Freemium

Freemium is a pricing model that combines a permanently free product version with paid plans. The free tier acts as a distribution channel: users get to know the product, and a share of them grows into the paid version.

When freemium works

Freemium requires three things at once:

1. The free tier creates real value, otherwise nobody stays.
2. There is a natural upgrade trigger that grows with usage: more volume, more team members, a feature that becomes indispensable when it matters.
3. The cost per free user is near zero, otherwise your paying customers end up financing an ever-growing base of free users.

The most common mistake

The classic freemium mistake is a free tier that is too generous: it solves the problem so well that hardly anyone has a reason to upgrade. The arithmetic is unforgiving: if 2 in 100 free users convert, every paying customer carries the cost of 49 free ones. Freemium therefore needs either a near-zero cost per free user or a precisely placed upgrade threshold.

For most early B2B products with a small market, a time-limited trial or a money-back guarantee is often the better alternative to a permanent free tier.

In the 9-step process, the model decision is made in step 8 (pricing model).