Editor’s note: This article was first published in February 2018. Its view that Facebook Ads, Google AdWords and Instagram ads were the most cost-effective forms of advertising reflects that moment; Google AdWords was renamed Google Ads later in 2018.
In a previous article we looked at practically all the options for making money online without investing any money. There we covered offering your own products or services, selling other people’s products, and making money without selling anything. Now we are going to talk about the free, freemium and premium business models, and how to apply them.
The truth is that we could group every way of doing business online into just these three models. It’s not that some are more profitable than others: it all depends on the size of the project and how we execute it.
What are the 3 business models for making money online?
1. The premium business model
This type of business model is straightforward. We have a service and we promote it in order to sell it. That’s all there is to it. Online, this service will probably compete with similar services that are free, so whatever you create will have to be attractive enough and offer far more value to the customer than what your competitors provide.
Although it couldn’t strictly be called premium, since we are talking about building a business and about the ways of making money online, we will also include in the premium model the sale of your own physical product over the internet.
Fortunately, these days reaching potential customers online is really easy and cheap. In fact, of all the forms of advertising out there, Facebook Ads and Google AdWords have become the most cost-effective, together with advertising on Instagram (which you can set up through Facebook).
See also: Google’s CEO and his 10 lessons in success for entrepreneurs
In short, if your product is worth it and offers good value for money, today it is easier than ever to promote it on a massive scale at low cost and sell it on a massive scale. The rest of its scalability will depend on how satisfied your customers are.
2. The freemium business model
Between free and paid comes the freemium model, which basically means offering your product or service for free and having a superior version, with added value for the customer, that the customer now has to pay for. In other words, a free product with the option of a premium product.
Why has this business model turned out to be so profitable?
First of all, the freemium model is often free for the customer, but money is made through advertising. On the other hand, what better way to advertise yourself than by offering a good product for free? If your product is good, word of mouth will bring you more users. And if everyone is happy, they won’t mind signing up for your premium service to get all the more advanced features.
Online video games are an example of this business model: if you want access to certain items, you have to pay, which gives you an advantage over other players.
In other cases, the service is good but has limited features. If you want access to all of them, you have to pay for the premium version.
Some companies confuse the freemium model with a trial period, since saying that you will get a product free for 30 days and then have to pay doesn’t fit the definition of freemium. These are not the same thing. “You get 2 GB of free cloud storage. If you want more storage, you have to pay”: that is the freemium model. On the other hand, “You get 2 GB of free storage for 30 days. After that, you have to pay”: that is simply a premium product with a trial period.
3. The free business model
This is the quintessential business model on the internet, that is, the most widely used one. Every day you use countless free services online, from social networks to the blogs and websites you visit daily. Offering you a free service while its creator makes money from it is possible thanks to advertising.
The good thing about the free model is that the premium and freemium models can be added to it later without any problem. In fact, many media outlets now let you browse their sites for free, and if you want to support them with a monthly or annual fee, in return they let you browse without seeing any ads, which could fall within the freemium model.
To give a visible example, the blog where this article first appeared used the completely free model at the time, as do many other websites and blogs. This business model is only profitable when you manage to attract a large volume of traffic to the website.
The free model as a complement to premium and freemium
Practically every company has understood how important it is to have its own free space that offers value to users, even if the aim is to redirect traffic to its freemium or premium services. That’s why any company should be advised to have its own blog about the sector it operates in.
And these are the only business models that exist on the internet. Together with our previous article on the only ways to make money without investment, we hope they help you give shape to your projects.
Now, if all you are looking for is to make extra money from home, take a look at this article.
Featured image: Johan Fredriksson, CC BY-SA 3.0, via Wikimedia Commons.
