Marketing Skills 30/09/2026

The Freemium model and how to implement it successfully

Reading time: 6 minutes

Recently, the freemium model has become increasingly popular. It’s an effective solution for startups and large businesses offering digital products and services without relying too heavily on advertising.

What is the Freemium model?

The Freemium model is a business model in which the basic product or service is offered for free, while premium features or upgrades are offered for a fee.

The goal of this model is to attract users with a free version and then convert a portion of those users into paying customers. Freemium allows users to experience and evaluate the product before deciding to purchase premium features.

This model is a combination of free and paid options.

The advantages and disadvantages of this model

Advantage

It’s easy to collect information and data from potential users.
Generate revenue from advertising and expand the number of related businesses to enhance the app.
For startup companies, this model helps build a brand quickly without needing significant support from customers.

Disadvantages

If done poorly, free users will never switch to paying.
Too many features in the free version might make users not want to upgrade to the premium version.
Users may be dissatisfied with the free version as it lacks some basic features.

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How the Freemium model works

The freemium model has been the standard for many computer software companies since the 1980s. In the freemium model, companies offer services for free to build a customer base and create potential for future transactions. By offering basic services for free, businesses can build and manage better customer relationships. They can then guide customers toward premium services, such as add-ons or ad-free experiences.

The Freemium model is suitable for digital businesses with low customer acquisition costs but high long-term value. It allows users to use the basic functions of software, games, or services for free, then offers an upgrade to a higher-tier package. This is a common strategy many new businesses use to attract users to their products or services.

Examples of applying the model to businesses.

An example of a company applying the Freemium business model is Skype – a company that allows users to make video or voice calls over the Internet. Users can set up a Skype account, download the software, and use basic services for free, such as calling from one computer (or mobile phone, tablet) to another computer.

However, making calls to landlines or mobile phones incurs a fee. This fee is usually very small compared to the fees charged by typical telecommunications companies. Additionally, sending text messages and participating in video conferences with up to 10 users simultaneously are also services that incur a fee.

One of the earliest and most well-known companies to utilize the Freemium model is King, the developer of online games, particularly Candy Crush Saga. This game is available on the website king.com, on Facebook, and through mobile apps. It is offered for free. However, players can purchase additional “lives” or steps to progress through levels more easily by paying extra.

How to successfully implement the model

Optimize conversions from free to paying users.

To ensure the attractiveness of a free feature, the company needs to achieve a conversion rate from free to paying users. However, giving away too much can be detrimental. To increase conversion rates, the company needs to offer better value for money. The average conversion rate from free to paying users should be between 2-5%.

Prepare for the downturn

The company couldn’t predict success from the very beginning. To cope with the downturn after launch, the company needed to focus on attracting and converting new users. Therefore, preparing for the downturn was essential.

Prepare thoroughly for a downturn.

Predicting long-term customer value

The company needs to identify users who are likely to contribute significantly and develop strategies tailored to them. Customers tend to stay loyal if they make a large initial payment and do so soon after signing up and paying with a credit card.

Don’t underestimate free users.

Free users play a crucial role in a company’s success. Research shows that the value of free users is equivalent to 15-25% of the value of paid users.

Free users are also valuable customers.

In conclusion

The freemium model is a business approach particularly well-suited for companies operating in the digital goods and services sector. To attract paying users, companies need to implement compelling measures to provide clear added value to new users.