How to Create a Successful Freemium Business Model

You've heard the warning, "You get what you pay for." When it comes to freemium business models, getting something for free could actually be the ticket to a lucrative business.

The internet is crowded with thriving freemium type of sites like LinkedIn, Dropbox, Skype and others. The goal for those companies is not to completely give away services for nothing in return. The hope is that through paid upgrades, companies can convert loyal users into paying customers after trying out basic services.

If you’re considering in creating a freemium business model, understand these factors:  

Make your product your number one priority.

That might seem like an obvious tip but you'd be amazed at how many developers begin with the premise "I've got to make a lot of money fast with an application" as opposed to "I've got to make an application that serves a need."

Your product has to be easy to find and to use with the kind of adaptable features that today's internet user is drawn to. Like most successful products, you need to identify a need then provide a solution. What are you offering that other sites aren't?

You also have to consider the complexity factor as in don't make your freemium complex! You want your potential customers to be able to click over and start using without very little effort. If your site requires lengthy training or tutorial sessions it might turn off potential users.

Make sure you understand the value of free users.

You're going to be spending a lot of capital and development time to get your freemium company up and running. The initial start-up phase is not going to generate any substantial revenue. However, if you appreciate the value of building up your user base then you can easily translate high volume into potential revenue streams through service upgrades.

Do you know your cost per acquisition (CPA)? Do you know your break even point? Are you realistic about how long it will take to achieve that goal? Those factors should all be part of your business model.

Test, test, test.

Make sure that you test every aspect of your business model, from conversion testing to how users consume your service. You can improve your service offerings, tweak your ad campaigns or even determine who your ideal customer is. Without testing, your business can be left behind by fast moving competitors who can snap up your unsatisfied customers.

While starting a freemium service is not always the right model for every industry, used wisely - it can be extremely powerful. Before you start, remember that all start-ups should begin by creating a product that solves an important need for users.