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freemium

A pricing model with a permanent free plan and paid upgrades. It works only if the free plan's limits are hit by customers who get real value, otherwise free users cost money and never convert.

Freemium is a pricing model with a permanent free plan and paid plans above it. The free plan is meant to spread the product and let people get value before paying; a small share of free users then upgrade because they hit a limit or need a feature that only paid plans have.

The math behind it is unforgiving. Typically only a few percent of free users ever pay, so the free plan must be very cheap to run and the product must reach a huge number of users. Every free user still costs something: hosting, messages sent on their behalf, and above all support time. Freemium works when a free user brings in others (sharing a document, inviting a colleague) and when the limit is hit precisely by the customers who get real value.

For a small business tool in a narrow niche, a free trial or a money-back guarantee usually works better. The audience is limited, every customer is worth a lot, and a free plan teaches customers that the product is worth nothing. It also attracts the least committed customers, who ask the most questions. If you do offer a free plan, write down in advance what limit will make users upgrade and check whether they actually do.

Example

Suppose GarageDesk added a free plan and 200 shops took it. If 4% of them upgraded to the 750 UAH plan, that would bring 8 × 750 = 6,000 UAH a month.

But every shop sends reminders by SMS and Viber, and tools and messages cost GarageDesk about 50 UAH per shop a month (12,000 UAH for 240 shops). The 200 free shops would cost 200 × 50 = 10,000 UAH a month before a single support question. The founders turn the idea down and keep a paid plan only.

Common mistakes

  • Assuming free users will upgrade. Most never do; plan on a few percent at best.
  • Forgetting the cost of free users. Hosting, messages and support add up.
  • A limit nobody hits. If the free plan covers everything a typical customer needs, they never pay.
  • Confusing freemium with a free trial. A trial ends; a free plan is forever and is hard to take back.