Did you know that companies with a freemium model see up to 50% lower Customer Acquisition Costs? The revolutionizing “try before you buy” motto has changed the way people perceive paying for a service or product.

(Source: Toplyne)

We operate in a highly competitive landscape, and establishing customer loyalty is what drives businesses. However, thousands of similar offerings and lower prices can become bumps in the road to reaching your audience. This is where the Freemium model comes into play.

Freemium model allows the audience to use your products or services without getting stuck in the payment loop. Here, rather than displaying a variety of hero features, you attract customers with a promise of free usage and functionality. This makes the choice of picking one in a million fairly easy.

Astrotalk has leveraged this model to acquire customers at just $6 to $9, with a payback period of 6 to 8 months. They also boast a total of 500,000 monthly transactional users. We will discuss more about their use case later in the blog.

(source: Inc42)

Now, don’t get too excited though because as enticing as this may sound, you can easily mess up with its implementation. To be precise, the time to conversion is generally longer in the Freemium model leading customers to churn. In this blog, we are going to discuss every aspect of the Freemium model and how you can utilize it to your advantage.

What is freemium?

Before we dive into the technical jargon, let’s quickly understand its fundamentals. Simply put, it blends free and premium. In the Freemium model, companies offer features, services, or products to customers for free to later charge a certain amount for premium functionalities. But how does this fit your business logic?

Widely utilized in digital services like gaming, music streaming, and SAAS, this model aims to attract a larger customer base. Freemium model eliminates the need for a multi-tier marketing funnel and accelerates the customers’ journey to conversion.

So, if your goal is to increase brand awareness and growth, Freemium model is your savior. Typically, it can be divided into 4 distinct categories, namely: 

• Quantity-limited freemium
• Time-limited freemium
• Feature-limited freemium
• Distribution-limited freemium

Why do companies prefer freemium?

A business is driven by revenue growth, customer acquisition, and brand awareness. And guess what? Freemium business model serves all of this on a silver platter. 

1. Value without cost commitment

The freemium business model removes the biggest obstacle in the sales process—cost. By allowing users to explore your product for free, you’re inviting them to experience its value firsthand without any financial commitment. It’s like giving them a free pass to the best seats in the house.

2. Cost-Effective Marketing

Here, you gently nudge users down the path to becoming paying customers. As they see the benefits and start relying on your product, upgrading to a paid version feels like a natural progression rather than a forced decision. It’s less of a sales pitch and more of an invitation to unlock even more value.

3. Rapid User Acquisition

Without the pressure of an immediate purchase, more people are willing to try out your product. This means faster user growth. If they liked your services, it wouldn’t take them long to spread the word about it. You’re essentially distributing your product to a larger audience without spending a fortune on advertising.

4. Built-in Upsell Opportunities

When users have the freedom to explore your product at their own pace, trust builds naturally. They aren’t just being sold to—they’re discovering the value themselves. This organic trust is more powerful than any marketing campaign because it’s rooted in genuine experience. If their experience is holistic, they are more likely to remain a paid customer.

5. Competitive Advantage

Make it easier for users to choose your product over others. When potential customers can try before they buy, they’re more likely to pick your offering over a competitor’s paid-only option. This early exposure not only increases brand awareness but also positions your product as the go-to choice in the market.

Monetization Strategies for Freemium

The ultimate objective of offering free services to your users is converting them into paid customers. While satisfactory services eventually lead your user base to pay, each type of freemium model requires a more personalized strategy to function. Let’s look at each one of them.

Feature-Limited Freemium and Paywalls

Zoom has served as a savior during COVID and even though it made our lives super easy, they limit their free meetings to 40 minutes. Once you have experienced their frictionless services, you are more willing to pay for boundless meetings and numerous features.

When you choose a feature-limited freemium business model, this is the experience your users will have. The key is to offer just enough value for free to keep them engaged while teasing the benefits of your premium offerings.

If your premium features are truly valuable and provide significant utility, users are more likely to upgrade. They’ll see that the paid version doesn’t just enhance their experience—it transforms it.

Quantity-Limited Freemium

Think of Tinder. It allows you to show interest by swiping right only for a limited number of times. Once you start using it, restricted swipes get in the middle of finding the perfect match. To unlock unlimited swipes and messages, you need to upgrade to a premium plan.

This is the essence of a quantity-limited freemium model: let users realize the value of your services that naturally drive them towards a high-end experience.

Time-Limited Freemium and Urgency

A timer over my head always makes me feel anxious and I believe this is the case for most people. As humans, we are inclined to be a little stressed out when we are on a deadline. Marketers have been using urgency in their sales strategies for ages. The time-limited freemium model is also built on the same grounds.

Take Astrotalk, for example. You can chat with an astrologer for free, but only for a limited time. As you wait for their response, you watch the timer counting down, nudging you to make a decision. This model gives users a glimpse of your full offerings, creating urgency and making them more confident in committing to the paid version after they’ve seen what’s possible.

