Free Trial vs Freemium Revenue Model for SaaS
Freemiums and free trials have one thing in common – neither of them generates revenue. Nevertheless, both Freemium and Free Trial business model work much better than the traditional sales model (e.g. demo requests). When it comes to SaaS products, they can be offered both through Freemium or Free Trial. Just think about the examples set by Slack, Asana, Dropbox, Zenefits, Zoom, InVision, Atlassian, and so on.
If you decide to let your prospects try your product before they buy it, you should choose between Freemium or Free Trial customer acquisition models.
But first, let’s dive deep into the matter…
What’s the difference between a Free Trial or a Freemium revenue model?
By definition, a Free Trial is a customer acquisition model that gives users total and free access to a product’s features for a short (limited) period of time. Free Trials have a time-limit with two potential outcomes: either you pay or you are done.
On the other hand, Freemium is a model that provides prospects with a free of charge partial access to a software product, with no time limit set whatsoever. In other words, Freemium is indefinitely free to use, but with limited benefits available.
Should You Go Freemium or Go Free Trial?
A Freemium model does not limit the amount of time a prospect can have access to the software. There may be other limits like features, usage, credits, etc., but there is no time limit set. You can use the product for free, indefinitely.
Freemium is most convenient when your business is positioned in a huge market. The implementation of the Freemium model requires an active, engaged market with a strong referral network, having high expectations that the majority of users will share the word and help towards creating brand awareness.
Successful Freemium models usually have a 2-3% conversion rate.
Some companies don’t decide to go with the Freemium strategy because it may cost too much to serve free customers. Yet, many of them find the Freemium model very effective.
Here is the trap
When you attract a user with “free forever” software, it becomes more difficult to convince them to upgrade later. Many customers will be completely satisfied with the free version, and will resist the change. Moreover, when it comes to Freemium SaaS ventures, the conversion from Freemium to a paid account is around 3% (on average).
What about Free Trials?
Free Trials offer users full software functionality, and allow them to see what it’s like to use your software for a limited time. Given the clock is ticking, users feel the urge to make fast buy-it-or-not decisions before the trial ends. Keeping in mind that they already started using your software, it’s less practical for them to quit, and start learning a new program from scratch.
Here is the trap
Users usually disengage at the very beginning of Free trials due to the many information they have to fill in, in order to finish the sign up process. (Yes, people can be lazy!)
Moreover, no one can guarantee to you that Free trial users will sign up for your paid plan. Users are less likely to get convinced in a short period of time, so they are usually not ready to pay when rushed into things.
Now that we’ve explained the pros and cons on both Freemium vs. Free trial model, can you decide which one is right for you?
Freemium’s core growth engine is social proof aka word-of-mouth marketing. To drive word of mouth marketing, a freemium business needs a community, typically an existing one which falls in love with the business’s product.
Freemium or Free trial? How to choose?
Questions to ask yourself when deciding which model is right for you:
- Is your target audience price sensitive and needs to be offered a lower price?
- Is your product at a lower cost than the competition?
- Is your competition overserving their customers?
- Would your users be able to experience the “aha moment” in your product if they go for a Free trial?
- Is your niche market large enough to support a Freemium model? (Hint: compare it to your competitors)
- Do you have enough resources to support a Freemium model?
At Sales.Rocks, we chose the Freemium model for customer acquisition because we believe that this is a great way for introducing prospective customers to our software. The free version of our sales and marketing enablement platform allows users to try filtering their target audience with all the different data points it offers.
We are firstly focusing on the basic Sales.Rocks’ module, giving the Freemium users access to Bulk B2B data. The Bulk module will help users learn more about the value of our product, and reach the “aha moment”. Our Freemium users don’t have to give credit card information or commit to a long-term subscription. They will get as much time as they need to test out our software, with all the new features and functions, without disrupting the regularly scheduled program for our paying customers.
With the features we offer, we initially provide great value, and, at the same time, make users feel the need for more value, even when it means paying for the solution. As a result, we use a mix of free service with paid upgrades for unlocking the sustainable growth for our SaaS platform.
Freemium is like a Samurai sword: unless you’re a master at using it, you can cut your arm off.
Despite the benefits, getting unpaid users to become paid users is always a hard process. Selecting the SaaS revenue model that is right for your product is not a simple business decision. Both Free trial or Freemium revenue model can bring great business success. But before choosing, set your big-picture goals, and do your research, to see how well either one of these customer acquisition models performs in your industry.