From the last couple of years, “Freemium” has been the leading business model among internet-based startups and Mobile app developers. The Freemium is in practice from the 1980s, but the term was affected in 2006. There are various different revenue models available in the market to monetize the mobile application.
The Freemium business model is one of them. And, this business model has taken the first position among other models. It is one of the most prominent methods for monetization but not for everyone. The freemium model is a decent marketing strategy to get a new free user for mobile apps and other products.
What is the Freemium Business Model?
Freemium is a blend of the words “free” and “premium”. It is a pricing strategy through which a product or service is offered free of charge. But the price (a premium) is charged for advanced features or services. These features expand the functionality of the free version of the product.
In this revenue model, the app is offered to users for free with some blocked features, and the users need to pay a certain amount to access those advanced features.
The basic functionality of the app is kept free to use and needs a charge for premium and exclusive features.
Because everyone likes the free useful product to use and offering a free product can be a great approach to attract new users for the app.
Gathering free users is a good marketing strategy because they will do the promotion of your product. This promotion will motivate other users to utilize your product(Software, web, or app). The Freemium model of monetization attempts to assemble as many customers as it can by displaying the basic features of the app.
The goal behind this is to keep the users involved and attracted to the product. So, few of them move for the premium adventure of the app by paying to the vendors. Many big or small enterprises have applied this model of monetization for their apps with subscription-based businesses that give robust and viable revenue surges.
Several successful gaming apps and other big brands have adopted this revenue model.
Gaming apps like Clash of Clan, Angry Birds, and others all of them have offered their basic version to users for free.
The interested users who desired premium options are given access at a fixed price. Other companies like Skype, Pandora, LinkedIn, MailChimp, etc are also using a service that uses the Freemium Strategy.
In this model, the basic service is free and value-added services are paid. With a huge user base in free services and less user base in paid services compensate the whole user base.
Why does the Freemium model Work?
Freemium is a mixture of free and premium services, so it works because of its free offered services to users.
Users are attracted to those services that are beneficial for them and they get habituated with the app at a time.
With time, they get to know and discover the features, functionality, and services that they like about the app.
They find the basic and primary functionalities of the app. At the start, the basic manuals are provided by the app publishers for the end-user. So that they get familiar with the service and functionalities the right way.
If the user will like your free services or the app functionality they will let know about it to their friends. They will talk about the app and will share details on social media to let people know. In this way, the app will be promoted free by word of mouth without any amount for the new entrant in the market.
The app will gain the user’s time and attention for free of cost and will get popular among them. When the word spreads, the greater number of people join the group, and gradually increases the mobile app user base.
This attention-seeking model works best for digital products and services like Software, Website, and Mobile Apps, etc. Because the peripheral cost is low for producing these products. Whether you produce for one person or thousands of people, the production cost will be the same. Therefore, by providing a base product for free, a cost-effective business can be established.
The product that gives a free trial before the purchase helps the business to root in the market. It is a perfect strategy in this competitive market. This will help you to pull the users from competitors without spending much on it. Giving the core product for free to pulling them for premium and full services will be the best strategy for you.
Why do people like the Freemium Model?
The Freemium model is the best strategy for digital products. Several companies and organizations are utilizing this model to increase their user base and to grow the revenue. There are various benefits of using the freemium model in which some are:
- It’s free of cost. Simply, people like the term ”Free”. They attract those things which are free of cost and offer useful services. And, over the years, people have habituated to access various content and products without having to pay.
- It permits for free testing. With free product services, a user gets the chance to test and be familiar with the unknown product. Later, if they will be interested in the advanced features, they will have already had the opportunity to try the core product.
- It’s just perfect for those people who have only the need for basic features. They are satisfied with the free services that the freemium model offers. In any case, if they want to get the premium access then the choice will be available for them at any time.
- The freemium business model has simplicity. It is very easy and quick to use these services. Usually, the product works on a large platform so all users will have to worry about the download and signing up for the free services. Luckily, several freemium businesses have a short tutorial that explains the site function.
How to reach your goals with the Freemium model?
