Freemium

Freemium is a business model where a product's core or basic version is offered for free indefinitely, while advanced features, higher usage limits, or additional seats require a paid subscription. The name combines 'free' and 'premium.' Slack, Zoom, Spotify, and Dropbox built enormous user bases on freemium. The freemium model bets on volume: acquire a large free user base, then convert a percentage to paid. Typical freemium conversion rates range from 2-5% for consumer products to 5-15% for B2B tools where the buying decision is professional rather than personal. The math works when lifetime value of converted users exceeds the cost of supporting all free users. For B2B SaaS, freemium serves as the foundation of product-led growth—users experience value before any sales conversation, creating bottom-up adoption within companies. When enough team members or employees use a tool on the free tier, upgrading to paid becomes an organizational decision rather than a procurement battle. Where freemium breaks down: if the free tier is too generous, there's insufficient incentive to upgrade. If it's too restrictive, users don't experience enough value to want to pay. Getting the feature gate right is a conversion optimization problem that most companies solve through experimentation over time. Also watch the unit economics: if free users consume significant support or infrastructure cost, freemium can be a loss-leading trap.

• 1Slack's freemium limited message history, creating upgrade pressure as teams grew
• 2Figma's free tier allowed individual designers to work fully featured, driving company adoption