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What Is a Freemium?

What Is a Freemium?

A combination of the words “free” and “premium,” the term freemium is a type of business model that involves offering customers both complementary and extra-cost services. A company provides simple and basic services for free for the user to try; it also offers more advanced services or additional features at a premium.

The term freemium is attributed to Jarid Lukin of Alacra, a provider of corporate information and workflow tools, who coined it in 2006. The practice, however, dates from the 1980s.

Understanding Freemiums

Under a freemium model, a business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, enhanced storage or usage limits, or an ad-free user experience for an extra cost.

The freemium model tends to work well for Internet-based businesses with small customer acquisition costs, but high lifetime value. The freemium business model allows users to utilize basic features of a software, game or service free, then charges for “upgrades” to the basic package. It is a popular tactic for companies just starting out as they try to lure users to their software or service.

[Important: Freemiums as a practice date from the 1980s, though the term was coined in 2006.]

Since the 1980s, freemium has been common practice with many computer software companies. They offer basic programs to consumers that are free to try but have limited capabilities; to get the full package, you have to upgrade and pay a charge. It is a popular model for game companies as well. All people are welcome to play the game for free, but special features and more advanced levels are only unlocked when the user pays for them.

Freemium games and services can catch users off guard, as they may not be aware of how much they (or their kids) are spending on the game, as payments are made in small increments.


  • Freemiums represent a business model in which a company offers basic features to users at no cost and charges a premium for supplemental or advanced features.

  • Freemium as a practice dates from the 1980s, though the term was coined in 2006.

  • Freemiums are especially popular among computer software makers/providers and Internet-based businesses.

Examples of Freemiums

An example of a company that uses the freemium business model is Skype, the firm that allows you to make video or voice calls over the Internet. There’s no cost to set up a Skype account, the software can be downloaded for free, and there’s no charge for their basic service—calling from a computer (or a cell phone or tablet) to another computer.

But for more advanced services, such as placing a call to a landline or mobile phone, you do have to pay, albeit a small amount compared to conventional phone company charges. Text messages and video conferencing among as many as 10 users are other premium services.

Another popular employer of freemium—one of the earliest to do so—is King, the developer of the highly popular Internet game Candy Crush Saga. The addictive activity, available on the site, on Facebook, and on apps, is free to play. It allows users an allotted number of lives within a certain timeframe, but charges for extra lives if one wanted to play more during that window. Users also can pay for “boosters” or extra moves to help win the levels and advance through the game more easily.

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4 Mistakes Freelancer Should Avoid in 2020

There are many words one could use to describe a freelance career – among them are fun, flexible, challenging, exciting, and interesting. But one word that few seasoned freelancers will use is ‘easy’. Although freelancing empowers you to work as independent agent and may offer a more flexible lifestyle than a corporate career, it can also be extremely demanding.

Whether you’re a graphic designer, a writer, a developer, a trainer or a videographer, you’ll probably face long hours, unpredictable revenue streams, and high client expectations. Because you’re flying solo, there is little room for error – underquoting on a big job, taking on more work than you can handle, and unreasonable client demands can all put a big dent in your profits.

Here are a few of the most common mistakes freelancers make, along with tips to avoid them:

  1. Not staying on top of the finances.
  2. Spreading yourself too thin.
  3. Failing to set terms and conditions with clients.
  4. Neglecting the non-billable aspects of the business.

Let’s jump in to the tips.

Mistake #1: Not staying on top of the finances

Many people move from a full-time job to a freelance career with only a vague idea of the financial implications. Your earning power might look high when you look at it as a per-hour number, but it’s important to remember that you’ll need to pay for many things yourself that your company would have supplied when you were working full-time.

Inexperienced freelancers often discover that their earnings fall short once they have made provision for things like business expenses (accounting fees, computer equipment, stationery, etc.), annual leave and sick leave, and personal income tax. Some also don’t take into account that not every client can be relied on to pay cash on delivery or even within 30 days.

How to avoid this mistake

  • It’s important to build a buffer of three to six months in your bank account, so that you can keep going when clients are slow to pay or business is quiet.
  • Keep financial records – for example, on a basic cloud accounting package or spreadsheet – so that you can understand your expenses and income.
  • Don’t just look at your bank account – keep track of the money due to you and the money you must pay out in the future.
  • Find a tax practitioner to help you file accurate tax returns and to ensure you claim all deductible business expenses against your income.

Mistake #2: Spreading yourself too thin

When freelancers are chatting, the conversation will inevitably turn to the ‘feast or famine’ nature of freelance work. Because you know that there could be dry spells in the future or because you simply want to maximise earnings, you might find yourself taking on more work than any person can reasonably complete in a working week.

This is a recipe for burnout – trying to sustain 70-hour weeks for too long could negatively affect your health. Plus, if you are trying to do more work than you can handle, your deliverables may slide. You could miss deadlines or produce work that is not up to your usual quality, in turn harming your relationships with your clients.

How to avoid this mistake

  • Find a freelancer buddy you can trust and agree to share overflow work with each other.
  • Politely turn down work rather than agreeing to it and fail to deliver. Thank the client the opportunity and stay in touch.
  • Outsource non-core work, such as your admin, so that you can focus on stuff that generates revenue.
  • Agree service levels and delivery times with repeat clients (see next section).

Mistake #3: Failing to set terms and conditions with clients

If you’re running a home-based freelance business, you’re not going to have corporate lawyers and accountants forcing you to dot the i’s and cross the t’s when you engage with your clients. If your clients are mostly individuals or small businesses, it’s easy to let things like contracts or terms and conditions slide.

The result can be that your clients don’t pay you on time because you haven’t made a formal agreement about your payment terms. Or you could get a client who expects instant turnaround times and 24-hour availability because you have not outlined the service levels you are willing to offer.

How to avoid this mistake

  • Draft a standard set of terms and conditions for your business – a good place to start is Google templates for freelance contracts.
  • Include the basics – payment terms, delivery dates, deposits for work etc. – on your quotes and invoices.
  • Ask clients to acknowledge that they have seen and understand your terms and conditions.
  • When dealing with large companies, you probably won’t get to set your own terms. But do scrutinise any supplier contracts they ask you to sign carefully.

Mistake #4: Neglecting the non-billable aspects of the business

The freelance world is a non-stop hustle and you may decide that you need to spend every hour on billables as long as the work is flowing in. But in the meantime, problems could be stacking up for your business because you are not looking after the essentials like networking, marketing, upskilling yourself or administration.

Some of the consequences could include missing tax deadlines because you’re not on top of the admin; work drying up after your present engagements are finished because you have not been selling yourself; or failing to keep pace with the skills and capabilities the market needs in a year or two from now because you don’t spend enough time building your skills.

How to avoid this mistake

  • Allocate time in your calendar each week for the things that aren’t billable, yet are important for running a successful business.
  • Again, outsource work you don’t enjoy or that doesn’t generate income, especially if someone else can do it below your usual hourly rate.
  • Remember to build allowance for the time you spend on training, admin, marketing, and so forth into your rates. It is part of the cost of running your business.
  • Make technology work for you! For example, use accounting software to automate some of your admin. Or set up a website to promote your business. With GoDaddy’s Website Builder, you can get this asset up-and-running in less than an hour.

Learn from your mistakes

Most freelancers make mistakes when they start out on their own or branch into a new service or industry. The important thing is to treat mistakes as learning experiences, so you can avoid them in the future. Getting discouraged by a setback or mistake would be the biggest mistake of all.

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