Are you in the process of developing a mobile application and need help choosing a pricing model? Pricing models are quite varied, and choosing the wrong one can make all your work go down the drain. The freemium model is the current fad everyone’s behind, thanks to the massive success of Evernote, Spotify, Youtube, and much more. Brands like Netflix are thinking of shifting to the freemium model, but do you need to too? Here’s everything you need to know about the freemium model!

What is the "freemium" model?

In simple words, the freemium model is a pricing model that allows users to experience the application free of charge. The user can, however, pay for in-app purchases or subscriptions to enhance their experience by unlocking features that come only in the premium version. 

Let’s take YouTube as an example. Youtube shifted to a freemium version in 2015. Youtube did have a wide user base by then, and the transition to Youtube Premium was smooth. Google helps record the YouTube activities of the user, thus getting data for user-specific ads. It started off with skippable ads and then slowly transitioned to unskippable ones, allowing the user to upgrade to premium for a smoother version. YouTube Premium allows one to access the same content as YouTube but with skippable ads, Youtube Music access, offline videos, and background play. The same thing, but better! Even without the premium version, one can access the basic content of YouTube.  

What are the advantages of having a freemium model?

Spotify has one of the best freemium pricing models out there. Spotify benefits from the large user base that it has accumulated over the years. People love to know more about themselves, and Spotify played into this psychology. Spotify introduced the Spotify Wrapped feature in 2016, which made a lot of users who weren't initially using Spotify much use it more and encouraged their friends to do the same. In fact, many users started using it more only to view their Spotify wrapped! Spotify had an advantage in this case because, due to the higher number of downloads, they had a brand name. This meant that if you were listening to music, Spotify had to be the application! And as the number of users increased, so did the likelihood of people upgrading to premium.

Ultimately, Spotify not only succeeded in creating a brand name but also made huge profits out of it. It’s a win-win situation if your application is user-friendly because the freemium model would help create a brand name and rake in profits!

What category of apps are best suited for the freemium model?

SaaS products seem to totally rock the freemium model because of their ability to provide basic features in their free version and a smoother experience in the premium versions. A gaming app’s freemium model would mean in-app purchases, and Candy Crush Saga is one such SaaS product that has mastered it. Candy Crush had collaborations with social networking apps such as Facebook, which increased its popularity and user base. An easy-to-understand game with an addictive nature made users use the app for an extended period of time. They introduced in-app purchases for getting past levels. With such a wide user base as Candy Crush, even a 3% conversion rate would generate significant revenue. Their in-app purchases, such as paid assistance for a harder level and gold bars, generated $1 to $3 million in sales per day!

The Asian market is more inclined toward freebies. Even big names in the OTT space like Netflix, Voot Select, etc. are thinking of switching to a freemium model in the Asian region to see better profits. VIU Qatar is yet another example of an OTT platform with a freemium pricing model. VIU’s free version works with ad-supported content, while the premium version contains no ads, unlimited downloads, and 1080p HD quality. It’s a "best of both worlds" situation, and many OTT players might need to step up their game with this freemium strategy.

Where do you draw a line?

The trickiest part of the freemium model is knowing where to draw the line, i.e., which features must be allowed in the free version and what could be the paid features. 

Include sufficient limitations for the user. Grammarly uses the freemium model by allowing grammar corrections in the free version, while the premium features would include rephrasing your sentences and elevating your writing as a whole. Market research and the data from your initial users will help you determine what exactly your users need from your app. 

Increasing your conversion rate

Give your users a chance to experience the premium features. Include a free trial, and help the user decide if they want the premium features.

Don’t forget to watch out for a seamless user experience as well. Your customer is your cheat code, so take them through their first steps! Sometimes, all they need is a nudge, so make sure you keep up with them. Spotify uses the same tactic, providing ads for their premium service in between songs to push customers into upgrading. 

The bottom line

Essentially, not every application can use the freemium model, and not every freemium pricing strategy is the same.  Your freemium model's success would depend on the market research you do to identify your customers' favorite features. Ultimately, an easy-to-understand SaaS product that would also create a brand name is the secret formula to a good freemium business model.