We have seen what the Freemium model is and why people choose this model for their business. Now, if you have picked the freemium strategy for your app and business then let’s look at how it will help you to reach your goal.
Listed below are a few points to make sure that it proves to be a successful strategy for your app.
Appropriate offering for the right reasons:
One method to succeed is to hit the customer section that is deprived by existing suppliers. The place where a product or service is not delivered in the correct way. Otherwise, you will have to detect a gap in the provided services and products and take advantage of it.
Regardless of how exciting your app idea, for making money you will have to ensure that it adds value in a user’s life. The product should either support people or organizations to make money or it should someway add value to their life. Like music apps, video apps, health, and fitness apps, and dating apps add value to the user’s life.
If you are planning for a new product with a freemium strategy and creative idea then it will surely gather the right users for you.
Apply Free Features as Marketing Tools:
For reaching the goal with this strategy, the next thing to do is to think clearly before separating the features of your product for free and paid users.
You will have to make sure that the features you offer for free will work as marketing tools for you. You will need to create a buzz with your user using those features.
During launching a product you require to focus on creating excitement around your product or service. The more you will gather people the more it will be known by everyone.
Make Your Free Users Your fanatics:
Free customers are useful and precious. Once they will start utilizing your product, some of them will truly appreciate it and become premium users. While others will start expanding the promotion of your app.
They will become your evangelists and will bring more users to the product.
With a unique content strategy, you will help them to do this. You can give referral awards for them.
So, your all happy, satisfied, and free customers can help you in your app marketing and app go viral. Ensure to Use and leverage this opportunity.
Give Users an impressive reason to Upgrade:
Users only want to upgrade the service when they find a good reason for that. They are smart, they will pay money for creative ideas.
If your app’s free version is too good and is meeting all the needs of the user, they will see no reason to go for the paid premium version.
You require to strike the right balance. Make sure that you are not offering too many services for free. You will have to slice users and features in a way that both users get value from it.
Ensure the user knows the advantage of being a premium customer:
You will have to tell your customers clearly the advantages of being a premium customer.
Make sure that they know the details of premium services he would get access to.
You will have to differentiate your customers into different parts based on their amount of engagement with the app or service.
Based on that, you need to make different strategies for different groups.
You may need to update about the services at regular intervals to the group to ensure that you are well informed about the free version and premium version of services.
Be committed to innovation:
After gaining a huge number of users from the free version of your services, if you fail to innovate and upgrade your services, you will lose your user base.
Make sure to not use Freemium only as a customer acquiring tool.
For your app or service to grow, you will have to stay committed to innovation and making both product paid and free versions better.
Track your Count:
To be on the path, it’s essential that you track your total number. You will have to work to keep your marginal cost down. Make sure that the cost to serve free subscribers is reduced.
To be in business, it needs to be enough conversions from free to premium services.
If you are using the Freemium business model and want to sustain in the market, you would need to keep your cost of work low.
If you will target a smaller market, you can aim at a higher conversion rate.
If the market is big, a smaller percentage of conversion will be reasonable.
Important metrics to track the number are CFU( Cost per Free User), RPU( Revenue per Paying User), DAU( Daily Active User), and CR(Conversion Rate).
Basic restrictions of the Freemium model:
There is some basic restriction of the freemium business model that is:
- Enclosed Feature(The basic version of service is free and advanced version is paid).
- Time limitation for free services.
- Limitation of people for using free service.
- Limitation of Customer Type.
- Limitation of storage capacity.
Depending on the product and services, mobile app developers can further create their own freemium restrictions.
Traditional marketing strategy is evolving to introduce business strategies like Freemium. This business model is a nice disruptive marketing strategy.
This will not require a huge marketing budget but does need a huge infrastructure to assist a big group of users.
The adoption of the Freemium model in apps, products, and services is growing rapidly. It is a double win situation for both app producers and users. Users get the chance to try the app for free and app developers get a huge group of users for improvements.
Therefore, with the help of the freemium business model, you can grow your business and it remains viable, sustainable, and profitable for the business.