Freemium

Say a scheduling tool has 10,000 free users and 2 per cent upgrade to a £10 plan. That is 200 paying customers. If the free users cost almost nothing to serve, the maths works. If each one costs real money in support or computing, the free plan quietly drains the business. Always count the cost of a free user, not just the revenue of a paying one.

• Put the limit on something that grows with the customer's success, such as projects, contacts, team members or usage. Keep the core value free.
• Give the free plan enough to be useful on its own. A plan that is too thin gives nobody a reason to stay and tell others.
• Track how long free users take to reach the limit. A short, obvious upgrade moment is the sign of a good split.
• Watch the ratio of free to paid users over time. A widening gap usually means the free plan gives away too much.
• Measure activation rate for free users, since a user who never gets value never upgrades.

A freemium product has a free plan that never expires and one or more paid plans above it. That separates it from a free trial, which gives full access for a short period and then asks for payment. A free plan never forces a decision, so users can stay for months until they outgrow it.

The free plan is a distribution channel. Free users tell colleagues, write reviews and bring the product into their next job. Only a small share ever pay, so the model suits products that are cheap to serve and easy to share.

• Gating the main benefit, so free users never see it working.
• Ignoring the cost of serving free users in the unit economics.
• Treating free users as a funnel only. They are also a source of referrals.