Freemium (free + premium) is a pricing model where a company gives away a genuinely usable, no-time-limit version of its product for free, and makes money from a smaller percentage of users who pay to unlock additional features, higher usage limits, or remove restrictions. It’s different from a free trial, which expires — a freemium free tier is meant to stay free indefinitely, functioning as both the product’s main distribution channel and its ongoing marketing engine.

The model only works with the right kind of economics: the free tier has to be cheap enough to serve at scale (this is why it’s so common in software, where serving one more free user costs almost nothing, and much rarer in anything involving physical goods or heavy human labor), and enough of the free user base has to eventually convert to paying to cover the cost of everyone who never does. A typical, healthy free-to-paid conversion rate across SaaS products is usually in the low single digits — most companies running freemium are deliberately betting that a small, monetizing slice of a very large free user base beats a smaller, fully-paid user base with no free on-ramp at all.

Getting the line between “free” and “paid” wrong in either direction kills the model: give away too much for free and few people ever have a reason to pay; give away too little and the free tier isn’t compelling enough to actually attract users in the first place.

Related Terms