Freemium
A model offering a permanently free tier alongside paid plans, where free users are an acquisition channel rather than a cost.
Freemium works when free users generate value beyond their own usage — inviting colleagues, producing content that attracts others, or creating a network the paid tiers depend on. It fails when they are simply a cost centre, which is the default for products with real per-user infrastructure spend and no viral loop. The question to answer before adopting it is what a free user does for the business other than consume.
The design problem is where the line goes. Too generous and nobody upgrades, because the free tier already solves their problem. Too restrictive and it is a trial in disguise, with none of freemium's word-of-mouth benefit. The line that works is usually drawn on a dimension that grows with the customer's own success — team size, volume, integrations — so upgrading coincides with getting more value rather than hitting an arbitrary wall.
Free is not the same as a trial
A trial is time-limited full access, which suits products with a clear evaluation period. Freemium is permanent limited access, which suits products where usage compounds. Running both without distinguishing them confuses the funnel and the pricing page.
In practice
A collaboration tool limited its free tier by project count. Solo users stayed free forever and never invited anyone. Changing the limit to collaborators per project — free for one, paid for teams — meant the free tier still worked for individuals while every instance of the actual use case triggered an upgrade. Conversion to paid roughly doubled.
Where teams get it wrong
- Adopting freemium without naming what a free user contributes.
- A free tier that fully solves the problem, leaving no reason to upgrade.
- Limits on a dimension unrelated to customer value, so upgrading feels like a toll.
- Ignoring the infrastructure cost of free users in products where it is real.
- Blurring freemium and a trial, which makes the funnel unreadable.
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Related terms
All terms- PaywallThe point at which a product stops being free and asks for payment — and the placement decision that determines both conversion and churn.
- Product-Led Growth (PLG)A go-to-market model where the product itself drives acquisition, conversion and expansion, rather than a sales team doing it first.
- ActivationThe moment a new user first gets real value from a product — the step that turns a signup into someone who has a reason to come back.
- Monthly Recurring Revenue (MRR)Normalised monthly subscription revenue — and, broken into its movements, the clearest monthly read on whether a business is growing.