The model is particularly suited to software-as-a-service (SaaS) companies, web and mobile apps as the cost of distribution can be insignificant as long as the free version of a product does not cannibalize the company’s premium products. The freemium business model is used as a marketing tactic by technology companies to grow the user base, create brand awareness, disrupt the competition, and enter price-sensitive markets.
A freemium offering has several advantages. In the first place, customers can try your product to some extent before they actually decide to buy it. In addition, you can uncover insights such as the product features that your users are mostly excited about. Furthermore, you can identify the market segments and the audiences which are mostly interested in your product. The freemium business model can help a company to scale up, gain traction and grow the user base without relying on a sales team or investing on marketing campaigns that require a substantial advertising investment.