{"id":20463,"date":"2020-01-29T22:54:11","date_gmt":"2020-01-29T22:54:11","guid":{"rendered":"https:\/\/www.arimetrics.com\/glosario-digital\/freemium"},"modified":"2026-09-21T11:28:22","modified_gmt":"2026-09-21T11:28:22","slug":"freemium","status":"publish","type":"encyclopedia","link":"https:\/\/www.arimetrics.com\/en\/digital-glossary\/freemium","title":{"rendered":"Freemium"},"content":{"rendered":"<p><img decoding=\"async\" class=\"boxpad alignright size-full wp-image-14325\" style=\"margin-top:0;\" src=\"https:\/\/www.arimetrics.com\/wp-content\/uploads\/2020\/01\/Freemium-1.png\" alt=\"Freemium\" width=\"300\" height=\"300\" srcset=\"https:\/\/www.arimetrics.com\/wp-content\/uploads\/2020\/01\/Freemium-1.png 300w, https:\/\/www.arimetrics.com\/wp-content\/uploads\/2020\/01\/Freemium-1-150x150.png 150w\" sizes=\"(max-width: 300px) 100vw, 300px\" \/><strong>Definition:<\/strong><\/p>\n<p><strong>Freemium<\/strong> is a business model that provides ongoing access to a basic version of a product or service without requiring an initial payment and charges for additional capabilities. Its name combines the words <em>free<\/em> and <em>premium<\/em>.<\/p>\n<p>The paid tier may include greater capacity, advanced features, no advertising, collaboration, support or more intensive use. Unlike a free trial, basic access does not necessarily expire: the company aims for some free users to find enough value to purchase a higher tier.<\/p>\n\n<h2>Origin of the term freemium<\/h2>\n<p>The term became popular in 2006 following a discussion started by investor Fred Wilson about a model combining free distribution with paid services. Jarid Lukin proposed the word &#8220;freemium&#8221;, which Wilson adopted in his article <a href=\"https:\/\/avc.com\/2006\/03\/the_freemium_bu\/\" target=\"_blank\" rel=\"noopener\">The Freemium Business Model<\/a>.<\/p>\n<p>The name was new, but using free versions to attract users already existed. The concept identified a specific model in which the free and premium offerings belong to the same product and share a common revenue strategy.<\/p>\n<h2>How the freemium model works<\/h2>\n<p>A typical freemium model combines five elements:<\/p>\n<ol>\n<li><strong>Free access:<\/strong> a person can start using the product with a low financial barrier.<\/li>\n<li><strong>Defined limits:<\/strong> the free tier restricts particular features, capacity, consumption, collaboration or service levels.<\/li>\n<li><strong>Use and activation:<\/strong> the product needs to let users understand its value before they consider paying.<\/li>\n<li><strong>Conversion:<\/strong> a later need, such as increasing storage, removing advertisements or working as a team, may lead to a premium plan.<\/li>\n<li><strong>Revenue:<\/strong> payment may take the form of a <a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/subscription\">subscription<\/a>, an in-app purchase, metered usage or the purchase of particular features.<\/li>\n<\/ol>\n<p>The balance matters. If the free version does not solve any need, the product is unlikely to be used; if it includes all the value for which someone would pay, conversion may be insufficient to sustain the service.<\/p>\n<h2>Freemium advantages and limitations<\/h2>\n<p>The model can reduce initial friction and help people discover a <a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/digital-product\">digital product<\/a> by using it.<\/p>\n<p>Its advantages include:<\/p>\n<ul>\n<li><strong>Product discovery:<\/strong> people can try working features without making a purchase first.<\/li>\n<li><strong>Distribution:<\/strong> a broad user base may support recommendations, collaboration or network effects.<\/li>\n<li><strong>Segmentation by need:<\/strong> paid tiers can address differences in capacity, usage or support.<\/li>\n<li><strong>Learning:<\/strong> aggregate behaviour and user requests can reveal friction and needs when privacy obligations are respected.<\/li>\n<\/ul>\n<p>It also has limitations:<\/p>\n<ul>\n<li><strong>Cost of free users:<\/strong> infrastructure, support and operations generate costs even when no payment is made.<\/li>\n<li><strong>Limited conversion:<\/strong> a large user base does not guarantee enough premium customers.<\/li>\n<li><strong>Designing limits:<\/strong> excessive restrictions reduce utility, while overly broad access may weaken the paid offering.<\/li>\n<li><strong>Abuse or intensive use:<\/strong> multiple accounts, automation or disproportionate consumption may require additional controls.