What is the Freemium SaaS Model? Benefits and Examples

If you’re building a SaaS product, you’ve probably asked yourself: Is a freemium pricing model the best way to attract users without spending too much on marketing? It’s a real struggle, especially when customer acquisition costs are climbing every day.

Think about platforms like Notion, Slack, Trello, HubSpot, and Mailchimp. Apart from building great products, these companies have successfully used the freemium strategy to drive product growth. Why? Because it is a smart marketing tactic that allows startups to test the viability of their offer in the market without draining their budget.

If you are thinking about using a freemium pricing strategy for your SaaS, here’s a detailed post on the benefits and real-world examples that break it all down.

Table of Contents

• What is the Freemium SaaS Model?
• What are the Benefits of the Freemium SaaS Model?
• Is the Freemium Model Right for Your SaaS Business?
• How to Effectively use the Freemium Model for Your SaaS Product
• Examples of SaaS Companies using the Freemium Model
• Conclusion

What is the Freemium SaaS Model?

The freemium SaaS model is simple. Companies offer a free version of their software with limited features, usage limits, or limited support.

This allows users to get started and test the product. For access to premium features or additional services, users need to upgrade to a paid plan.

The logic behind this model is straightforward. You give something for free first to build trust and engagement. Once users start seeing the value of the product, they are more likely to upgrade to the paid version for additional benefits and unlimited usage.

What are the Benefits of the Freemium SaaS Model?

The freemium SaaS model has a lot of benefits, especially if you want to grow your business without spending too much upfront.

But we’re not saying it’s all pros and no cons. The truth is, different pricing models work better for different SaaS companies. While freemium can lead to fast, viral growth for some, it’s not the best choice for everyone.

Just because someone uses your free version doesn’t mean they’ll automatically pay for the full version. You still need to plan and execute your strategy carefully to make freemium work for you.

Here’s a look at the benefits of using the freemium model:

• Builds Brand Awareness: Offering a free version of your product helps people get to know your brand. As more users sign up and use your product, they’ll tell others, which grows your brand visibility.
• Grows a Large User Base: With no cost to try your product, more people are likely to sign up. This helps you quickly build a big group of users, and as your product gains popularity, the user base can grow organically.
• Cost Savings: Since you’re not paying for users upfront, you can save money on marketing. Instead, you can focus on converting those free users into paying ones.
• Low Customer Acquisition Costs: The freemium model helps you attract users without spending a lot on ads or other marketing efforts. The free version does much of the work for you.
• Customer-Centric Approach: By offering free access, you let users see the value of your product. It also gives you the chance to gather feedback and understand their needs, which helps improve your offering.
• Successful Examples: Companies like Dropbox, Slack, and HubSpot have successfully used the freemium model to grow. For example, Dropbox started with free storage, and as users needed more space, they upgraded to a paid plan.

In today’s crowded market, where consumers are overwhelmed with choices, the freemium model stands out by offering something valuable for free, which grabs attention.

Is the Freemium Model Right for Your SaaS Business?

Before jumping into the freemium model, it’s important to ask yourself some key questions to ensure it makes sense for your SaaS product and business goals.

First, you need to find the right balance with your free plan. If you don’t offer enough value, you’ll struggle to get and keep users.

On the other hand, if the free version meets all their needs, they may never feel the need to upgrade. You have to give users a taste of what your product can do but leave room for them to see the value in the premium version.

Another thing to consider is conversion rates. With the freemium model, don’t be surprised if the conversion rate is lower than you’d like. It’s normal for most users to stick to the free version, which puts more pressure on your product’s infrastructure and your support teams.

A large free user base can be great for brand awareness, but it can also stretch your resources thin.

To make the freemium model work long-term, you need a way to balance both your free and paid users. You need enough paying customers to generate the revenue that keeps the business running and supports your non-paying users. Otherwise, you’ll end up investing more time, money, and resources into supporting users who may never convert.

So, ask yourself: Can you monetise the users who don’t convert into paying customers? Are there ways to generate revenue from them, like through ads, partnerships, or upselling additional features? And most importantly, Is your product truly ready to handle the pressure of a large free user base while still providing value to paying customers?

Make sure you're ready to take on those challenges before committing to it.

How to Effectively use the Freemium Model for Your SaaS Product

No matter the benefits or limitations, if you implement the right strategies into your freemium model, you'll definitely increase your chances of success. Here we have discussed some important tips to help:

Design Your Freemium Model to Get More Users

Make your freemium model easy for users to invite others, and your product will grow through word-of-mouth. This not only brings in more users but also helps build a loyal community around your product.

• Easy Sharing Options: Offer simple ways for users to invite others, like easy referral links for email, social media, or messaging apps.
• Offer Incentives for Sharing: Reward users for bringing in new users—both the referrer and invitee can get extra features or perks.
• Create Viral Loops: Make your product so valuable that each new user naturally invites others, like with team collaboration tools that get more useful as more people join.
• Promote Social Proof: Encourage users to share their experiences and milestones on social media to build trust and attract more users.

This approach helps your product spread naturally through word-of-mouth and creates a loyal user base.

Mix Freemium with Free Trials

A great way to entice users and show them the value of your product is by combining the freemium model with a free trial. Here’s how you can do it:

• Give Users a Full Experience: When someone signs up, offer them access to all your premium features for a limited time (usually 7-30 days). This lets users experience everything your product can do and see its full value right away.
• Clear Transition After Trial: Once the trial ends, let users drop back to the basic plan unless they decide to upgrade. Make sure the change feels natural and doesn’t cause frustration.
• Highlight the Benefits: During the free trial, emphasize how your product’s premium features solve their problems or make life easier.
• Nudge Users to Upgrade: Use timely in-app messages or emails to encourage users to upgrade. This can include reminders of the value they got from the premium features and special offers for upgrading.
• Test and Adjust: Keep track of how many users convert from free trials to paying customers. If the conversion rate is low, consider adjusting the trial period or offering more incentives.

