Freemium Pricing Model – How It Works

In the world of SaaS, mobile apps, and digital services, the freemium pricing model has become one of the most popular and widely adopted strategies. It allows users to access basic features for free, while offering premium upgrades for those who need more functionality or support. This model can drive massive user adoption and recurring revenue when implemented correctly.

In this guide, we’ll break down how the freemium pricing model works, examine the benefits and risks, and go through more than one freemium pricing model example so you can see how it’s used in real-world businesses.

What Is a Freemium Pricing Model?

The freemium pricing model is a combination of “free” and “premium.” It allows users to start using a product or service at no cost, typically with limited features, usage, or support. The idea is to give users enough value for free that they become comfortable with the product, eventually converting to a paid tier for additional benefits.

The freemium model is especially common in:

• SaaS platforms
• Productivity apps
• Design tools
• Educational platforms
• Consumer mobile apps
• Gaming services

A successful freemium pricing model example typically includes at least two paid tiers in addition to the free version, offering more functionality, storage, or user limits.

Why Companies Use the Freemium Model

Offering a free version of your product may sound risky, but it’s a proven way to drive user acquisition and build brand loyalty. Some of the top reasons businesses use this model include:

• Reduces friction in customer acquisition
• Generates large user bases quickly
• Encourages product-led growth
• Allows for upselling once value is experienced
• Builds network effects and referrals

However, while it’s easy to give your product away, the challenge lies in converting free users into paying customers. That’s where a well-structured freemium pricing model example becomes crucial.

Core Components of a Freemium Pricing Model

A freemium pricing strategy generally includes:

• Free Plan: Offers limited features or access, allowing users to try the product risk-free
• Upgrade Path: Clear steps to move users from free to paid plans
• Usage Limits: Restrictions based on feature access, number of users, time, storage, or integrations
• Premium Features: Advanced tools, support, or customization offered only on paid tiers
• In-App Messaging or Nudges: Prompts that remind users of what they’re missing in the free plan

These components need to be carefully balanced. Give away too little, and users don’t stay. Give away too much, and they never upgrade.

Freemium Pricing Model Example: Zoom

Zoom is one of the best-known SaaS tools using this model. Here’s how Zoom structures its tiers:

• Free Plan: 40-minute meetings, up to 100 participants, basic features
• Pro Plan: $14.99/month with unlimited meetings, reporting, and more admin features
• Business Plan: $19.99/month with custom branding, SSO, and up to 300 participants

This freemium pricing model example shows how usage limits (like meeting duration) encourage users to upgrade, especially in a professional context.

Freemium Pricing Model Example: Trello

Trello, the visual project management tool, uses a clean freemium model:

• Free Plan: Unlimited cards, 10 boards per workspace, basic integrations
• Standard Plan: $5/month for unlimited boards and advanced checklists
• Premium Plan: $10/month with dashboard views, calendars, and automation

Trello allows users to experience the full core of the product in the free tier, but adds value and productivity gains at higher tiers.

Freemium Pricing Model Example: Spotify

In consumer services, Spotify is a great example:

• Free Plan: Ad-supported music streaming, limited skips, no offline listening
• Premium Plan: $9.99/month with offline access, no ads, unlimited skips
• Family and Duo Plans: Bundles for shared accounts at discounted prices

This freemium pricing model example is tailored for mass-market adoption, using ads to monetize free users while offering a smoother experience to premium subscribers.

Benefits of the Freemium Pricing Model

1. Rapid User Growth

A free plan eliminates the barrier to entry. Users can start using your product immediately without commitment, leading to faster onboarding and exponential growth, especially with product-led acquisition strategies.

2. Low Cost Per Acquisition

You spend less on paid advertising and sales efforts when your product markets itself. The product becomes your top acquisition channel, reducing CAC over time.

3. Upsell Opportunities

As users become dependent on the tool, they’re more likely to upgrade. Premium features that align with user growth or usage make the jump from free to paid feel natural.

4. Strong Word of Mouth

Free users often refer others to your platform. A widely used freemium pricing model example usually goes viral or spreads quickly through user recommendations.

5. Data and Feedback Collection

Free users provide valuable usage data and feedback, helping you iterate on the product, discover new use cases, and improve retention strategies.

Challenges of the Freemium Model

Despite its popularity, this model isn’t without risks. Some of the key challenges include:

1. Low Conversion Rates

Many free users never upgrade. Industry benchmarks suggest only 2-5% of freemium users convert to paid plans. Without a compelling reason to upgrade, most users remain in the free tier.

2. High Support Costs

Free users still consume resources. If you don’t limit support or have clear boundaries, your customer service team may become overwhelmed.

3. Diluted Brand Perception

If your product is too good for free, it may reduce the perceived value of your paid plans. It’s important to make sure paid tiers offer clear, unique benefits.

4. Monetization Risk

Revenue depends heavily on converting users and minimizing churn. Without a strong upgrade path, profitability may suffer even with a large user base.

5. Infrastructure Load

Handling a large number of free users requires technical resources. You’ll need scalable infrastructure to support spikes in demand without hurting performance.

When to Use the Freemium Model

This model works best when:

• Your product has low marginal cost per user
• The value increases over time (habit-forming or recurring use)
• You can clearly separate free and paid features
• You have analytics in place to identify upgrade triggers
• Your audience includes early adopters or viral growth potential

A good freemium pricing model example balances cost and value, allowing free users to experience the core product without undermining paid revenue streams.

Best Practices for Freemium Pricing

1. Design for Conversion

Start with the end in mind. Identify features that free users will value but will eventually need more of. Structure your pricing tiers around these needs.

2. Limit Usage, Not Experience

Don’t cripple the free version. Instead, limit usage caps such as number of projects, file size, or user seats. The product should be functional and valuable enough to retain users.

3. Offer In-Product Upgrade Nudges

Use contextual prompts to highlight the benefits of upgrading. For example:

• “Upgrade to store more than 10 projects”
• “Unlock analytics with Pro Plan”
• “Remove ads and download files with Premium Access”

These reminders work better when tied to real user behavior.

4. Nurture Free Users

Use onboarding sequences, webinars, and educational content to show users how to get the most from your product. Engaged users are more likely to convert.

5. Analyze and Optimize Continuously

Monitor key metrics like:

• Free-to-paid conversion rate
• Time to upgrade
• Churn rate by plan
• Activation milestones
• Upgrade triggers (features used, usage volume, etc.)

Refine your tiers, upgrade paths, and feature packaging based on this data.

Tiered Pricing Within Freemium Models

Most freemium pricing strategies are layered with tiered pricing. After the free plan, there are often two or three paid levels to serve different use cases.

A typical structure may include:

• Free Plan
• Starter/Standard Plan
• Pro or Growth Plan
• Enterprise or Custom Plan

Each step should unlock meaningful new value and be clearly positioned for a specific segment of users. Read more about this approach in our article about tiered pricing strategy.

Final Thoughts

The freemium pricing model offers a compelling way to scale user acquisition, lower marketing costs, and create viral growth. When paired with strong product design and smart upgrade paths, it becomes a powerful strategy for recurring revenue.

By studying each freemium pricing model example carefully, you can identify what makes this approach work across different markets. Whether you’re launching a new SaaS tool, mobile app, or content platform, the key to success lies in balancing generosity with strategic limitations. If you’re considering this model, start small, monitor results closely, and always be ready to refine your pricing tiers based on real user behavior.