offerings. This marketing tactic is intended for businesses that are still in their seed stage, allowing them to hopefully build an audience by offering a free service that will follow them onto their next business moves that will come at a cost. This is a smart move by hopeful business owners that have the gift of patience and can afford a period of time without receiving customer-lead funding while they get their venture going.

You should expect freemium business to continue this way for a while, until the model itself demands to be developed further, as the general audience will expect to see constant advancements and evolutions to these types of businesses. After seeing the recent shift from the model, they’ll expect more and more from it, that is simply the nature of an online world of business.

Read more: Generating leads on LinkedIn – the how to guide

Business Finance specialist at Invoice funding | + posts

Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.

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