A subscription is an idea to designate a client on a recurring basis. You may have noticed that there are many apps that are ready to offer their exclusive services to some of those unique customers who are paying them for that stay. But on the other hand, there are some apps that do not charge any money and treat all their customers equally. But why is this?
Platforms that don’t charge money for you are based on the ad revenue model, which means that the money they get doesn’t come from your customers but from the companies that serve your 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 the last product of income for them is you.
Also Read: – Full Review on YouTube Premium 2023
Various entertainment platforms such as Netflix, Amazon Prime, Disney Plus, HBO Max, etc. are based on the subscription model. However, there is another business model that is on the market, which is called “Freemium”. If you google about freemium. It is a business model where customers receive some basic services for free, while more exclusive services are provided in a paid version. Some examples of businesses based on the freemium model are iTunes, Spotify, Dropbox, etc.
Today we will discuss the advantages and disadvantages of the premium and freemium models.
Freemium model
Just like in the introduction, we gave you some hint about the freemium business model of how it differs from the premium or ad-based revenue model. This business model is suitable for online businesses that have small customer acquisition value but longer lifetime value. This model is said to have been in business since the 1980s when the services were free but with certain limits. Users who wanted to go unlimited were offered their premium plans.
Since, in the initial stages, the services are free but with some restrictions and limitations, it makes consumers curious and willing to buy a premium membership. But make sure your business premium adds the right value to the price and introduces profitability. With this practice, more and more customers will be willing to buy the subscription.
As you track consumer response to your plan, platforms like Adapty come to your aid. Shows the full record of accurate analytics on consumer behaviors.
Advantages of the Freemium model
- Brand awareness: Brand awareness, also known as brand awareness, means how much of the population knows about your brand. We all know that most consumers want to save as much money as they can on the services they want. So, if your brand is providing a basic version of that service in a freemium model, it’s sure to become popular 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, as users will promote your brand for you in terms of referrals.
- 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 certainly have the upper hand in the market. Always keep a feature of yours as a USP that makes your product different from the competition. A prime example of this case may be YouTube. YouTube has certainly captured the market with its savvy marketing team and astute management. It offers people to watch videos for free while other platforms like Netflix or Amazon charge a fee for the same. Also, the financially able audience opts for YouTube Premium to get exclusive features like Zero-Ads and many more.
- Conversion Rate – The term conversion rate means the amount of population that you can convert into your premium customers. Customers who have paid for your service. The freemium business model serves as a demonstration of its services for users. Free services are provided to the users, and if you are good enough to satisfy the customer, it will not take long for him or her to purchase your premium package and become your returning customer. You can take Spotify as an example for this case. Free services are provided to its users but with some limitations like ads will be displayed and there will be no downloads etc. But since it provides one of the best audio quality and playlist collection on the market, most of the population agrees to buy the premium one. plan long to get those exclusive features.
Cons of the Freemium Model
- No Conversion Rate Guarantee – In the previous section, we counted the conversion rate on the upside of Freemium. But this can also be on the downside. Don’t you know the reason? Well, there is no guarantee that many people will buy the premium membership of your service. It’s great for big players who already have a large and loyal customer base in the market that they don’t have to worry much about this issue. But if you’re the owner of a new business, the journey may be a little rough for you.
- High Cash Burn Rate – Cash burn means how much money you are investing in your business to run operations. Sometimes it can be an overload to exhaust simple daily operations. You never know how many customers you will have that will only use the free service. The cost of maintenance and operation for those “free customers” may be a burden on you. And until then, there’s no guarantee that those people will become your repeat subscriber customers.
- Limited Features: Since you cannot provide all the features for free, they are kept locked until the 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. Below is a brief summary of the advantages and disadvantages of the premium model.
Pros 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 earn the income that you are likely to generate in the recent future, it will be easier for you to plan the strategies and campaigns for your growth.
- Higher customer retention: The chances of a customer coming back to take advantage of the service for a longer time are higher than in the freemium model. In a freemium model, many users are comfortable with limited features. That’s not the case with subscription-based businesses.
Cons of the Premium model
- Impact on Operations: In this business model, actions and decisions are completely based on the inflow of money. In the end, the amount of cash flowing into their companies will determine their decisions.
- Trends – A number of subscription-based business models are born out of the trends that are occurring. But we must keep in mind that time continues to change and the trend continues to evolve. For your business to prosper in the future, diversify your business model and make it future-proof. Stay one step ahead of the rest and create your own Unique Selling Propositions (USPs).
These were some pros and cons for the premium and freemium business models. We hope that by reading this writing, we will help you to some extent in shaping your strategy.
Read More Author: Suchi Goswami I am a BA English (Hons.) graduate and drama student from Delhi who loves to share domain knowledge related to business, technology, social media and lifestyle in the form of writing.
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