Freemium is a pricing model in which a basic version of a product is free and users pay for advanced features, higher limits or extra services. The free tier works as marketing, and the paid tier produces the revenue.
What it means
The name blends the words free and premium. Users start without paying, experience the value and upgrade when they need more. For the company, the free users are not the goal in themselves. They are a source of future customers, referrals and feedback.
Where the term comes from
The word was coined in 2006 by Jarid Lukin, who proposed it after the investor Fred Wilson described the model on his blog: give a service away for free, build a large audience through word of mouth and sell a premium version to a share of it. The model itself existed in software long before it had a name.
Common ways to divide free and paid
- Feature limits: advanced functions are available only on paid plans.
- Usage limits: the free plan allows a set number of projects, users or actions.
- Time limits: a free trial turns into a paid plan after a period.
- Support or branding: paid plans remove ads or labels and add support.
Risks
Free users cost money to serve, so the share who convert to paid must be high enough to cover them. If the free tier is too generous, few people upgrade. If it is too restrictive, people leave before they see the value. The right balance usually takes several rounds of testing.
Common mistakes
Offering a free plan without a clear reason to upgrade is the most frequent error. Another is gating features that are essential to the product’s core promise, which frustrates users instead of persuading them.
In launch work
A free tier lowers the barrier for launch visitors, who can try the product immediately. It suits tools with low serving costs and clear upgrade triggers.
Related entries
See Product-led growth, Monthly recurring revenue, Churn and Lifetime deal.
Freemium is part of Revenue and funding.