This approach is effective because it gives users a taste of everything your product offers, making it easier for them to see why upgrading is worth it.

Find the Right Balance in Your Free Plan

To make your freemium model work, you need to find the right balance in your free plan. The goal is to make users see the benefits of your product and feel like it’s worth sticking around, but also to create a clear reason for them to want the premium features.

You can monitor how users are interacting with the free plan using product analytics tools. This will help you figure out if you’re offering too many features or not enough value.

Make sure the upgrade path is clear, so users know exactly what extra benefits they’ll get from the paid plan. By striking the right balance, you can keep users interested and encourage them to upgrade when they see the value in the premium features.

Personalise User Onboarding

Personalising onboarding helps users understand how your product fits their needs right away.

• Tailor the onboarding flow based on user sign-up information (e.g., industry, role, or usage preferences).
• Offer a quick survey or quiz at the beginning to understand the user’s goals and provide customised recommendations.
• Provide in-app tutorials or tooltips that highlight features most relevant to their needs.
• Create segmented onboarding experiences for different types of users (e.g., small businesses vs. enterprise clients).

Doing all above will help them see the benefits quicker, which will increase the chances of them upgrading from the free plan to a paid one.

Use Contextual Upsell Messages

Once users are familiar with the free plan and have seen some value, it’s time to gently nudge them to consider upgrading. Using in-app upsell messages at the right time can help.

For example, if a user has hit the limits of their free plan or is trying to access a feature not available in the free version, that’s the perfect moment to show them the benefits of upgrading to a paid plan.

• Trigger upsell messages when users approach the limits of the free plan (e.g., storage, features, usage limits).
• Display messages when users try to access features that are locked behind a paid plan.
• Use personalised language in upsell messages based on the user’s activity and progress.
• Show clear value propositions of the paid plan (e.g., more features, better support, extra customisation).

Track Usage and Trigger Timely In-App Messages

To optimize your freemium model, track how users are using your product in real-time. By doing this, you can trigger event-based in-app messages at key moments that encourage users to upgrade.

For example, if a user has been using a feature that’s only available in the premium plan for a while, remind them of the extra benefits they’ll get with a paid plan.

You can use these tools to track user behavior:

• Analytics tools like PostHog or Google Analytics can help monitor user actions and product engagement.
• Look for specific triggers like feature usage, time spent on the platform, or key account milestones.

Gather Customer Feedback

Customer feedback plays a key role in improving your freemium model. It’s important to ask your users specific questions to understand their experience and needs better. Here are some genuine questions you can ask:

• How easy was it to get started with the free plan?
• What feature do you wish was included in the free version?
• What’s the biggest reason you haven’t upgraded yet?
• Was there anything that frustrated you while using the free plan?
• How would you improve the free plan to make it more useful?

These questions will provide valuable insights into what users need and help you fine-tune your freemium offer for better conversion rates.

Understand the Costs of Supporting Free Users

Remember, free users are not actually free—they come with their own costs. You’ll need to have the resources to support them, such as server space, customer support, and product maintenance.

If you don’t have the infrastructure to provide a great experience for free users, it may be better to hold off on offering a freemium model until your company is more equipped to handle it.

Examples of SaaS Companies Mastering the Freemium Model

Slack

Slack is a tool that helps teams communicate better. It lets you send messages, share files, and connect with other apps all in one place.

Slack has nailed the freemium model by offering a free plan that provides enough value for smaller teams to get started.

What's Included in Slack’s Freemium Plan?

• 90 days of message history
• Ten app integrations
• 1:1 audio and video calls
• Messaging with people outside your organization

Slack does a great job by offering a free plan that covers the basic needs of small teams. As users’ teams grow and need more features, they’re encouraged to upgrade. This strategy helps Slack make money while keeping their users loyal. It’s a great example of how the freemium model works to attract users and turn them into paying customers.

Dropbox

Dropbox is a great example of a SaaS company mastering the freemium model. It offers a free plan that allows users to store and share up to 2GB of data. This free tier is simple and effective for personal use, enabling individuals to store basic files and share documents easily.

However, Dropbox also provides several paid plans for users who need more features. So, how successful is Dropbox's freemium strategy?

For SaaS companies, Dropbox’s approach showcases the power of the freemium model. This strategy has helped Dropbox attract millions of users and convert many of them into paying customers by offering additional value through paid plans with advanced features.

Mailchimp

Mailchimp is an email marketing tool that helps businesses send emails, create campaigns, and track their success. It's easy to use, making it a favorite for small businesses and large organizations alike.

They offer a free plan that lets you send emails to up to 500 contacts, with basic features like email support and limited automation.

For those looking for more advanced features, Mailchimp also has paid plans with more automation options, detailed analytics, and premium support. This flexibility allows businesses to start with the free plan and upgrade as their needs grow.

Conclusion

Believe us when we say it: The Freemium model is here to last.

It’s becoming a mainstay in the SaaS sector, and we get it—offering a free plan or trial is a powerful way to build trust and get customers onboard. That’s why we’ve designed a free SaaS Pricing Generator tool to help you navigate this journey.

By calculating key factors like income, expected customers, and infrastructure costs, we make it easier for you to make well-informed decisions about your pricing strategy. In the long run, this approach can help you find the right balance between free offerings and paid plans, maximizing both customer satisfaction and revenue.

Freemium models definitely have their place. When done right, they can create a solid foundation for customer engagement and retention.

Read our detailed guide on How to Use a SaaS Pricing Calculator for the Best Pricing Models.