<\/li>\n<\/ul>\n<h2>Freemium vs. free trial, freeware and shareware<\/h2>\n<p>These models provide some form of access without an initial payment, but they are not equivalent:<\/p>\n<ul>\n<li><strong>Freemium:<\/strong> maintains a free basic tier and charges to extend the value or use of the same product.<\/li>\n<li><strong>Free trial:<\/strong> provides temporary access to a product or set of features before requiring payment or ending access.<\/li>\n<li><strong><a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/freeware\">Freeware<\/a>:<\/strong> is software distributed for use without a licence fee, although its owner may keep the source code closed and restrict copying or redistribution.<\/li>\n<li><strong><a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/shareware\">Shareware<\/a>:<\/strong> is distributed for evaluation and normally limits time, functionality or continued use until a licence is purchased.<\/li>\n<li><strong>Free and open-source software:<\/strong> is defined by the permissions to use, study, modify and redistribute it, not by the presence of free and premium tiers.<\/li>\n<\/ul>\n<p>A subscription is a form of recurring payment. It may fund the premium tier of a freemium service, but it is also used for products that provide no free tier.<\/p>\n<h2>Examples of freemium models<\/h2>\n<p>Limits vary according to each product&#8217;s primary utility:<\/p>\n<ul>\n<li><strong>Spotify:<\/strong> combines free, advertising-supported listening and restrictions with paid plans that extend the listening experience.<\/li>\n<li><strong>Dropbox:<\/strong> provides basic storage at no charge and charges for greater capacity and administration or collaboration features.<\/li>\n<li><strong>Slack:<\/strong> maintains a free tier with history and integration limits and higher tiers for teams with broader requirements.<\/li>\n<li><strong>Canva:<\/strong> allows designs to be created with free tools and reserves particular assets, brand capabilities and advanced features for paid plans.<\/li>\n<li><strong>LinkedIn:<\/strong> retains general professional networking functions and provides premium tiers with additional tools.<\/li>\n<\/ul>\n<p>Specific names, prices and features belong to each product. What makes these examples freemium is the coexistence of a usable free tier and paid options within the same offering.<\/p>\n<h2>Freemium model metrics<\/h2>\n<p>The model&#8217;s sustainability depends on the relationship between use, conversion, revenue and costs. Common metrics include:<\/p>\n<ul>\n<li><strong>Activation:<\/strong> the proportion of users who reach the action that demonstrates the product&#8217;s initial value.<\/li>\n<li><strong>Free-to-paid conversion:<\/strong> the percentage of free users who purchase a premium tier.<\/li>\n<li><strong><a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/cac\">Customer acquisition cost<\/a>:<\/strong> the investment required to gain a paying customer.<\/li>\n<li><strong><a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/churn\">Churn<\/a>:<\/strong> the loss of customers or revenue during a period.<\/li>\n<li><strong>Revenue per paying customer:<\/strong> the average amount contributed by customers purchasing premium capabilities.<\/li>\n<li><strong>Cost to serve:<\/strong> infrastructure, support and operations associated with both free and paying users.<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.arimetrics.com\/en\/digital-glossary\/monetization\">Monetization<\/a> does not depend solely on increasing conversion. Retention, the value of each tier, the cost of maintaining free access and the utility retained by both groups also contribute.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What the freemium model is, how free and paid tiers work, its advantages, limitations, differences, examples and key metrics.<\/p>\n","protected":false},"author":6,"featured_media":0,"template":"","encyclopedia-tag":[1369],"class_list":["post-20463","encyclopedia","type-encyclopedia","status-publish","hentry","encyclopedia-tag-revenue-models"],"_links":{"self":[{"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/encyclopedia\/20463","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/encyclopedia"}],"about":[{"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/types\/encyclopedia"}],"author":[{"embeddable":true,"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/users\/6"}],"wp:attachment":[{"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/media?parent=20463"}],"wp:term":[{"taxonomy":"encyclopedia-tag","embeddable":true,"href":"https:\/\/www.arimetrics.com\/en\/wp-json\/wp\/v2\/encyclopedia-tag?post=20463"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}