Understanding The Freemium Monetization Model

Having the right startup monetisation model is imperative for any startup and it’s often a significant factor in Product Adoption. In order to gain traction and hit your growth goals, you need to get your monetisation strategy right.

It is interesting to note that Dropbox, Spotify, Slack, and the like have shown that meaningful and successful businesses can be built by adopting a Freemium Monetization Model.

What’s a Freemium Monetization Model?

The Freemium business model allows users to utilize basic features of a software, game or service for “free” and then encourages them to upgrade to access additional features.

This type of startup monetization model isn’t new and it’s popular among Saas companies, as a means of gaining product adoption, rapid market penetration and building revenue.

How it works

In the freemium monetisation model, a company offers its product, mostly software, with access to basic features for free. 

The idea is to get users to experience the product and part of the value that the product offers.

Then, with a subscription fee, the users can then access the full benefits, features, services and advantages of the product.

The free version of the product should be appealing enough to attract new users, while the paid version should include features or access that make it worth upgrading to. This encourages customers to upgrade their accounts, thus increasing the business’s revenue.

With the freemium model, companies are able to demonstrate their value and build trust with their customers.

Let’s look at a couple of businesses that have used and still use  “Freemium” models:

1. Dropbox

Freemium Monetization Model

Dropbox was founded in 2007 by Drew Houston and Arash Ferdowsi. 

It is a file hosting service that provides cloud storage and synchronization services for individuals and businesses. 

The company offers a Basic Plan with 2GB of storage, while Paid Plans provide additional storage space and more advanced features, such as live support and even more storage.

The limited amount of storage and other services forces users to upgrade from the Basic Plan to a Paid one.

2. LinkedIn

Freemium Monetization Model

LinkedIn is a professional networking site where members can build professional connections, find jobs, and connect with potential clients/employers.

Creating an account on Linkedin is absolutely free and you can upload your details and also create a digital resume for free.

However, if you want to gain full access to job insights and get better visibility with recruiters and potential employers and decision-makers in a company, you must upgrade to a premium account.

3. Slack

Freemium Monetization Model

Slack is a messaging app that allows users (teams and community members) to communicate with each other. Channels can be created by users while files in any format can be shared as well. 

There are limitations that come with using the free version of Slack, such as an inability to have more than 10GB of storage or to search your entire archive for past messages.

To enjoy unlimited search capabilities, private groups, 1TB of storage, the ability to integrate third-party apps like Google Drive or Dropbox into your workflow, and other benefits, you will need to upgrade to the Pro version which costs about $6.67 per user per month.

What are the Benefits of a Freemium Model?

Adopting the Freemium monetisation model comes with some benefits as seen from businesses that have successfully used the model. 

Some of the benefits of a freemium model include:

1. Increased brand awareness and product exposure 

The freemium business model can help to attract new users while also increasing attention to the company or product.

2. Increased revenue opportunities

The freemium model is a good way to open up new revenue streams for the company, such as through in-app purchases or subscriptions.

3. Helps increase user engagement with the product or service

Users that sign up for the free version of your product are likely to become engaged, thereby increasing the chances they will eventually upgrade to become paying customers.

Conclusion

When considering the freemium model for your startup, you should keep a few things in mind. First, ensure your product offers value and appeals to your target audience. Second, you also need to encourage people to upgrade to the paid version because that’s the only way to generate revenue for your business.

This model can be an effective monetisation strategy for startups looking to monetize their products and services.

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