Freemium is a business model in SaaS where a product is offered for free at a basic level, while more advanced features, usage limits, or premium support are reserved for paying customers. The term combines “free” and “premium,” and it’s designed to attract a large base of users quickly, then convert a portion of them into revenue over time. Unlike free trials, which expire after a set period, freemium gives users ongoing access to the product—sometimes indefinitely—while creating a natural path to upgrade.
In practice, freemium works best when the free tier delivers enough value to get users invested, but the premium tier provides meaningful enhancements that users eventually need. For SaaS companies, the goal isn’t just user acquisition; it’s optimizing the conversion rate from free to paid while keeping the free tier attractive enough to fuel growth and network effects. It’s a delicate balance—too generous a free tier can cannibalize revenue, while too limited a tier may fail to engage users at all.
Example
Consider a SaaS company that offers cloud-based design software. The free plan allows users to create and export basic designs, but advanced templates, collaboration features, and priority support are behind the paid tier. A solo designer can start using the product immediately without risk, while small agencies quickly realize they need team collaboration features. When an agency reaches that point, the value of upgrading becomes obvious, and the free-to-paid conversion occurs naturally.
Over time, data shows that users who engage with free features like collaborative commenting are far more likely to upgrade than those who stick to solo projects. This insight informs both product design—emphasizing collaborative features in the free tier—and marketing messaging, highlighting the benefits of premium plans for teams.
Use case in practice
Freemium is often used as a go-to-market strategy in competitive SaaS markets, especially when reducing friction for trial or adoption is critical. Product teams use freemium to test feature adoption, gather usage data, and learn which capabilities drive upgrades. Marketing teams leverage it to grow brand awareness and generate organic referrals. Customer success teams monitor usage patterns in free accounts to identify and nurture potential upgrades proactively.
On software listing and review platforms, freemium models can improve visibility because users are more willing to try products they don’t need to pay for upfront. Positive reviews often stem from free users experiencing meaningful value before committing financially. Ultimately, freemium is about creating a pipeline of engaged users who see enough benefit in the product to eventually invest, turning adoption into sustainable revenue.