Freemium Business Model
Businesses are constantly searching for new ways to acquire new customers while also keeping costs down. Unfortunately, these two goals usually have an inverse relationship: It’s difficult to acquire more customers without spending more money. Now, this is where the Freemium model comes into the picture.
WHAT IS FREEMIUM?
Freemium is a combination of the words “free” and “premium” used to describe a business model that offers both free and premium services. The freemium business model works by offering simple and basic services for free for the user to try and more advanced or additional features at a premium. This is a common practice with many software companies, who offer basic software free to try but with limited capabilities, and is a popular model for game companies as well. All people are welcome to play the game for free, but additional lives or special game features are only unlocked when the user pays for them.
Several factors contribute to the appeal of a freemium strategy. Because free features are a potent marketing tool, the model allows a new venture to scale up and attract a user base without expending resources on costly ad campaigns or a traditional sales force.
The balancing act can be tricky. One of the chief purposes of the freemium business model is to attract new users. If you’re not succeeding with that goal, it probably means that your free offerings are not compelling enough and you need to provide more or better features free.
On the other hand, If you’re generating lots of traffic but few people are paying to upgrade, you may have the opposite problem: Your free offerings are too rich, and it’s time to cut back. Freemium to paying conversion rate generally hovers between 2–5%.
FREEMIUM MODEL FOR GAMES
Freemium games are a pricing strategy that is easy to get roped into. The game itself is free but in order to get those premium features, functions, or goods you have to pay money. While normally players don’t buy anything those times when they splurge on something extra really add up. The companies that have come up with these games make billions off an obsession with the game! Most famous examples could be candy crush, temple run and a lot more.
CONCLUSION
Companies like Evernote, Dropbox, Pandora, Linkedin, Tinder, etc., are among the many Freemium success stories. According to Phil Libin, the CEO of Evernote, The easiest way to get 1 million people paying is to get 1 billion people using.
But not all businesses can be sustained using the same business model and so other options must be explored before choosing the final solution. Another popular approach is the free trial model or the subscription-based model. Free trials are generally much more effective at converting users into paying clients — especially when a credit card is required to sign up for the free trial. Popular examples of companies using this model can be Netflix, the dollar shave club and many more.
