Drawing the Freemium Line: Where Free Ends and Paid Begins
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Decide the free part so a reason to pay remains
Freemium is a pricing model in which the basic version is free and some users pay for an upgraded one. Chris Anderson described it in his 2009 book Free as one of several business models built on free offers. If you are wondering whether to give something away and how much, it offers a way to think about where to draw the line.
The models of "free" Anderson laid out
The book groups free-based business models into several types. The main ones are:
- Profit from another product covers the cost of the free one.
- A third party, such as an advertiser, pays for the free users.
- Users contribute time or work in exchange for free use.
- The basic version is free and only the upgrade costs money (freemium).
In freemium, the book explains, free users usually outnumber paying ones, and only a portion pay. It works if the revenue from the few who pay covers the cost of supporting everyone who does not.
Thinking about where to draw the line
The boundary depends on what you make free. Several patterns are common:
- By feature: basic features free, advanced ones paid
- By volume: free up to a set number of items or a set size
- By time: free during a trial period
- By audience: free for personal use, paid for business use
When choosing, check two things:
- Does the free part alone show the value? If people cannot see it, they have no reason to upgrade.
- Is there something only the paid version provides? If the free version satisfies people completely, nobody upgrades.
In short, make the free part where people learn what is good, and the paid part what those who want more will ask for.
Cautions for small businesses
Digital products suit freemium because extra users cost little to serve. Work that needs individual attention or manual effort grows heavier with every free user. In that case, keep the free part small, such as a short consultation or a document.
The share of users who pay also varies a lot by product. Do not rely on figures quoted elsewhere. Measure it with your own customers.
It is also known to be hard to start charging for something you have given away. Decide at the start what will be paid, and when in doubt place a feature on the paid side. That is easier to change later.
Learning from free users
Free users give you information even if they bring no revenue. Seeing which features they use most and where they leave points to what should be paid.
Keep support for the free tier to a minimum. Prepare a guide and a frequently-asked-questions page, and decide in advance that individual help goes first to paying customers.
If you can, ask why people did not upgrade. Maybe the price is too high, a needed feature is missing, or the free version is enough. The right response is quite different for each.
Keep revisiting the free tier after you set it. Look at usage records for features that free users are getting full value from, and for parts where the free version fails to show value. The line is not drawn once and left.
Each time, listen to both paying and free customers. Knowing which feature paying customers actually pay for gives you a basis for where the line should sit.
What to do next
- List the features and deliverables of your product.
- Mark the parts that show value when offered free.
- Pick the parts customers would likely say they would pay for.
- Estimate the time and cost to support one free user.
- Try it on a small scale and record what share of users move to paid.
If you are unsure about how to display prices or contract terms, consult a qualified professional.