Because developing an app takes a lot of time and money, it is justifiable for app owners to monetize their apps in different ways to pay for their development costs. Charging for the app is risky, especially in the cases of startups, since most users won’t spend money on an unfamiliar download. This is where the freemium model comes in.
The freemium model is often used for building a fanbase for free apps before generating revenue through a paid app.
What is the Freemium Model?
The freemium model is a common strategy used by apps that combines free and premium services. This means that users won’t have to pay in order to download and use the app. However, they will have to pay a fee eventually in order to access more of the app’s features.
There are three different types of offers that freemium apps use to generate revenue:
- Premium Upgrades
Commonly seen in photo-editing and photo-sharing apps, premium upgrades mean that users may purchase more advanced and non-consumable upgrade features within the app. This may come in the form of image filters and photo templates that they can download once and use as often as they want to.
Subscriptions are common among audio or video streaming apps and fitness apps. In this case, users may pay on a recurring basis for additional storage, offline streaming capability, downloadable content, or exclusive features. Subscription purchases are also renewed automatically depending on the payment’s timeframe and terms and conditions.
- Consumable Goods
Commonly used in gaming apps, consumable goods may be purchased by app users for further progress in using the app. This may be in the form of extra lives and power boosters that may only be used once and will need to be purchased again whenever the need arises.
How to Convert from a Freemium App to a Paid App
Because it is a challenge to make free users pay for in-app purchases, a number of app owners eventually convert their freemium apps to paid ones. If you are thinking of converting your app to a paid version, here are a few strategies you can use:
- Remove advertisements while using the app.
One of the most common ways creators monetizes apps is through advertising. However, this strategy is both intrusive and unwelcome for most users as they come at inopportune moments, which is usually at the height of their immersion in the app. This offer for users to turn off advertising in exchange for a fee allows app owners to trade one revenue stream for another.
An example of this is the music streaming app Spotify’s advertisements after a few songs or when a user is trying to skip or shuffle a song on a free version. A subtle promotion to pay for a premium membership in order to access these features and more are played to convert free users to paying ones.
- Make the app highly-immersive so users will want to upgrade to the paid version themselves.
There are many immersive apps available for download, where we find comfort and joy during use. A strategic app owner should use this immersion as an opportunity to encourage users to convert to the paid version by setting functionality limits to freemium offers. Once that limit is reached at the height of the user’s immersion, it will be difficult for them not to upgrade. This will cause them to purchase a paid version eventually.
An example is Hootsuite, which allows users to manage only up to three social profiles. This allows users to get a preview of the app’s features and maximize them. On the fourth social profile that they’ll want to add, they will eventually be driven to purchase the upgrade to maximize their use of the app’s features, and by that time they are completely sold to do so.
- Come up with urgency offers or trial period offers.
Limited time offers to create urgency for existing freemium users and impact many customers. How many times have we purchased products when we see or hear the phrase “for a limited time only”.
Another approach app owners can also use offering a free trial period to win over freemium users and convince them to purchase the app’s paid version. This gives them enough time to realize and to immerse themselves in the benefits of the paid version, building the case for why they should make the switch.
An example of this is Canva, a graphic design app, which offers users a month to try the app’s premium features. Within this month, these users will maximize their time and return to the app as often as they can. They will eventually have to pay a fee in order to maximize the app and use the features they have been immersed to.
- Offer exclusive content.
Exclusive content is a way for app owners to reward users for subscribing to the paid version. This content should be highly-engaging and should also provide users with justification for switching to the app’s paid version. An app’s exclusive content should also feel like a VIP area, offering premium users features that are only available to them and creating a circle of exclusivity among paying subscribers.
An example is Strava, a popular fitness tracking app for cyclists, that recently streamlined its subscription service. From a free app, it now has only one subscription package that includes its popular features and exclusive content for an annual fee.
The freemium model is a popular way to monetize apps through a valuable number of downloads and usage with premium upgrades, consumable goods, and subscriptions.
In order to convert downloads and usage to revenue, smart app owners may eventually convert a freemium app to a paid one. In this case, they may employ and make use of strategies like premium in-app advertisements, highly-immersive apps with functionality limits, urgency offers or trial period offers, or exclusive content. However, the challenge for this conversion to a paid app is making the subscription worth the paying users’ money. Thus, a paid app should feel like a VIP and an exclusive area for these users.