Freemium: a good monetization model for your app?

He Freemium monetization model It is one of the favorites of investors today. They are clear that the important thing is get a large user base -even if only a small percentage of them pay for your service-. In this way, If you get a large number of users, just 10% of paying users can represent revenues of millions of dollars per month, as is the case with Clash of Clans.

What is the Freemium model?

Freemium is a business model to monetize which companies offer in the following way: they give you a functional part for free and if you want more functionalities you get them in exchange for a payment. An example of companies that carry out this type of strategy are Skype or Linkedin.

In this strategy, Paying users subsidize the use of the tool for free usersMore specifically, at the beginning the company lives off of subsidies and investments until it gets a significant mass of users. At that moment, when it reaches a large customer base, it becomes more valuable in converting some free users into paying users.

This freemium model works very well with tools that have become more valuable over time, thanks to the fact that they have included new features and thus convinced non-paying users to become premium.

When a company offers a trial period to attract customers, this is considered a marketing tactic, not a case of the Freemium model. An example of this is Netflix, which offers a one-month trial with all features.

Sectors in which the Freemium modality has a lot of potential

Web services startups:

Companies that need to get a large user base at the beginning are the ones that usually start by offering their products for free (e.g. Wallapop). By having marginal costs based on web services, they can afford to maintain a large number of users and eventually, as the tool grows, end up capturing and converting a few as paying users. Of course, as long as they have the resources to do so, they can do so without any problems. financing to get to that point.

SaaS Companies:

The SaaS (Service as a Solution) sector also has a large number of companies using freemium models that offer corporate tools to improve productivity. There are examples in different sectors such as cloud storage, IT security, back-up and Big Data. Dropbox is a clear example among these.

Telecommunications:

Finally, the presence of this monetization model in the telecommunications industry stands out, where some companies offer services such as VOIP communication or instant messaging.

Success stories of companies that rely on Freemium models

MailChimp

This email marketing tool, launched at the end of 2009 and which carries the slogan “Power to the People”, began the launch of its freemium model by allowing the sending of 3,000 emails per month for freeAnd it worked really well. Their user base grew by 240% in just 7 months. It took 9 years to reach 85,000 users, but only 7 months to reach 290,000. All thanks to the launch of the Freemium subscription. In addition, they grew their email sending from 200 to 450 million - which meant 200% more revenue.

Evernote

For those who don't know Evernote, it's a tool that allows you to organize notes in the cloud. The service was launched in June 2008 and today it already has more than 2.7 million users, reaching 7,000 users per day. They have never invested in advertising – all their growth is 100% organic. Their Premium users pay 5$ per month or 60$ per year (more than 70% of them choose the annual payment).

Today Evernote has 50,000 paying users, which represents almost 21% of its total users (or 61% of active users).

With this strategy Evernote increased its monthly revenue by 18%They found that for every 30,000 users, only 11,000 of them remained active after 3 months (a churn rate of 65%). While this figure is high, users who remain active for longer periods of time are more likely to eventually switch to the paid version.

Pocket

Pocket helps people save interesting content they find on the internet to read later. This company is a good example of how creativity is the best way to convert users into paying users. The app, available on almost all major platforms, is constantly developing and adding new features every now and then.

In addition to Android and iOS buttons, Pocket comes natively integrated with Firefox and has extensions for Chrome and Safari. For Mac users, there's also a version for OS X, which also lets you save articles to read when you're offline.

Pocket is free on all platforms and its Pocket Premium plan costs 11$ per month or 99$ for a whole year. The paid version allows access to more features such as the library, enhanced search, text searches, authors and keywords, and tag suggestions.

We hope that you now have a better understanding of the advantages that the freemium monetization model can offer you. It is up to you to decide which strategy to follow. Do you already know which one you will choose?