Freemium is a key business model in the startup world.
It’s a pricing strategy that provides a product or service for free in order to attract more users.
After the user is engaged with the product, the company can upsell the user for paid services.
The freemium strategy is highly scalable as it can capture new users without the use of a direct sales force.
The strategy works well with software products because the incremental cost of adding another user is near zero.
The key to a freemium model is the ability to upsell the user into a paid product.
Therefore, the premium features must be compelling.
One can create a freemium product by taking the company’s main product and limiting its usage, reducing the features available, or limiting the support the user receives.
There are many ways to monetize a group of users.
Consider the following:
Premium services provide additional functionality but at a price.
The content, data, and identity of the users can be monetized.
Companies that sell to the same user base would pay to access those users through advertising or direct marketing.
It’s important to have premium features to upsell to.
Finally, the product must be ‘sticky’ by capturing key information from the user so it’s harder to switch to a competitor product.
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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.