How to make a freemium app: key benefits and best practices

From in-app purchases to monthly subscription plans, developing your mobile app pricing model or monetization model is a vital step for any app developer. It’s a tricky balancing act to find a pricing model that includes sustainability and profitability in addition to providing a quality user experience. In this guide, we cover everything marketers need to know about freemium app subscription models in 2021.

What is a freemium app monetization model?

Freemium is a pricing model that offers users an opportunity to experience a mobile app free of charge, with certain features withheld for paying customers. The user can then choose to continue using the app for free or spend money to access premium content, either through a subscription service or by completing in-app purchases.

A big benefit of the freemium monetization model is that marketers can acquire users on a much larger scale than apps which require users to pay to install. The model is also gaining in popularity with subscription revenues increasing to US$13 billion in 2020 — a $3.3 billion increase over the previous year. This figure is even more impressive when you consider that major apps like Netflix, Spotify and most recently Epic Games removed the ability to subscribe or be billed through the App Store and Google Play Store.

When implementing a freemium model, you’ll need to extensively test, review and optimize your monetization strategy. Identify how users want to spend their money and which additional features would encourage them to subscribe. Analyzing customer feedback is also a smart method for finding new ways to generate more revenue and spot any issues with your user experience.

Benefits of freemium modeling

There are a whole range of ways a freemium model can help you achieve your marketing goals. Below are five benefits of freemium app monetization.

1. Reaching a larger audience

   Users are more likely to download an app they can try before spending their cash, which can benefit mobile marketers. For example, there will be a percentage of your audience who would never install a paid app, but can still be persuaded to spend money on a freemium app’s subscription once they become more familiar with your brand. Another benefit is that with a larger audience, you gain more data that can be analyzed to optimize your marketing strategy.

2. Maximizing your potential revenue with a mixed monetization strategy

   App marketers can still monetize users who aren’t necessarily interested in a subscription: in-app ads and in-app purchases are other monetization models that can be used in tandem with a freemium app to provide multiple sources of revenue.

   Offering users the opportunity to remove ads or a discount for in-app purchases can be an effective incentive once the user is invested in your app experience and wants to upgrade.

3. Offering more opportunities for virality

   Most marketers should expect the majority of users to never select an upgrade, but this isn’t necessarily a cause for concern. With more users opening your app, there are many ways in which your app can gain free viral advertising. In addition to generating revenue through in-app ads, these users can help increase organic installs through brand awareness and positive word-of-mouth.

4. Making the most of positive reviews

   In theory, users will be more likely to give a free app with a quality service a positive review in the app store. This will help your ASO efforts and boost your overall category ranking, increasing the number of organic installs generated through your app store rating.

5. Cut down on costs

   Different tiers of features for your app allows you to carefully allocate resources towards users that provide high lifetime value (LTV). While the free version should function well and serve your users’ needs, you can prioritize support and optimization for your app’s paid users and features. This way you get to determine the operational pricing you need for your model to be profitable.

Three examples of freemium apps and their app subscription models

There are several ways you can develop your freemium app monetization model. Much of this depends on your app’s vertical. Below are three examples of popular freemium apps and how their subscription models work.

Dating: Tinder

As of February 2021, Tinder made up 53.8% of the dating market share and has 66 million monthly active users (MAU) — a figure that can be attributed in part to the dating app’s free access.

• Tinder has multiple subscription offers to choose from. Users can download the app, swipe through potential matches and set their age and distance preferences free of charge. However, once a user swipes left (to avoid matching with another user) that profile is gone forever. There is also a limit to the number of likes a user can perform per day. With these features all available free of charge, here’s how Tinder offers several services as upgrades to its dating audience.
• Tinder Plus is a premium feature that gives users unlimited likes, the ability to ‘rewind’ to find a previously swiped user, and more “Super Likes”. These likes are limited and are designed to stand out from regular likes. Super likes increase a user’s chance of matching. Users can also boost their visibility on the app once a month, and have an ad-free experience.
• Tinder Gold offers all of the same features as Tinder Plus, with additional access to features such as “Likes You,” where users can view who has liked them before matching.

