How can you use a freemium or subscription-based business model to increase profits?

Freemium is a portmanteau of the words "free" and "premium", i.e., a business offers a subscription that has two (or more) tiers, of which one a customer can access for free. These typically have a more limited range of features than the paid-for tier. It can be an effective model to attract, retain and monetise customers, as well as being beneficial in other areas (e.g., economies of scale driving down per unit cost).

Freemium model is a very popular business model. You can use this practice especially with digital products or services, this way the user gets to “taste” the value of your product, and if they appreciate the value and want their need to be fully addressed, they are likely to pay for the full product and become a paying customer.

There are positives and negatives to each model obviously, but freemium, which is what :LinkedIn uses with the free and premium modes, has a very good success rate. But you need to be very careful about what and how much you give away, and be certain to seek a suitable conversion rate from freebies to paid premium accounts. Typically, that should range between 2% and 5% with the smaller the company aiming that much higher. Obviously, that should go with a high volume of traffic. And you have to keep having fresh content at both tiers, to motivate your customers and would be customers. The free tier customers are an inexpensive source of advertising for a business, so fresh content is vital. At both levels.

By offering valuable free content or features to attract users and then enticing them with premium offerings, such as advanced features or exclusive content, we can increase profits through freemium or subscription models.

Freemium models allow you to demonstrate your market authority and provide snippets of value for free to help build up people's excitement about your paid offering. You can then generate value-based product offerings to upsell them. Typically, around 20% of your engaged freemium customers will buy your basic paid products, and then 20% of these people will also buy your more expensive products.

Most popular options are usually on a monthly basis or yearly basis. Some companies also offer a week basis. It is good way for products which are usually been used only few times to increase their customer LTV (life time value)

Subscribing means "committing". So... - It's great to combine it with a Freemium, so people can experience the value you offer for free, then upgrade when they need more. - It will not work when usage is not ongoing. Churn (the % of paying customers that cancel) will be high if usage is infrequent as infrequent users don't feel like being "subscribers". - Adding usage-based fees on top of a low subscription fee makes sense in many cases. Otherwise, people will often feel like they are overpaying for the subscription. For example, online merchants that use the popular Shopify e-commerce platform pay a low subscription fee to run their store, and then a percentage of the revenue they get from selling goods and services on top of it.

A subscription model is where somebody pays you a recurring income for a service on an ongoing basis. This is a great model in terms of income predictability and ongoing monthly or annual income.

The great thing about subscription model is building recurrent revenues and is helping in predicting your financials. One other key elements is to build a long term relationship with your clients and keep them engage regularly.

It is dependent also on the market which you operate at, some markets are less likely to be familiar with this model. The customers might find it un comfortable in the beginning if it is their first time interacting with such model.

If you offer something for free, but people cannot experience the value that it provides, the fact it's free does not help. So, the Freemium model typically does not work when the product or service is complex. - The seller cannot afford to provide support, since it's the offering is free. - The buyer, however, needs that support to appreciate the value that the product or service delivers. In those scenarios, the Freemium model is typically not a good fit.

You can conduct A/B testing on different groups with similar attributes to optimize your pricing offering. Please note that it can lead to customers anger about getting an different offering than others, conduct this test on a small scale if possible.

A very important part of a freemium business model is the pricing strategy, which ties in with the conversion rate. It's essential to monitor the intelligence reports of the free users in order to see a number of factors, not the least of which is how long do freebies remain freebies before converting to premium, This is very important as those free customers aren't totally free to you. There is server usage for one thing, as well as the content creating - innumerable smaller costs. But if your customer isn't converting, you are pouring money down the drain. Looking at all these details will aid you in establishing pricing.

Focus on value, and give rewards for loyal customers. Develop an system where loyal customers are the most valued and recognized ones.

A concept is that of "activation". You need to get your customers to a place where they have experienced the core value that you provide. Otherwise, there will never be good retention. Why would they stay, if they've not experienced the fundamental reason to stay? So, it's crucial to figure out what "active" means in your business. They're truly "active" when they've done... what? Determine the "what", and then invest in getting as many of them there as you can. This is not just in tech. It applies anywhere. If the best ice cream flavor you sell is by far Cinnamon Chocolate, you need as many people as possible to try Cinnamon Chocolate.

To improve performance further: Data Analysis: Delve into user data for insights on behaviour, preferences, and pain points. Identify trends and areas for improvement. Value Proposition: Keep refining it to meet evolving customer needs and differentiate yourself. Pricing Strategy: Experiment with various models to strike the right balance between value and revenue. Customer Loyalty: Cultivate strong customer relationships via loyalty programs, personalized experiences, and top-tier support. Customer Satisfaction: Continuously monitor feedback, act promptly on issues, and elevate the user experience. Iterate and Adapt: Stay agile, adapting strategies based on data and market dynamics for long-term success.

There are fantastic contributors on Linkedin who frequently talk about freemium, product-led growth, subscription pricing models and metrics, etc. For example, look up Kyle Poyar, Lenny Rachitsky, Ben Williams, Elena Verna, and many others.

As a media startup, we offered our content for free, but had a Patreon button after each story. By asking for payment only on Patreon (and not on our website), Patrons realized they were supporting not only us, but also other readers who couldn't pay to access our content. We offered benefits on Patreon, based on tiers of monthly $$. These included a quarterly poll soliciting topics of coverage, postcards from our journalists around the world, conversations with editors from mainstream media, merchandise etc. Aside from being one more revenue stream, this helped augment a sense of community around our brand. And because the audience felt so strongly about our model and our content, we had several people supporting with $20 a month!