In the Freemium business model, users only pay if they need advanced (premium) features if they require these to improve revenue growth and transform their ventures. The term Freemium is a combination of the words ‘Free’ and ‘Premium.’ Most users begin a relationship with such brands using the free, basic version of the product. As customer needs increase, they explore advanced features and use them to advance revenue growth and transform the business.

LinkedIn is an example of the Freemium business model. It has a free version of its networking service for finding and sharing professional contacts and profiles. Anyone can use the free version to create their professional network. LinkedIn also offers a premium version with more options for contacting people, promoting your profile, or searching for a new job. Customers have to pay for these premium features. Freemium business models are especially popular with application providers who use the free version to hook customers to these products.

If we continue with the example of LinkedIn, the brand offers customers to try the advanced version free for a while. If customers find the advanced versions useful, they buy the subscription. Freemium model customers tend to be sticky and become loyal customers. It gives brands sustainable revenues.

After detailed analysis and testing, a business should decide on freemium or any other model. You begin deciding if the Freemium business model is right for your business by asking yourself four simple questions: who, what, how, and what’s in it.

A business model helps create value for your customers. The first question seeks to provide answers to your customers for whom your product or service is designed. Often we note that the product creates value for several customer segments. Profile each customer segment so that you get a full understanding of your target customers.

What you seek to offer to your customers is the second question. Consider the value proposition you bring to your customers and provide details on how your product will serve customer needs, problems, and desires. You can now split the product offerings between the free and advanced paid versions under the Freemium business model. The more value you bring to your customers, the more beneficial it will be to them and you.

The third question you ask is How you will create, produce and distribute your offering. You can now list the resources that you will need to gather. These could be in the form of human resources, space, technologies, and equipment. You may want to invest in some of the resources directly, and for others you may wish to use partners. It is all about organizing your business and delivering value to the customer in the Freemium model or any other business model you find appropriate.

The final question is what’s in it seeks to identify the way you will generate money from your product offering. What features do you seek to provide under the free component of the Freemium model and what advanced features will be used to generate revenues?

The above description should give insights into how you will leverage the Freemium business model. I recommend testing a business model before launch because it will help you make the right choice and give you hard estimates on revenues your business will likely accrue when you begin implementing it.

Business growth is a function of strategy, business models, and marketing. If you follow the simple steps outlined above, you will be able to make the right choice of business model for your product. It will also help you decide on your Freemium business model’s free and advanced features.

Strategy expert

Business model innovation expert

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Sudhirahluwalia, Inc