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What is Freemium?
You often hear people talking about how the best things in life are free, but actually finding those freebies has, up until now, been virtually impossible. You might imagine that free things would be even harder to come by when dealing with small businesses, especially when the vast majority of them operate on a very tight budget. The opposite is actually the truth, though, with many of those small operations now getting on board with the “Freemium” approach to business. Simply put, Freemium means having access to a free service that can then be upgraded so that you receive premium features for a small fee.
The Freemium Model
It would be easy to look at that model that would be one which would do little to put money in the coffers of a business, but you will be surprised by just how many are cashing in on the idea. Think of all of the apps that you currently have on your mobile device, and then focus only on the ones that you downloaded for free. The companies that deliver these apps give you them for free so that you can get to see exactly what they have to offer. Many of those apps will come with limited functionality, with all the really juicy items saved for upgraded users. For example, if you find yourself stuck playing a particularly difficult level of Candy Crush Saga, you might just be tempted to purchase tools that can help you complete the level Multiply that by 300+ levels of the game and the number of people playing, and you begin to get an idea of the potential earning power of Freemium.
This is not to say that the Freemium model will work for every single business, as people are only willing to pay for certain items on a regular basis. Some examples might include cloud storage apps that offer unlimited space with an upgrade, games that comes with additional levels, and apps that have certain features locked to basic users. Many applications will also come with ads that many people find irritating, but which can only be removed by moving up to the premium version.
Freemium in Business
The numbers have shown that companies that adopt the Freemium model end up grossing more revenues than those that simply start out with a premium offering. While that may not seem to make sense to many, you need only look at how the Freemium sales model works, which is akin to a funnel. The top of the funnel is where the awareness of the app starts, which is actually easier to create if your offering is free. Making the download or sign-up easy to complete will only encourage users to get involved. There can be a bit of a gap in the sales funnel at this point as users get used to how the application works and understand there is no pressure to buy. If they like what they see, they may eventually choose to upgrade, at which point they will almost certainly start spreading positive word of mouth about the application. It’s a no pressure sales approach that consumer’s love, which is why Freemium is becoming such a successful business model.