What is Freemium? The Ultimate Guide to the Freemium Business Model

Do you know what a freemium business model is?

The Freemium business model is a type of model that creates to market the product software as a service by the companies. It becomes easy to sell the product without spending so much money.

It helps attract the customers by providing a few features of the software. To use for free to use advanced features. 

And it not only helps reduce the cost of acquiring a customer. It also increases the conversion rate and influences the customer to upgrade to premium.

So let’s dive deep into to get more information about freemium.


What is a Freemium or Freemium Business Model?

Freemium Business Model. Businesses are constantly searching for… | by  E-Cell IIT Guwahati | Medium

A freemium or the freemium business model is the combination of the free and premium strategy. 

The model provides some of the features for free of a software or service. So that it can help to learn more about the product and then to sell the premium for personalized use with extra features and tools.

The limited feature can be in any form like time, use, or access to only some of the tools, etc.

Nowadays, every software as a service providing business uses this model as it has extra benefits.

The company should understand its implementation of how this software can help in the work and what are the services it provides.

This model provides an equal amount of authority to both parties compared to the traditional model. Giving power to one party.

It reduces the cost of acquisition and also generates leads that make a conversion later on.

It holds maximum potential as it can attract both new or existing customers.

For example, Spotify is an audio platform those of you don’t know which has a different category of plans for different users based on their allowed feature. 

For free users, it provides it only provides shuffle of songs, and for paid users, they provide features like high-quality audio, ad-free, offline use, skips, etc.

Another example of freemium is Ubersuggests is a keyword research tool which only provides few free quotas per day.  

After exceeding the free limit, it asks the user to upgrade for advanced use. However, the limited purpose of the software makes the customer upgrade to premium for more usage.

How Does it Work?

How it Works

It works on the method of limited use of any software and educating people to use or understand the software. 

Freemium Business Model also helps them in learning about the quality and type of services provided by the software.

It is for both free users and pays base on their type of work. Which increases the chance of customer conversion.

And it is a business model, as well as the marketing strategy used by significant software and service providing companies.

It creates awareness among the audience of that domain, and then word of mouth does its work very well. 

The different kind of limitations that software service provider uses are as follow:

  • Limited quota- That is the only limited number of times the service in use.
  • Limited tools or features: Access to only a few tools or features of the software provided to the user.

When the user exceeds the software’s limitation and wants to use more features, he or she will upgrade to unlock all the features.

As creating a gap between both, the users will tend to free upgrade from the free version to unlock and use the advanced features.

If the user still does not converts a paid buyer, then creating or showing the user how unlocking all the features can simplify their work through tutorials of how they can use the elements to their full efficiency.

What are the Benefits of Using the Freemium Business Model?

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There are several benefits of using the freemium model in your business, like getting a new customer base. It also helps the user regarding choosing the correct product for their work.

It helps in gathering free leads and an increase in the conversion ratio, which is inexpensive. Compared to other traditional business models, it works more efficiently, which is more costly and consumes time.

Manipulation of the companies over the users and revenues through different strategies for premium features and up-selling your product is the other benefit.

It provides an edge over your competitors if your product is genuinely the best in the market. It helps in improving the product or service and satisfies the customer’s needs.

Customer forever, which means that if a customer is a new user of your service, he or she gets satisfied in turn, they become your loyal customer who will attract more customers.

Due to its importance in this age of new marketing techniques, it works very well as consumer behaviour changes, which means adapting the changes in market conditions will help you generate profits.

Every other company is using integrating freemium in its business model to get its benefits.

How can One Implement it in Their Business? 

Six Tips to Implement Your Plans

To implement the freemium model in your business, there are specific questions that need to be answered clearly, with being the outcomes in mind. You can also prepare a model according to product type, usage, etc.

The first important thing is that the product should be of SaaS, which is a software as a service because this type of business model does not work in other domains.

The ways of implementing are as follow:

  • They are providing limited features or tools according to the software uses. 
  • It is essential to optimize the limitation; otherwise, users can use it in the wrong way.
  • Another way is to provide limited use of quota of the software, but this may affect the long run as the user may create new accounts to use or only use the provided allowance every day. 
  • One may provide one day access to all the features and then proving only limited features to use.
  • It is essential to include the free feature’s cost without showing them so that the price also gets covered.
  • If you have a bunch of software for a particular use like SEO, you can provide one or two software free for the lifetime of limitations. The other software use will only be available after upgrading.

The implementation of this model also depends on the type of market where you are selling your product. 

One can reach to the best model by researching the market and their product thoroughly and with conclusions based on facts.


Freemium activities are a marketing strategy to create a new user base and strengthen existing ones to create a robust revenue model. 

Withstanding its benefits, it can be useful for both purposes because of the presence of several hundred software and services of similar kinds; it becomes hard to choose between them.

So this gives them authority to users as well, and the cost of acquisition also gets reduced to convince users to buy through different mediums.

It is the most efficient model for the companies that provide software as a service due to its multipurpose use. 

The implementation of this model is not monotype, but there are different factors when creating a model like this for your product.

This model should be used based on the type of product or service you are selling, and it varies from domains to domains as it is essential to generate profits from the products.

There are different kinds of apps that use both free trial and the freemium model to get more conversion like Spotify, Gaana, etc.

Also You can Read our blog on Everything Explained About referral marketing.


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