Why Freemium Is The Best Business Model

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Of course, every business has to find the kind of a business model that works best in their market and business environment. But the reason I take such a strong position and say that overall, the freemium business model is best is that it is so prevalent in absolutely everything we do. In this article, I will give a number of examples of how pervasive this business model is. But first, let’s define this term so we are all on the same page.

Freemium – is a business model that works by offering basic  services, or a basic product for free, while charging a premium for advanced or special features. This particular term has been used widely on the web, but it should not be limited to that. It is actually very common in the offline world. We will examine all that in this article.

How Freemium Works

Freemium has many variations, but the basic way it works is by attracting many people to something that is free, offering something of value there for free, and charging at a certain point of the user experience.  The reason this has been so successful on the web is that it is free for companies to give away digital goods for free since the digital goods cost nothing to give away. Compare that to a grocery store or a restaurant. These businesses cannot give away free goods because 1) their margins are too narrow and 2) there is a cost to getting each physical good into the store. So the stores or restaurants would quickly go out of business with this model.

But let’s expand the definition of freemium to include people who come to your site or store for free. And the way you can make money from them should not be limited to just directly charging them. Those slight distinctions loosen the definition of freemium to include nearly every business in the world, whether they realize it or not. Let’s go through some examples.

When you walk into a store, or sit down at a restaurant, you are a free user/customer. You may not buy anything in a store, and you may leave the restaurant without ordering (that is rare), but each business has some conversion rate of people who “convert” to customers from being free users. So the more free visitors you have, the more paying customers you are likely to get.

Even on a website that makes money with ads, all the visitors are free, and some help the website indirectly make money by clicking on ads. That is also a variation of the freemium model.

Do you want the free customers?

Free customers are actually not even free. They often cost the business some money. If it is a website, the business has to pay for servers to handle all the free users. If it is a store, the free non-paying visitors just make it more crowded for the paying customers and require some employee care.  So why would a business want those non-paying people?

Well, if you don’t invite the free customers, your competitors will. And some of those free customers will eventually convert to paid customers. But that isn’t even half of the problem. If your competitors get all the free customers, they also get the buzz and the social recommendations. And quickly, the consumer culture in this little space shifts to seeing your competitor as the best choice and not you. And once that shift happens, it is difficult to reverse it.

Also, if your customers are not paying, that does not mean they are not beneficial to your business. Non-paying customers can help to spread the word about your business and invite friends. They can also possibly give your business good online reviews. There are many things that are very helpful for your business, towards which you can steer the non-paying customers.  And non-paying customers do not have to remain that way. If you keep them engaged with your business, they may warm up to the idea of spending money with your business. Plus, as your product improves, that may also help them decide to begin spending money with your business.

Dealing with low conversion rates and mostly free customers

Since most cases of the freemium model monetize rather poorly due to such a high number of non-paying customers, what is a business owner to do in order to make reasonable revenue? The common answer is that the business owner has to attract a high volume of non-paying customers. That is the goal. Additionally, you have to work on increasing and optimizing your conversion rate. We will discuss conversion rates in upcoming blog posts.

Further Understanding Of Business Models

The term business model is a term that is used very frequently, and often incorrectly. Here is a video tutorial on what precisely is a business model.

And here is a video tutorial on the difference between a revenue model and a business model.

Further Business Resources

For more business-starting resources, please take a look at our business planning mobile apps. Here is the iOS business plan app and here is the Android business plan app.  Additionally, here is the iOS fundraising app. And here is the Android fundraising app. And here are our business apps on the Kindle. And here is an article where I give the argument that our Android apps are the best business apps on Android.

And please check out and subscribe to my YouTube channel where I cover many business and marketing topics. There are over 300 free business and marketing tutorials on my YouTube channel.

My Business Books And Courses

I have written two business books that should help you with your business. The first book is about going from business ideas to starting a business. The second book teaches you how to be an amazing marketer and promote your business like an absolute pro. You will need to become an amazing marketer in order to get the maximum possible exposure for your business. Each book is approximately 150 pages, and is filled with very actionable and practical advice.

If you prefer learning from watching videos instead of reading a physical book, I have created a number of online courses on starting and promoting a business. Here are the online business courses.

Want Press Coverage For Your Business?

I can help you get exposure on my established YouTube channel, different large podcasts, and many blogs. All of these will have links to your site which are high quality links that will help your SEO efforts at the same time. Here is the page where you can learn more about how to get press coverage for your business.

Author: Alex Genadinik

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