Home » Business » What is Freemium and how can it work for you?

What is Freemium and how can it work for you?

Posted by on June 19th, 2013

What is Freemium and how can it work for you
Freemium is often an overhyped unicorn that is banded about by just about every wannabe hot dot com that doesn’t understand the fundamentals of online business models. I regularly hear deluded startup companies describing how they will be able to acquire millions of users to their product using a Freemium strategy.

Freemium is actually a very nuanced marketing strategy for customer acquisition, and not a get rich quick scheme for second-rate products. Using simple maths, you can calculate how effective freemium will be for your company and whether it is financially viable to pursue as a strategy over paid advertising.

Freemium is often thought of as an online only business model because it is just not possible to support the majority of people with the minority of paying customers in the real world.

However, when you reframe Freemium as a marketing expense, you begin to see how the strategy could work for any business, online or offline.

This post is a guide to Freemium, how the strategy works, how to calculate whether it is right for your company and how to reframe Freemium as a strategy for any company.

What is Freemium?

Freemium is a customer acquisition strategy that relies on giving away initial value to a potential customer in order to increase the conversion rate of becoming a paid customer at some point in the future. Freemium forms part of the marketing and customer acquisition strategy of a business model and should be thought of as an alternative to other paid customer acquisition techniques.

Freemium comes in all sorts of shapes and sizes. On the Internet, any subsidised service can be bucketed into the “freemium” tag. This could include advertisements or affiliate based content websites. However, I believe freemium to be a more accurate categorisation of a model when the intention is to attract and convert customers into paying customers as part of a sales funnel.

I’ve already written about freemium in the past, including Is freemium right for your product? and

Philip Brown

Hey, I'm Philip Brown, a designer and developer from Durham, England. I create websites and web based applications from the ground up. In 2011 I founded a company called Yellow Flag. If you want to find out more about me, you can follow me on Twitter or Google Plus.

  • W. van Dam

    Another great article! Glad I signed up for the newsletter :)

    At this time I’m evaluating the market potential and business model ideas for a webservice concept I’m working on. One of the options on the table is to use a freemium model. Another option is to offer starting entrepreneurs either a discount, or offer it to them for free, for the duration of max three years.

    What you write here describes pretty well what has been going through my mind while considering these two options.

    • That is fantastic! :) I’m glad to hear that my post is making your decision clearer. Good luck with your new venture!

  • This was a fantastic article, clear and concise.

    I’ve been playing around with various models and ways to launch one of my new SaaS projects and by considering the above I now have a clear idea as to how much my customer aquisition is actually going to cost.