Business models
The freemium business model
The freemium business model: a useful free version brings people in, and a small share of them pay for more. Free users cost little and spread the word, and paid plans unlock more features, more capacity or team use.
How it makes money
Free users cost little and spread the word, and paid plans unlock more features, more capacity or team use. The business works when the few who pay cover the cost of all the others.
Real examples
- Spotify has a free tier with ads and a paid one without.
- Dropbox gives some free storage and charges for more.
- Canva has a free plan and paid plans with more tools.
The numbers to watch
- Share of free users who upgrade
- Cost of serving one free user
- How long it takes people to reach the moment they get value
Who it fits
Software with very low cost per user and a product that spreads when people use it.
What goes wrong
A free version so good that nobody upgrades, or a free crowd that costs more than the payers bring in.
Try it this week
List the one limit a growing user would hit. That limit is your paid plan.
Then give it a time: one block of 90 minutes this week, in your calendar. Our playbooks have the next steps for finding your first customers.
Questions
What is an example of the freemium model?
Spotify has a free tier with ads and a paid one without.
What is the biggest risk with the freemium model?
A free version so good that nobody upgrades, or a free crowd that costs more than the payers bring in..
Plan your first week of building it
Free forever for planning, XP, streaks and the Arena. Reserve your @name now.