Distribution-Limited Freemium

While walking through expos or exhibitions, have you ever noticed people handing out samples for you to try? This exudes confidence they have in their product. Now, bring that strategy online, and you’ve got the distribution-limited freemium model.

Platforms like Pexels are a perfect example. They let you download as many images or videos as you want for personal use, but if you need those assets for commercial purposes, you’ll need to purchase a license. This model works wonders if you’re offering digital assets, allowing you to target both end-users and businesses. 

How to adopt freemium business model?

Now that you see the incredible value the freemium business model can bring to your business, the next big question is: how do you implement it? There are countless ways to weave freemium model into your offerings, but if you are a consulting firm, dating platform, or job portal, then chat is the most effective method for you.

Integrating the freemium chat in your app or website greatly enhances your customer's experience. But that’s not all it can do. Let me explain. 

Straightforward and User-Friendly: Chat is intuitive. It’s something we’re all familiar with, making it easy for users to jump in and start engaging without a learning curve.

A Dash of Social Media Vibes: Chat adds that element of presence and connection, reminiscent of social media interactions. It makes your app feel alive, like there’s always someone on the other side.

Personalized User Experience: Chat isn’t just about communication; it’s about creating tailored experiences. Users feel more connected when they can engage directly, making interactions more meaningful.

Rich Media Support: Chat isn’t limited to just text. It can include images, videos, voice notes, and more, allowing for a richer, more engaging user experience.

Building a freemium chat feature into your business infrastructure can either be a smooth ride or a difficult challenge, depending on your approach. You’ve got two main options: build it from scratch in-house or partner with a third party.

We have discussed the deciding factors for both in detail in this Build vs Buy blog. For now, let me briefly list their pros and cons.

The Perfect Case Study

Astrotalk, the company that introduced online astrology and took everybody by storm. Their business model is based on Freemium Chat which offers time-restricted free consultation with top astrologers.

They offer a wide range of astrology services like personalized consultations, horoscopes, and tarot readings. With a network of over 15,000 astrologers and a user base exceeding 3 crore (30 million) customers, Astrotalk has established itself as a dominant player in the online astrology sector.

Freemium Chat Model

Astrotalk’s freemium chat model lets users try the platform risk-free with a 2-minute consultation. This user-friendly feature, available anytime and anywhere, builds trust by offering a low-risk introduction to their services.

Customer Engagement and Retention

The freemium model drives strong user engagement, with many converting to paid services after their free chat. Astrotalk’s customer acquisition cost of $6-9 is typically recovered in 6-8 months. 80% of its revenue comes from repeat customers that displays customer loyalty towards this brand.

Growth and Market Position

Astrotalk has grown rapidly, doubling its revenue year-on-year for the last three years. With 500,000 monthly transacting users, it aims for an IPO by 2025, potentially valuing the company at over $1 billion.

In-House Vs Third-Party

Building In-House

Pros

• Complete control over design and functionality.
• Easy integration with existing systems and data.
• Tension-free security and compliance.

Cons

• Higher development and engineering costs.
• Neverending maintenance and updates.
• Longer time to market.
• Challenging and longer cycle of customization.
• Difficult to scale and adapt to growing users.

Integrating Third-Party Solutions

Pros

• Lower development and engineering costs.
• Faster and easier integration.
• Lesser time to market.
• Low or no maintenance and server costs.
• Flexible and easy customization.
• Highly scalable and reliable

Cons

• Security and compliance risks.
• Low or no post-purchase support.

How to choose the best vendor?

Customization Flexibility: Choose vendors that offer a high degree of customization. Opt for solutions that provide modular components or open APIs, enabling you to tailor the integration to your specific design and functionality requirements.

Integration Time: If your utmost priority is to go live quickly and seamlessly, then integrating with a third party is your best bet. Evaluate their integration time and how easy the process is. The goal is to find an efficient solution that makes your life easier. If the vendor increases your load rather than reducing it, you may have to reconsider your decision.

Extended Support: Many vendors fall short when it comes to offering comprehensive support. Ensure that they provide comprehensive documentation, training, and responsive customer service. This will be crucial if you encounter any issues during or after the integration process. 

Data Security and Compliance: Ensure that the third-party solution complies with relevant data protection regulations and industry standards. Verify that the vendor has robust security measures in place to protect your data and that their solution aligns with your organization's compliance requirements.

Conclusion

Freemium business model is an excellent business strategy if you’re aiming to boost conversion rates without investing hefty amounts. With industry giants like Astrotalk, Hinge, and Shaadi.com leveraging this model to the fullest, it offers comprehensive methods to reach out to your target audience. You not only let them experience the full potential of your services but also offer them a more personalized experience.

Freemium model also lets you seize a competitive edge like a seasoned pro. Whether you choose to build it in-house or partner with a third-party solution, you can craft a user experience that outshines anything else in the market.