Subscription is the idea of assigning customers on a recurring basis. You may have noticed that there are many apps that are willing to offer their exclusive services to a few unique customers who pay them for that term. But on the other hand, there are some apps that don’t collect any money and treat all their customers equally. But why is this?
Platforms don’t charge you any money based on the ad revenue model, which means that the money they receive is not from customers but from the companies that run their ads. There is a famous quote by Tristan Harris, former Google design ethics expert: “If you don’t pay for the product, you are the product.” — This means that the end product that brings them revenue is you.
Also Read:- YouTube Premium 2023 Full Review
Some entertainment platforms, like Netflix, Amazon Prime, Disney Plus, HBO Max, etc., are subscription-based. However, there is another business model in the market, called “Freemium”. If you search on Google about freemium. This is a business model where customers are provided with some basic services for free, while more exclusive services are offered on the paid version. Some examples of businesses based on the freemium model are iTunes, Spotify, Dropbox, etc.
Today we are going to discuss the advantages and disadvantages of both the paid model and the free model.
Freemium model
As in the introduction, we gave you a definite hint on how the freemium business model is different from the premium or ad-based revenue model. This business model is suitable for online businesses with small customer conversion value but more lasting value. It is said that this model has been in business since 1980 when services were provided free of charge but with certain limitations. Users who wanted unlimited use were offered their premium plans.
Since the services are free in the early stages but have some limitations and limitations, it intrigues consumers and makes them ready to buy premium memberships. But make sure your business’s premium adds value in line with the price and is cost-effective. With this approach, more and more customers are willing to buy a subscription.
While monitoring consumer reactions to your plan, platforms like Adapty will help. It displays a complete profile of accurate analytics on consumer behavior.
Advantages of the Freemium model
- Brand popularity: Brand popularity, also known as brand awareness, means the mass of the population that knows your brand. We all know that the majority of consumers want to save as much money as possible for the services they desire. Therefore, if your brand is offering a basic version of that service on a freemium model, it will certainly become popular among the masses. This technique is used by many enterprises in practice, which makes this model more reliable and trustworthy. This quality also saves money on promoting your brand as users will promote your brand to you in terms of references.
- Competitive killer: With this marketing strategy, you don’t have to spend much money on advertising compared to your competitors, you will definitely have the upper hand in the market. Always keep a feature of yourself in the form of a USP that sets your product apart from the competition. A good example of this might be YouTube. YouTube has certainly captured the market thanks to its clever marketing team and wise management. It offers people to watch videos for free while other platforms like Netflix or Amazon charge the same. Moreover, the financially able audience will use YouTube Premium to get exclusive features like No Ads etc.
- Conversion Rate: The term conversion rate means what percentage of the population you can convert into your premium customers. Customers who have paid for your service. The freemium business model serves as a demo of their service to users. Free services are provided to the users and if you are good enough to satisfy your customers, they will not take time to buy your premium plan and become your recurring customers. You can take Spotify as an example for this case. The free services are provided to the users but with some limitations like they will be showing ads and not downloading etc. But as it offers one of the best playlist collections and audio quality. the best in the market so the majority of the population agrees to buy the premium plan for a long time to get those exclusive features.
Disadvantages of the Freemium model
- No Conversion Rate Guarantee: In the previous section, we calculated the conversion rate on the positive side of Freemium. But this can also be on its negative side. Don’t know the reason? Well, there is no guarantee that many people will buy a premium membership of your service. It’s great for the big players who already have a large and loyal customer base in the market where they don’t have to worry much about it. But if you are a start-up owner, the journey can be a bit daunting for you.
- High Cash Burn Rate: Cash burn means how much money you are investing in your company to perform operations. Sometimes it may incur costs to perform simple daily activities. You never know how many customers you will have that will just use the free service. Maintenance and operating costs for those “free customers” can be burdensome for you. And to that extent, there’s no guarantee those people will convert into your recurring subscribed customers.
- Limited Features: Since you can’t offer all features for free, they are locked until you purchase a premium membership. It can lead to boredom with zero conversion rates.
These are some of the advantages and disadvantages of the freemium business. For the next section, we will have similar discussions but for premium models.
Premium model
Unlike freemium, you can get nothing without money. Netflix and several other streaming platforms can be examples of high-end business models. The following is a brief summary of the advantages and disadvantages of the premium model.
Advantages of the high-end model
- Stable and recurring income: With the Paid business model, it is easier to predict or guarantee a certain amount of income for your business. If you can get 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 opportunity for customers to return to use the service for a longer time is higher than with 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 based entirely on cash inflows. Ultimately, the amount of cash flowing into your business will shape your decisions.
- Trends: Several subscription-based business models emerge from ongoing trends. But we must keep this in mind that times are constantly changing and trends are constantly evolving. For your business to thrive in the future, diversify your business model and make it future-proof. Stay one step ahead of everyone and build your own Unique Selling Proposition (USP).
These are some of the pros and cons to both premium and freemium business models. We hope that reading this article will help you somewhat in shaping your strategy.
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