Providing your application for free is the best case scenario when you needa lotof users very quickly and are ready to rely heavily on efficient methods of marketing (word of mouth, social networking, organic search marketing, etc).

This pricing strategy is generally used most often when the app in question provides more value for every user that installs the app (ie: LinkedIn, Facebook, Instagram, etc.).

Both free and "freemium" pricing strategies are used in much the same way, but free apps generally intend to always be free and remain supported by advertisements, while freemium apps are generally support by upgrading the service or paying for features.

In freemium models, the most difficult decisions you will make will be what you will offer to the free users, and what you will offer for a paid subscription or one-time purchase.

It is very much a balancing act between achieving high signup rates and sustainable conversion rates.

For instance, if your conversion rates are too low, then you will not be able to subsist off of those revenues for long, which likely signals that you are providing too much for free and need to begin offering less for free. In this instance, your free product is so good that no one sees the need to convert, which will eventually kill the product entirely.

On the other hand, if your product is convertingtoooften, then it is possible that your free offering isn't compelling enough, and likely will result in a lower than desired signup rate. It also makes marketing the product harder since your free product is less compelling than those you are competing for attention with.

Here is a good breakdown of the various ways several best-in-class SaaS companies decide on free and paid features:

The top companies here are measuring users in the millions, which needs to be kept in mind when considering a consumer-based app. The costs of supporting that user base (especially your free user base, though their costs should be low) should be factored into the equation when planning your pricing strategy.

Finally, as your users mature, you may notice drops in conversions when you begin attracting late adopters, who are notoriously harder to convert. It is likely you will need to change or adapt what is free and what is paid. NYTimes.com changed it's free components from 20 articles a month to 10 articles, due to lower conversion numbers (users read more than enough under their allotted 20 articles a month).

Freemium is a great method of getting large amounts of users to download your app, but it does have its costs. Each free user is a cost to your business, and every company preparing to launch a freemium app should ensure they have proper support staff in place or are ready to quickly ramp up that support staff to keep your users, even free ones, happy.

Another problem with free apps in the app stores is that it opens you up to just about anyone with a smartphone. That can sometimes be a double-edged sword. You are getting the widest net, but you can also end up capturing the wrong type of user who might leave bad reviews when that user doesn't see the value in your service.

Tip

Learn More: "Making Freemium Work" - HBR

Read Article- HBR.org (by:Vineet Kumar)

A great look at various practices and pitfalls when deciding on a Freemium pricing strategy.

Tip

Learn More: "Dividing Free and Paid features in 'Freemium' products" - Chris Dixon

Read Blog Post- cdixon.org (by:Chris Dixon)

Chris offers multiple looks at different companies. An old but still relevant article.

Tip

Learn More: "Making Freemium Work" - HBR

Read Article- HBR.org (by:Vineet Kumar)

A great look at various practices and pitfalls when deciding on a Freemium pricing strategy.

Tip

Learn More: "Dividing Free and Paid features in 'Freemium' products" - Chris Dixon

Read Blog Post- cdixon.org (by:Chris Dixon)

Chris offers multiple looks at different companies. An old but still relevant article.