Of Tinder’s MAUs, 6.6 million (10%) are paying subscribers. Tinder achieves this by offering a wide array of subscription tiers to attract users depending on what they want out of the app. Tinder Platinum offers users even more features including “Priority Likes”, whereby the user’s profile is fast-tracked into a potential match’s stream, and “Message Before Match,” which allows users to attach a message to their Super Likes.

Entertainment: Spotify

Spotify has quickly established itself as a music streaming giant, with 365 million MUAs as of (Q2 2021). Spotify also boasts that 165 million of these users are subscribers to their premium service, a 20% increase over the previous year.

Spotify’s freemium model means users can stream over 70 million tracks and 2.9 million podcasts for free with ads playing after a set listening time or after a certain number of skipped songs. Users with a subscription gain an ad-free service and can download tracks for offline listening. Spotify Premium is initially available as a free trial, after which there are different pricing plans for individuals, pairs, families and students.

Spotify’s diverse range of subscription plans is a great example of how to cater to users’ individual needs. This approach pays dividends: Spotify’s quarterly revenue in Q2 2021 was just over €2 billion from premium users alone, with an additional €275 million generated from ads stemming from their free version.

Health and Fitness: MyFitnessPal

MyFitnessPal is a health and fitness app with over 200 million users. In 2020, the app made $128 million in revenue. Users can install MyFitnessPal for free to gain access to meal logging, while those interested in a more granular service can subscribe to MyFitnessPal Premium for customizable goals and receive guided fitness plans, in-depth performance analysis and insights. Subscribers can also export CSV files of their progress and adjust daily calorie goals.

With $6 million in revenue and 800k downloads from July 2021, MyFitnessPal’s ad free subscription model proves to be a robust freemium model for any app considering this pricing model.

How to make a freemium app: Five best practices

1. Define your KPIs:

Defining your KPIs will help you reach your overall targets faster, and will also help you understand which events should be tracked. Freemium models mean advertising to a large audience, so you may want to consider KPIs such as Cost Per Acquisition Channel (CAC), retention rate and churn. This will help you bring non-paying users back to your user funnel with the hopes of turning them into a paying customer.

Tracking the right events also means you can identify ways to improve your app’s services. For example, if Spotify changed the frequency of their ads per number of songs and noticed an increased churn rate, they can readjust this frequency based on that analysis.

2. Give users a free trial period of your paid plan

For users, there’s a considerable difference between a free service and a paid service - so offering a free trial is a smart way to bridge the two offerings and let users better understand the benefits of your premium version. Free trials can assure users that your paid features are worth paying for while also giving marketers more insight into the number of users who may be interested in subscribing long-term.

3. Don’t undervalue the free version of your app

Although your goal may be to generate revenue by driving subscriptions, don’t underestimate the importance of your app’s free version. Instead, consider it as an important step in the user funnel. A user will need to appreciate an app’s functionality and UX before commiting to a subscription further down the line. By ensuring the free version of your app is a quality experience and invaluable to your users, you can boost MUAs which will in turn lead to more paid subscribers. Both your free version and subscription packages should provide a positive experience, with the option to upgrade to something even better.

4. Market research

Closely observing your competitor’s performance as a freemium app is a smart way to learn both pitfalls and successful practices for your app. You should also consider which features are not being offered to users within their free version and subscription packages. From there, you may decide to include certain features in your own free version, offering a more comprehensive service to your competitor’s users.

5. Grow your subscription business with more accurate data

To make sure you’re investing in the right channels, preventing churn and increasing user LTV, you need to understand the life cycles of your customers and how they’re generating revenue. With subscription tracking solutions from Adjust, you can grow your subscription business with the most accurate data, all in one place.

For more insights, read our complete guide to App Monetization Trends or to stay on top of the latest industry insights, check out our Mobile App Trends Report 2022.