# Freemium

> Discover the definition of freemium and learn how this business model boosts user acquisition and revenue.

*Canonical: https://derrick-app.com/glossary/freemium*

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Freemium: Freemium is a business model where a company offers basic features of a product or service free of charge, while charging a premium for advanced features, functionality, or virtual goods.The freemium model is widely used in digital marketing and sales automation to attract a large user base by lowering the barrier to entry. By offering a free tier, companies can generate interest and engage potential customers without immediate financial commitment. This approach is especially effective in software and mobile applications, where users can experience the core value of the product before deciding to invest in additional features. In the context of sales automation, freemium models allow businesses to nurture leads, gather valuable data, and convert free users into paying customers over time. The success of the freemium model relies on a well-defined balance between free offerings and premium features, ensuring that users find enough value in the free version while providing enticing incentives to upgrade.

## Example

For example, a customer relationship management (CRM) software company might offer a freemium version that allows small businesses to manage up to 100 contacts, access basic email templates, and track simple sales metrics at no cost. As the business grows, they might need advanced features like automated follow-up sequences, detailed analytics dashboards, or integration with other business tools. At this point, they can upgrade to a premium tier at $29/month to unlock these capabilities. The company benefits from this model by attracting thousands of free users who serve as potential premium customers, while users benefit by testing the platform risk-free before committing to a paid subscription. Studies show that typically 2-5% of freemium users eventually convert to paying customers, making this a viable customer acquisition strategy when scaled effectively.

## Related definitions

- [Forward Revenue](https://derrick-app.com/glossary/forward-revenue)
- [Freemium Models](https://derrick-app.com/glossary/freemium-models)
- [Fulfillment Logistics](https://derrick-app.com/glossary/fulfillment-logistics)
- [Functional Testing](https://derrick-app.com/glossary/functional-testing)
- [Funnel Analysis](https://derrick-app.com/glossary/funnel-analysis)
- [Funnel Optimization](https://derrick-app.com/glossary/funnel-optimization)
- [Gamification](https://derrick-app.com/glossary/gamification)