Most founders choose freemium because it feels like the safest bet. Give people a free version, let them experience the value, and eventually, they’ll upgrade. Sounds reasonable, right?
But here’s the reality:
The majority of free users never convert. They sign up, use the product, and never turn into buyers. In this blog, we’ll break down why freemium fails for most startups, the rare situations where it actually works, and the pricing strategies that bring revenue instead of vanity metrics.
Contents
Why the Freemium Pricing Model Doesn’t Work for Most Products
Here are the three reasons freemium breaks down for most products:
- Free users cost real money
Every free user on your platform is costing you server infrastructure, customer support tickets, onboarding emails, bug fixes, and maintenance – none of it is free. And here’s the part most founders underestimate: research shows that 30-40% of your team’s resources go toward supporting users who generate zero revenue. If they don’t convert, you’re literally paying people to use your product.
- You attract the wrong audience
Freemium doesn’t just attract users; it attracts freebie-seekers. People who are conditioned to expect everything free, forever. These aren’t your ideal customers. These are people hunting for free tools, and if you stop offering a free plan, they’ll just move on to the next free alternative. They were never going to buy from you anyway.
- Free users drown you in bad data
More users mean more analytics and more metrics to track. On the surface, this sounds helpful. But you end up drowning in data that doesn’t answer the question: why aren’t people buying? You may try talking to users directly, but most free users either don’t want to talk to you or, when they do, they give you terrible advice.
At this point, freemium probably sounds like a bad idea. And for most products, it is. But before we rule it out, let’s see when the freemium model actually works.
Does Freemium Pricing Model Always Fail?
No, freemium does work for some companies, but it requires three factors to succeed. Without all of them, you’re essentially paying users to never become customers:
- Network effects
Your product becomes more valuable as more people use it. For example, Slack, Zoom, or Notion. When your coworker invites you to a Slack workspace, you join because that’s where the conversation is happening. More free users don’t just cost you money; they actively make the product better for paying customers.
- Near-zero customer acquisition cost
Your product spreads itself. Users invite other users, who invite more users, and the cycle continues without you spending a dollar on ads. You’re not paying to acquire these people; they’re showing up because someone they trust told them to.
- Massive VC funding
You can afford to burn cash for two years (or more) while you figure out the conversion mechanics. You’ve got runway to experiment, iterate, and lose money on 95% of your users while you optimise for the 5% who might eventually pay.
If you don’t have all three of these, freemium is a trap.
Pro Tip: Don’t Use Freemium to Figure Out Pricing
Take Mailchimp, for example. Most people think they built their business on freemium from day one. Actually, they spent years building a profitable, premium-only product first. They ran countless pricing experiments and only then introduced their forever-free plan in 2009. By that point, they knew exactly where to draw the line between free and paid because they had real usage data from paying customers.
Why Time-Limited Trials Work Better Than the Freemium Pricing Model
Most people don’t know this:
Freemium barely converts 2-5% of free users, while free trials pull 15-25%.
Five times better.
Why? Because of urgency.
When you offer a free trial, you’ve got 7-14 days to prove your product’s worth. After that, they either pay or they walk. That time pressure works in your favor because it pushes people to engage with your product when they download it.
How to Structure a Free Trial That Filters Freebie Seekers?
Here’s how:
- Give users full access (or close to it) for a limited time so they can experience the real value without hitting artificial walls.
- Invest in strong onboarding because if users don’t understand your product’s value within the trial window, they’ll churn out.
- Make the “aha moment” happen fast, ideally within the first few days, not on day 13 of a 14-day trial when it’s already too late.
The bottom line?
Time-based trials force a decision. Either users see enough value to pay or they don’t, and you both move on. No endless maybes dragging out the inevitable, just a yes or no that lets you focus on the people who actually want to buy.
Which Companies Should Use Free Trials?
Free trials work best for B2B SaaS, complex or high-consideration products, and tools that need onboarding or guidance before users experience real value.
If You Can’t Use a Free Trial, Try These 3 Pricing Models
Not every product works well with a time-limited trial. If your tool takes weeks to show value, or if onboarding is too complex to cram into 14 days, you need a different approach.
Here are three pricing models that can work for your business:
1. Usage Pricing
You charge based on what customers actually use: per seat, per email sent, per gigabyte stored, per API call. The reason it works is simple: The price scales with the value your customers get. Small customers pay small amounts, big customers pay big amounts, and it grows naturally with their business.
2. Tiered Pricing
Start with three tiers: basic, standard, and premium. The middle tier almost always wins because it looks like the smart choice when sandwiched between a cheap option and an expensive one. The reason it works is simple: You’re giving customers clear choices without overwhelming them, and the structure naturally pushes people toward higher-value plans. Plus, it’s easy to upsell when someone outgrows their current tier.
3. Reverse Trial
Instead of offering a free trial, charge customers upfront and offer a 30-day money-back guarantee. This filters out tire-kickers and leverages commitment bias. Once someone pays, they’re psychologically more invested in using the product and justifying their purchase.
The key takeaway here is that none of these models rely on hoping free users eventually convert. They’re built around charging customers from the start, so you generate revenue immediately instead of waiting months for upgrades that might never happen.
Conclusion: There’s No Universal Pricing Model
The best pricing model is the one that gets people to actually pay you.
Freemium pricing works if you have network effects, virality, and millions in funding. Free trials work if you can deliver value fast. Usage-based pricing works if your costs scale with usage. Tiered pricing works when features and customer needs align cleanly.
The problem isn’t that one model is better than another. The problem is that most founders choose a model without thinking through whether it actually fits their business. And by the time they realise it’s not working, they’ve already burned through months of runway and resources.But even after you’ve figured out your pricing, the next challenge is getting people to notice your product in the first place. After all, you can have the best pricing model in the world, but if nobody knows you exist or understands what you’re selling, it doesn’t matter. At Brandshark, a digital marketing agency in Bangalore, we help SaaS companies cut through the noise with content marketing and SEO strategies that actually drive traffic and conversions. If you need help getting in front of the right audience, reach out to us today!
