Subscription is the idea of naming a customer on a recurring basis. You may have noticed that there are many apps that are willing to offer their exclusive services to some of those unique customers who pay them for that mandate. But on the other hand, there are some apps that don’t charge money and treat all their customers equally. But why is this?
Platforms that don’t charge you money are based on an ad revenue model, which means they don’t get paid from their customers, but rather from the companies that serve them ads. There’s a popular quote from former Google design ethicist Tristan Harris: “If you’re not paying for the product, you are the product.” — This means that you are the final product of income for them.
Also Read:- Complete YouTube Premium 2023 Review
Various entertainment platforms, such as Netflix, Amazon Prime, Disney Plus, HBO Max, etc., are based on a subscription model. However, there is another business model that is on the market, which is called “Freemium”. If you search for freemium on Google. It is a business model in which some basic services are provided to customers for free, while more exclusive services are provided in a paid version. Some examples of companies based on the freemium model are iTunes, Spotify, Dropbox, etc.
Today we will discuss the advantages and disadvantages of the premium and freemium models.
free template
Just like in the introduction, we gave you some pointers about the freemium business model and how it differs from premium or ad-based revenue models. This business model is suitable for online businesses that have low customer acquisition value but longer lifetime value. It is said that this model has existed since 1980 when the services were free but with certain restrictions. Users who wanted to go unlimited were offered their premium plans.
Since the services are free in the initial stages, but with certain limitations, it makes consumers curious and willing to buy a premium membership. But make sure your business premium adds appropriate value to the price and introduces profitability. With this practice, more and more customers will be willing to buy a subscription.
As she monitors consumer reactions to her plan, platforms like Adapty come to her rescue. Displays a complete record of accurate analytics on consumer behavior.
Advantages of the Freemium model
- Brand Awareness – Brand awareness, also known as brand awareness, means how much of the population is aware of your brand. We all know that most consumers want to save as much money as possible on the services they want. Therefore, if your brand offers a basic version of this service in a freemium model, it will surely catch on with the public. This technique is used by various companies in practice, which makes this model more reliable and reliable. This quality also saves money on advertising your brand because users will promote your brand in terms of referrals instead of you.
- Competition Killer – With this marketing strategy, where you don’t have to spend as much money on your ads as compared to your competition, you will definitely have an edge in the market. Always keep a feature of yours as a USP that makes your product different from the competition. A prime example for this case can be YouTube. YouTube has certainly taken the market by storm with its savvy marketing team and astute management. It offers people to watch videos for free, while other platforms like Netflix or Amazon charge the same. Also, the financially able audience chooses YouTube Premium to get exclusive features like Zero-Ads and many more.
- Conversion Rate – The term conversion rate means how much of the population you can convert into your premium customers. Customers who have paid for your service. The freemium business model serves as a demonstration of your services to clients. Users receive free services and if you are good enough to satisfy the customer, he or she will not take the time to buy your premium package and become your regular customer. For this case you can take Spotify as an example. Free services are provided to its users but with some restrictions like ads will be displayed and there will be no downloads etc. time plan to get these exclusive features.
Disadvantages of the Freemium model
- No Guaranteed Conversion Rate – In the previous section, we calculated the conversion rate on the upside of Freemium. But that can also be its negative side. Don’t you know the reason? Well, there is no guarantee that many people will buy a premium membership of your service. For big players who already have a large and loyal customer base in the market, it’s great that they don’t have to worry much about this issue. But if you are a start-up business owner, the journey may be a bit difficult for you.
- High Cash Burn Rate – Cash burn is the amount of money you invest in your business to run operations. Sometimes running out of simple day-to-day operations can lead to excessive costs. You never know how many customers you will have that will only use the free service. The maintenance and operating costs for these “free customers” may be a burden on you. And even then, there is no guarantee that these people will become your regular subscribers.
- Limited Features – Since you cannot provide all features for free, they will remain locked until a premium membership is purchased. It can lead to boredom with a conversion rate of 0.
These were some advantages and disadvantages of the freemium business. For the next section we will have the same discussions but for premium models.
premium model
Unlike freemium, there is nothing you can get without money. Netflix and some other streaming platforms can be examples of premium business models. The following is a brief summary of the advantages and disadvantages of the premium model.
Advantages of the Premium model
- Stable and Recurring Income: With the Premium Paid business model, it is easier to predict or secure a certain amount of income for your business. If you can establish the income that you are likely to generate in the near future, it will be easier for you to plan strategies and campaigns for your growth.
- Higher customer retention – The chances of a customer coming back to use your service for a longer period of time are higher than with a freemium model. In the freemium model, many users are comfortable with limited features. This is not the case for subscription-based companies.
Disadvantages of the Premium model
- Business impact: In this business model, actions and decisions are completely based on cash flow. Ultimately, the amount of money that flows into your business will determine your decisions.
- Trends – A number of subscription-based business models stem from current trends. But we must remember that time is constantly changing and trends are evolving. To keep your business thriving in the future, diversify your business model and make it future-proof. Stay one step ahead of everyone else and create your own Unique Selling Propositions (USPs).
These were some pros and cons of the premium and freemium business models. We hope that by reading this text, we will help you to some extent in shaping your strategy.
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Source: HIS Education