Implementing a Freemium Model for API Monetization

Implementing a Freemium Model for API Monetization

When monetizing APIs, specific ways exist to entice customers to begin using your services. Much of the time, users like to see some value before they commit to becoming a full-blown paid customer. Other times, users want to start on a free tier and, hopefully, will upgrade later.

One of the most popular billing providers we see used for API monetization is Stripe, and thankfully, by using Stripe and Moesif together, you can quickly implement a Freemium model. Let’s look at the steps required to implement a Freemium model in a matter of minutes using Moesif and Stripe. First, let’s dig a bit deeper into what a Freemium model is and the benefits of it.

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What is a Freemium Model?

“Freemium” has gained significant recognition and popularity in software and subscription-based services. But what exactly is a freemium model, and why is it a go-to strategy for many businesses?

Freemium combines two words: “free” and “premium.” It’s a pricing strategy that offers users both free and premium (paid) versions of a product or service. At its core, a freemium model allows users to use a basic version of a product without any cost while offering a premium version with additional features or enhanced functionality for a fee.

Here’s a breakdown of the critical components of a freemium model:

  1. Free Access: The “free” part of freemium is about providing value to users at no initial cost. The free offering could be a limited version of a software application, a restricted feature set, or usage with certain limitations. The goal is to attract a broad user base by removing financial barriers.

  2. Premium Features: In addition to the free offering, a freemium model includes a “premium” tier. Users can upgrade to this tier by paying a subscription fee or a one-time purchase. The premium tier typically unlocks advanced features, removes usage limitations, and enhances the overall user experience.

  3. Value Proposition: To succeed with a freemium model, providing a clear and compelling value proposition for the premium tier is essential. Users must see a tangible upgrade benefit: access to advanced tools, improved functionality, or a seamless experience.

  4. Upselling: The freemium model is not just about offering free services; it’s also a strategic approach to converting free users into paying customers. By showcasing the value of the premium tier, businesses aim to upsell and increase their revenue.

  5. User Base Expansion: The free tier acts as a user acquisition channel, allowing businesses to reach a broader audience. Users who sign up for the free version become potential customers for the premium offering.

  6. Flexibility: One of the strengths of the freemium model is its flexibility. Businesses can adjust the balance between free and premium features, change pricing, or introduce new offerings based on user feedback and market dynamics.

Many businesses have successfully employed Freemium models, from software companies and mobile apps to streaming services and online publications. They offer an effective way to build a user base, nurture user engagement, and drive revenue growth.

Implementing a Freemium Model

When implementing a freemium model for API monetization, things are pretty simple. If you have a more complex freemium offering, things could be more advanced to implement. For today’s example, though, we will keep things simple. You’ll need to leverage Moesif and Stripe (or an alternative billing provider) to create a freemium model. Here’s a breakdown of implementing a straightforward Freemium model for your APIs.

In Stripe/Moesif’s Product Catalog, you will need to:

  • Create a product.
  • For that product, create a price of $0, your free offering.
  • Add additional pricing for your premium tier(s) for the product.

In Moesif, you will need to:

  • Create a Governance Rule to enforce the free-tier usage allowance.
  • Create a Governance Rule to enforce any limits on your premium tier(s).

You could also set up a Moesif Billing Meter for your premium tier if specific endpoints available on the premium tier will be metered. You may also set up a meter to charge per user on the premium tier. These are just two of many possible ways to augment your premium offering from a billing perspective.

To illustrate a simple example in more detail, let’s look at how we could set up a freemium plan where a certain amount of API calls per day is allowed on the free plan and premium users have unlimited access.

First, we need to set up the free price. This would look like this in the Moesif Product Catalog (or in Stripe), with us setting the charged amount as $0 per unit.

Free Tier

Next, we would do the same for the premium pricing, setting the charged amount as $10 per unit (our monthly subscription fee for premium).

Premium Tier Example

Lastly, we will set up a governance rule in Moesif that will limit companies/users to 1000 API calls in 24 hours. We will first create a company cohort that will look like this.

Free Tier Quota

Then, we will use this in the governance rule, ensuring that the rule is blocking and that our response status and body reflect an accurate message. The complete governance rule will look like this.

Free Tier Quota 2

Now, if your premium tier also had some limitations, the number of API calls a user can make, for example. You could also implement another governance rule to ensure you’ve managed that quota. In this case, we will leave this simple setup as is.

With this implemented, we now have a simple freemium model where free-tier users can only use 1000 API calls in 24 hours while premium users have unlimited resource access.

Try Out Moesif For Yourself

Want to try this out for yourself? Implement your Freemium monetization model with Moesif and Stripe and be monetization-ready in minutes. You can try this out by signing up for a free trial of Moesif. Have deeper questions and want to know how to scale out an enterprise-grade monetization solution? Chat with our team of API monetization experts to get started today!

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