Is freemium the best monetisation model for your business?

Over the past few decades, the combination of the word “free” and “premium” has become a dominant business model among various tech startups and mobile app developers. With Freemium model, users can get access to the richer functionalities in free of cost – That’s something they actually want. If you have ever networked over LinkedIn, shared your files via Dropbox, watched movies over Netflix or even searched your ideal mate on Match, you can say that you have experienced the model firsthand. Freemium proves to be one of the best monetization models for B2B companies like Yammer and Box.

There are several factors that contribute towards the appeal of a Freemium strategy. As free features of the mobile app are the potent marketing tool, this model allows new ventures to scale up and attract new user base without spending your monetary resources behind high-priced advertisement campaigns. But if all the features are free,

1. Why Did This Freemium Model Work?

2. How Are These Big-Labeled Businesses Able To Generate Revenue For Their Business?

Scroll down a little and explore the secret behind this tale.

Why Did Freemium Model Work?

The answer to this question is - Freemium works because of free works.

Users are attracted to the services and getting familiarized to the app in their own stride. Eventually, they recognize what they like about the app & its basic functionalities. If they love your app idea and the services leveraged by your application, they go over “word-of-mouth” publicity and share your content with their friends, families and of course with their social media screens. This is how your application gets attention for free, a buzz is created in the market and more flocks join your network.

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The above graph clearly depicts how Freemium applications are gaining conversions over the paid ones. Before moving ahead with Freemium model, let’s understand how it can help you to elevate your business sales.

How This Freemium Model Aids Business To Scale Their Revenue Stream?

This disruptive model works best for mobile app development companies because the marginal cost is low. The cost of building and distributing an application to 10 users or 10 billion users will remain the same. Thus, a core product can be given away for free and a profitable business can be conducted by up-selling to few % of users. It’s a very good strategy in a competitive market. Being able to try the product before buying it helps to seed the initial marketplace. The user acquisition cost involved is quite low and you can easily entice users without spending much on it.

All you need to do is just give away your product for free and soon you’ll notice that huge gang of people that are in love with your product are willing to pay for the premium services & full version of your app. This is why Freemium model is banging on huge success in current market place.

Before moving ahead with Freemium app, let’s answer few questions.

1. What Should Be Kept Free And What Paid?

Let’s say you have created a mobile app that has 15 features out of which you have kept 5 features free for anyone that registers and login to your app. So users who want access to rest 10 features will go for a premium subscription and pay. But how to identify whether you have made the right choice or not? And if you’ve gone wrong, what should be done?

If such scenario happens, consider that the main purpose of Freemium is to entice new users and if you are not succeeding with that goal, it simply means that your free offerings are not those compelling & you need to plan out new offerings to gain more grounds. If you are generating a pretty good amount of traffic but still only a few people are turning to upgrade, it means you need to cut down free offerings. This is because your free offerings are too compelling that it does not drive user towards premium version.

2. Does Customer Understand Your Premium Version?

If you fail to convince your customers about the perks they can enjoy by upgrading to the Freemium version, you probably will lose the battle. Remember that your premium benefits must always be exhibited loud and clear in eyes of customers.

For instance:

Consider Dropbox. The previous one has attracted 200 million users with a simple proposition: Everyone who registers and sign-in gets 2 GB of cloud storage for free. If people are running through inadequate space, they can pay $9.99 for 100GB storage. This is how Dropbox differentiated basic and premium users. Those who just want to store important documents, for them free version is quite enough but those who want to store bulk media files and other storage for them 10GB will be quickly occupied and soon reason to upgrade would seem obvious.

3. Are You Ready To Be Innovative?

Generally business considers Freemium merely as customer acquisition tool but that’s wrong. A user who joins late is hard to convert and so to escalate premium upgrade, you need to increase the value of your premium services. Smart mobile app development company would not see Freemium as revenue model instead; they would consider this as innovation.

Example: Dropbox – Primarily it was a service for file backup. Later it began offering shared folders, allow auto smartphone sync for automatic photos upload and lot more. Over the time, UI has improved and each new feature increases the value of the premium offering.

In today’s digital era, with diminishing marginal cost, businesses are turning towards Freemium business model.