So let's talk about the pros and cons of using freemium business model.
Let's talk about pros of using freemium business model.
The number one is obviously the customer acquisition, because the basic version of your product is
absolutely free.
You can attract more number of users and you don't really have to invest a lot of money in paid marketing.
Second is obviously the marketing effort, because the basic version of your product is free.
You don't really have to invest a lot more capital in paid marketing.
And we call this as a word of mouth strategy because they are promoting your product by themselves.
The third one is Network Effect, and this is more applicable in case of digital apps.
Or let's say if you're building a social media app or a networking platform like LinkedIn or Instagram,
where if some user are already using the product, they always invite other users to use the product.
They want it to increase the value of that specific platform.
Well, the best way is to invite other users.
If I give you a simple example, the reason why we are using Instagram or WhatsApp is because our family
members and friends are also using those platforms.
So the value of a platform will increase significantly if you invite other users on the platform, and
that's your network effect.
The fourth advantage of using freemium business model is usage behavior, not because you have a lot
more free users on your platform.
Some of these free users can also take a premium version of the product, and this will help you understand
which feature is enticing these users to upgrade.
And that's why in freemium business model, you can understand the usage behavior much better than subscription
business model, because now you have a lot more people into the funnel and you can analyze a lot more
behavior and touch points.
Now, apart from some advantages in freemium, you also have few disadvantage that freemium brings in
your business.
The first disadvantage is because you have a large number of free users and they might not be interested
in paying for your product.
Well, sometimes you end up owning a very little money from your product and that's the disadvantage
that comes with freemium business model.
So now that you understand the freemium business model, which all companies use this business model,
and what are the advantages and disadvantages of using freemium business model?
Now let's understand what all other options you have in the freemium business model.
And we will also understand which business model is better for your product.
And to understand that we will consider an average free to paid conversion rate if you use a free trial
versus freemium.
So in free trial, you give your product for free for 14 days.
In freemium, you give the basic feature of your product for absolutely free for the lifetime.
So when we talk about the conversion rate in free trial, you can calculate that with the number of
free trial to the paid user divided by the number of trial users.
So let's say if you have a product that has 500 trial user and 90 of those trial users converted into
the paid customer, in that case you have 90 divided by 500 into 100.
That's your 18% conversion rate from free trial.
And similarly, you can also calculate the conversion rate from your freemium as well.
You just need to.
Divide your premium customer with your free customer, and that's how you can calculate your premium
conversion rate.
So when you're giving your product for free, you have three different options.
Either you can give the basic feature of your product for absolutely free for lifetime.
And for that, you can use a freemium pricing strategy.
So in free trial, you have two different option free trial without credit card information and free
trial with a credit card.
So if you're selling software product, then you need to ask the customer that please enter your credit
card so that we can deduct the amount after your free trial is over.
On the other side, if you are selling a digital app like COM or Spotify, in that case, people might
not be comfortable adding their credit card details when they are using a free trial.
So in free trial, without credit card, you can offer a try before you buy kind of experience without
taking the credit card information.
Now, this is very effective for generating buzz about your product because you don't really require
a little or no commitment from the user because they're not adding their credit card in your digital
app.
And if you look at some benchmark, you will have a 25% free trial to conversion rate.
And there is a research that is done by use proof on the other side, if you're offering a product where
people can use the free trial for, let's say, 14 days, but they have to add their credit card.
In that case, you end up attracting less number of people, which means you will have less signup.
But the conversion rate is very high in case of free trial with credit card, because all those people
who are genuinely interested in your product will only sign up and that's why you will have a 60% conversion
rate, which is your free trial to conversion rate.
In case if you use a pricing strategy, that is free trial with credit card.
Now, one question you may have in mind now how do we decide which kind of pricing strategy should be
used in our product?
Well, if you ask me, and I'll give you a single line answer to that question.
Well, it all depends on the complexity of your product and audience.
So whether you are selling a B2B product or a B2C product, what kind of product are you selling to
your target audience?
How much disposable income they have, what is your geography?
And there are so many parameters you have to take before you decide about which kind of pricing strategy
should you use.
Then if I give you a couple of examples from free trial to conversion rate so that you can consider
which kind of pricing strategy you want to use in case of free trial or the average industry conversion
rate is 57% for b2c product, and that's the conversion rate in case of free trial without credit card.
In B to B, it's 14 to 25%.
And let's say if I'll give you a simple example of free trial in B to C for, let's say two video on
demand platform, that is Netflix and Amazon Prime, the conversion rate of Netflix is 93%, while the
conversion rate for Amazon Prime is 73%.
Now, there are other reasons as well behind this conversion rate because the audience who is using
Netflix is much more attractive towards the platform when compared with Amazon's prime video.
So that's all about the freemium business model or pricing strategy.
And let's quickly summarize what we have learned so far.
So in freemium business model, you will give the basic version of your product for absolutely free.
And this business model is used by all the web based services or software companies.
And the main idea of giving your product for free is that you allow so many people to try out the basic
functionality of your product.
And once they are comfortable with the product and if they wanted to use the premium features, then
they can buy a premium version of your product.
And this is used by multiple companies.
Now, a lot more software companies have started using freemium, business model, and so many digital
apps, software companies and consumer app use, freemium business model.
A simple example is Dropbox that offers two GB of storage space for absolutely free.
But if you wanted to store more media files or assets, then you can buy some additional space at a
premium price.
So I promised at the start of the course that I'm going to give you a couple of assignments and case
study that you have to complete.
So right now I'm giving you one case study.
You just have to read this case study.
You don't really have to do anything.
But in the next video, I'm going to give you a few assignments as well.
So this is the case study of MailChimp and how MailChimp was able to create a successful email marketing
tool by using a freemium business model or pricing strategy.
So previously MailChimp was a paid tool.
They were they were forcing you to add a credit card before you wanted to use the platform.
But soon MailChimp realized that multiple small businesses wanted to use their platform for free for
a certain user.
So let's say if you are starting out your business and you don't really have a lot more money to invest
in email marketing tool, well you can use.
Was there free version where you can send 500 emails?