Latest / The Newsletter Podcast with Fexingo: Substack, Beehiiv, and Email Newsletter Business / How Newsletters Use Freemium Models to Grow Revenue
Transcript
- Lucas: One of the big questions I hear from newsletter creators is: how do I start charging without losing everyone who's been reading for free? And the answer that's been gaining traction this year is the freemium model — give away a substantial free edition, and reserve the deeper analysis for paid subscribers. Luna: Right, it's not all-or-nothing. You get to keep growing the top of the funnel while monetizing the most engaged readers. Lucas: Exactly. And there's a clear example we can look at: Lenny Rachitsky's newsletter on product management and tech. For years his newsletter was completely free. Then in 2024, he introduced a paid tier — but he didn't put everything behind a paywall. The weekly free edition still goes out with a solid essay, links, and job postings. The paid version adds exclusive interviews and data deep dives. Luna: And I think that's smart because his audience was already used to getting value for free. If he'd flipped a switch and locked everything, he would have lost a lot of goodwill. Lucas: Exactly. Instead, he's reported that his paid subscriber count now exceeds ten thousand. At roughly a hundred dollars a year, that's over a million dollars annually — not bad for a newsletter. And crucially, his free list continued growing at the same pace. The freemium model didn't cannibalize growth; it actually amplified it, because more people discovered his brand through the free edition. Luna: I'm curious about the conversion rate. What percentage of free subscribers typically convert to paid? Lucas: Industry benchmarks hover around two to five percent. But that number can vary wildly depending on how engaged the audience is and how compelling the paid offer is. Lenny's conversion rate is reportedly on the higher end, probably because his audience is highly targeted — product managers who see direct career value in his content. Luna: So the key is making the free sample valuable enough to build trust, but holding back something worth paying for. Lucas: Exactly. And there's a really specific framework that's emerged. It's often called the value ladder. At the bottom, you have the free newsletter — broad appeal, high volume, low cost to produce per reader. Then you have the paid tier — deeper, more exclusive, higher perceived value. Some newsletters even add a third tier for one-on-one consulting or courses. Luna: Morning Brew actually used a version of this. Their free daily newsletter was the top of funnel, and then they launched Morning Brew Pro and other paid verticals for deeper business coverage. Lucas: Right. And the data from Beehiiv and Substack shows that newsletters with a freemium model grow their total subscriber base faster than those that are fully paid from the start. There's a network effect: free subscribers share the content, which brings in more people, some of whom convert to paid. Luna: Plus, the free edition acts as a constant lead generation machine. Every week you're demonstrating your expertise to thousands of people. Lucas: Exactly. And there's an important nuance: the free edition can't feel like a teaser. It has to feel like a complete product on its own. If readers feel like they're getting a stripped-down version, they won't trust you enough to pay. The paid tier should be a premium extension, not the real content. Luna: So what does that look like in practice? For a business newsletter, the free edition might have a market analysis and a few curated links. The paid edition adds a proprietary data set or a detailed breakdown of a particular company's strategy. Lucas: Exactly. And the pricing also matters. Most successful newsletters price their paid tier between eight and fifteen dollars a month, or eighty to a hundred fifty a year. That's low enough to feel like a no-brainer for someone who's gotten real value from the free edition. Luna: I've also seen some newsletters offer a discounted annual plan to lock in commitment. That smooths out revenue and reduces churn. Lucas: Great point. And on the topic of churn, the freemium model actually helps retention. When a paid subscriber cancels, they often stay on the free list — so you don't lose them entirely. You can nurture them and potentially win them back later. Luna: It's like a safety net. You're not burning bridges when someone downgrades. Lucas: Right. Now, one of the challenges is deciding what to put behind the paywall. Some newsletters put their entire archive behind it. Others reserve just one article per week. The most successful approach seems to be a blend: the weekly deep dive is paid, but the quick hits and links stay free. Luna: So you're creating a rhythm. Free subscribers know they'll get value on Tuesdays, but the real meat comes on Thursdays for paid. Lucas: Exactly. And the technology makes it easy. Substack and Beehiiv both have built-in paid subscription tools. You can set up a paid tier in minutes. But the strategy is what matters. Luna: Right. You can't just flip a switch and expect money to roll in. You need to build that relationship first. Lucas: Absolutely. And that's why I think the freemium model is here to stay. It aligns the incentives of the creator and the audience. The creator wants to grow reach and revenue; the audience wants value without being nickel and dimed. Freemium gives both. Luna: I also think it changes the psychology for the reader. When I pay for a newsletter, I feel more invested. I actually read it more carefully because I've committed money. Lucas: That's a real phenomenon — the sunk cost effect. And it means paid subscribers are often your most engaged readers, which makes them more valuable for advertisers if you run ads in your free edition. Luna: So there's a multiplier effect. Paid subscribers boost engagement, which improves ad rates, which supports the free edition. Lucas: Exactly. And that's the virtuous cycle that the best newsletters are building. One more example I want to mention: The Hustle, before it was acquired by HubSpot, used a freemium model with their daily email. Their paid tier, Trends, offered deep research reports. It generated millions in revenue while the free edition kept growing to over a million subscribers. Luna: That's a great benchmark. They proved that you can scale a massive free audience while still generating meaningful subscription revenue. Lucas: Right. And the key takeaway for anyone starting a newsletter today is: don't rush to put everything behind a paywall. Build the audience first. Give away your best work for free for at least six to twelve months. Then introduce a paid tier that adds genuine incremental value. Luna: And be transparent about it. Let readers know that the paid tier supports the whole operation. Lucas: Speaking of supporting the operation — this is exactly the kind of thing that keeps the conversation going. A couple of dollars a month is genuinely what keeps these shows and newsletters going. If you've gotten value from the marketing conversations we've had, buy me a coffee dot com slash fexingo makes a real difference. It's how we stay ad-free and independent. Luna: Yeah, and it's a small way to say 'keep going' — which matters more than you'd think. Lucas: Absolutely. So, back to the freemium model: I think we'll see more newsletters experiment with tiered pricing, especially as AI makes content production cheaper and the barrier to entry for starting a newsletter drops. The winners will be those who figure out the balance between free and paid. Luna: And the data will keep refining that balance. I'm excited to see what the conversion benchmarks look like a year from now. Lucas: Same here. For now, the message is clear: give away enough to build trust, then offer something worth paying for. That's the freemium formula.