A freemium business model works in markets where the anticipatory customers have capacities to upgrade and pay. If you run the model in places where purchasing power is LOW, gestation to profitability long, and funding sources limited, you will likely fail. Be careful as 99.99% of your users could just be comfortable with the free portion with no interest in the premium part. Yes, you may be better off focusing on just 10%, asking them to pay on day one, than trying to win all, and in the process losing many!
Freemium, from free + premium, is a pricing strategy where basic parts of products are given free, while additional features require payment.
Watch this video on pricing.
A startup must invest efforts to understand its customers towards having the optimal pricing strategy. You cannot afford to leave money on the table by pricing timidly. The ability to ascertain value created by your company is the foundation that will help you model how much customers will pay while considering many other factors like growth, product penetration and competition. As always, it is easier to reduce price than to raise it, in a digital product, especially when you do not have a highly differentiated product. This means you may begin high, and after checking the market dynamics, you will adjust accordingly. You must make pricing a science.
Sure, a freemium model can still work but you have to be precise on the inflection point between that free point and pay point on the curve. It is a balancing act which must stimulate a new demand nexus to push that user to pay for the extra features. If you have made most of the core values FREE, capturing value becomes harder via payment.
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