What are freemiums? Definition, examples and useful tips
By Indeed Editorial Team
Published 12 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Freemiums are versions of applications and services that are free for people to use and offer fewer features than their premium, paid-for counterparts. Developers design these products to attract users so that they can try to turn non-paying customers into paying customers through techniques like micro-payments or subscriptions. Freemium products can be positive for both buyers and sellers, as both parties benefit from a set of advantages. In this article, we answer the question, 'What are freemiums?', look at how they differ from free trials, answer FAQs and provide examples.
What are freemiums?
The answer to, 'What are freemiums?' is simply any apps, games and other digital services that enable users to create free accounts and use limited versions. These products aim to draw people in, showcase their benefits and features, then convert free users into paying subscribers. Both the creator and the user benefit from freemium products, as users get to try the product for free, and creators benefit from exposure to potential customers.
Depending on the business model that the freemium product uses, it may aim to convert users into premium subscribers. This is typically done by charging a monthly, yearly or one-time fee. This typically gains them access to a range of features that non-paying users cannot access, such as special characters or useable items in a mobile video game, for example.
Freemium vs free trial
While both are great for attracting customers, free trials and freemiums are distinct in that free trials are for specific, limited periods and usually require the customer to input payment details, like a debit card. Freemiums enable customers to use the free version of the service for an unlimited time. They only insert payment information if they decide to upgrade to the premium version of the service, at which point they begin to incur recurring costs.
Sometimes, businesses use free trials in combination with freemium models by offering non-paying freemium users a chance to trial the premium version. Customers can then access the full range of the product's features and benefits, and businesses capture the customer's payment information, getting the customer closer to conversion. Once they capture this info, they are much more likely to turn users into premium subscribers, as they often deduct payments automatically after the trial period.
Limitations of freemiums
Every freemium product contains some kind of limitation that prevents the user from accessing the product's full potential. These can include usage time limits, advertisements or reduced customer service. Limitations are typically what encourage users to purchase premium versions, as they may discover that they enjoy the product and want to experience it fully.
Some freemium products prevent file conversions or downloads. Others may require users to watch a set number of ads. If the user purchases a premium version, the app removes these restrictions and enables the user to convert unlimited files, download unlimited items or use the service ad-free.
Frequently asked questions
If this is the first time you've heard about freemiums, you probably have some questions. Here are some frequently asked questions about freemiums:
What features does a service include in the free version?
It's important to know what a freemium product includes, whether you are a user or a developer considering offering your product on a freemium basis. Many freemium products use tables or other illustrations to show users what they get for free and what they get as premium subscribers. This gives them a choice of how they want to proceed, in addition to showing them what they receive if they choose to upgrade.
What limitations are on the freemium service?
Limitations are different on each product or service, but every freemium product has at least one. Limitations can be significant, but not to the extent that the freemium version is useless, so it's important to decide carefully. You might, for example, include ads in your freemium version, which generates revenue and makes up for the non-paying users and removes ads in your premium version.
How much does the service cost for premium features?
It's essential to provide easily digestible pricing information on your freemium product. This enables users to decide whether they want to upgrade their accounts. Many products have multiple levels of access that users can purchase, meaning that freemium products offer multiple options to suit the differing needs of customers.
How do businesses convert free users to premium users?
There are a few ways businesses can convert freemium users into premium users. The first is by showing them what they could do if they paid for the service, such as an alert that lets them know they have hit a limitation. Another option is to use a sense of urgency, like in a video game, where the customer is eager to continue playing but can't do so without purchasing extra features. Companies with freemium products also often remind their free customers of the premium versions available to them through emails, app alerts, website notifications and recommendations from customer support.
How do businesses choose which features to make premium?
If businesses limit features too severely, they may discourage customers from using their products. If they include too many features in free versions, they won't effectively incentivise users to upgrade to premium accounts. As a result, businesses think strategically to create a balance between providing users with a valuable product and not giving away everything for free. Typically, the features that businesses consider to be of high value are reserved for the premium version.
For example, B2B (business-to-business) freemium products often limit the number of users. By allowing only a few users initially and a larger amount once users upgrade their accounts, businesses can create stronger incentives. If a customer tries the product and realises it benefits them, or if they become dependent on it, they may then upgrade to the premium version to access the product's full value.
Example of freemiums
You may wonder how this method works in real-life. Here are some examples of how a freemium service works for different products:
Offering a freemium
You work for an app developer in the sales and marketing department. Your task is to provide feedback on how the company should set up their cloud storage product as a freemium app. You look at similar products from competitors to understand their pricing and features, then analyse the features offered in the new app that your company is creating.
Your company decides that the free version of their cloud storage app will allow one user to access up to 500 gigabytes of storage across three devices. The first paid tier of service will allow for up to five users with one terabyte of storage and unlimited devices for £15 a year. The highest-paid tier of service is for up to 10 users with five terabytes of storage and unlimited devices for £30 a year. Your company designs the app to alert customers regularly to the availability of the paid versions and the features involved, including warnings as users near any storage limitations.
Buying a freemium
Your company is considering a new software to help employees edit, convert and add notes to PDFs, and you're responsible for helping select the software. So, you find a software that is in your company's price range and has the features you would like, and it has a free version you can try. You download the free version to try out the features.
You find that the software doesn't allow for full editing features in the free version and that you cannot convert files into a PDF format or into another format from PDF. These are features your company needs, and they are available in the paid version of the software. If you can access these features, the software fulfils your company's needs, and it can streamline some internal processes. The full, paid software is £5 per month per user, and ultimately, your company decides this will be the standard PDF software used internally from now on.
Here are some tips for using and selling freemium products:
Offer comparisons: Compare the free version with the premium options to be sure there is value in paying for the additional services.
Consider cost: If you're considering a freemium model for your product, be sure that the free version isn't costing your company more money than it earns from advertising or conversions to paid customers.
Keep track of payments: When you decide to upgrade to a paid version of a freemium product, you may want to make a note of when the payments are due, especially if they are automatic.
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