Creating the SaaS management category
Zylo CEO Eric Christopher discusses the importance of brand in becoming a category leader.
Who doesn’t like free stuff? In the world of SaaS, companies have a distinct advantage over other businesses since they can offer a free trial of the program. In this article, we want to dive into how free trials work, how well they can convert leads, and whether or not they are worth pursuing. Whether it’s a startup or a business looking to expand its current operations, here’s everything to know about free trials.
Free Trial Conversion Rate
If a company going to give its product away for free, there has to be some benefit to it. Fortunately, when looking at conversion rates for subscription businesses, it’s easy to see that a free trial can have a significant impact. For the uninitiated, a conversion is merely turning a lead into a paying customer. If everyone who signed up for a SaaS free trial canceled as soon as it was over, that would be a zero-percent conversion rate.
What’s interesting about these rates is how they shift, depending on whether the company is business to business (B2B) or business to consumer (B2C). Let’s look at how free trials can impact the bottom line for each.
B2B Free Trial Conversion Rates
Based on a 2017 study, B2B companies that utilized free trials saw an average of 66-percent conversions among users. The average trial was about 14 days, and the free to paid app conversion rate was higher among monthly subscribers than yearly (69 percent compared to 60 percent). Overall, it seemed that the usability of the program drove conversions, rather than the length of the trial. Another quality free to paid conversion strategy is to offer coupons for new users. Companies that did so saw a 22-percent increase in the length of a customer’s subscription.
B2C Free Trial Conversion Rates
Typically speaking, B2C companies have longer trial periods, with the median being 30 days instead of two weeks. They also have a slightly lower subscription conversion rate, with 57-percent of users paying for the product. On the surface, this makes sense because B2B companies have specific problems that need solving, so an app can be more valuable and worth the price. For the average consumer, the software may or may not fulfill a need, so one is less likely to pay for it. Again, monthly conversions were higher than annual ones, but the length of a customer’s subscription was generally longer for B2C companies, particularly if they used a coupon for the first month.
Overall, looking at the data, we can see that conversion rates for subscription businesses are much better when a free trial is involved.
Free Trial vs. Paid Trial
Based on the free trial statistics we saw above, the question, “are free trials worth it?” seems to have a definitive answer. However, there can be advantages to offering a paid trial instead. In this section, we’ll be looking at the value of forcing users to pay a nominal fee to get a free trial. For example, a $1 trial vs. a free trial can impact a companies bottom line – in some cases, for the better. Let’s dive into the differences.
Benefits of a Free Trial
The primary reason to have your trial cost nothing is that you’ll get a much higher number of free trial signups. Since everyone enjoys getting something for nothing, there is no reason not to sign up. However, this method can be a double-edged sword. Since users didn’t have to put anything up for the product, they are less likely to stay when a paywall hits. Free trial retention will drop significantly, assuming that most users don’t see value in the product.
Benefits of a Paid Trial
On the flip side, you can potentially increase your trial conversion rate if you force users to pay for it. Even if the price is minimal, the user is far more likely to stick around once it increases. Studies have shown that the first sale is the hardest, so if you can convince someone to pay for your trial, it’s much easier to persuade him or her to pay more for the full version. So, the number of leads will decrease, but your conversion rate could be higher.
Freemium vs. Free Trial
We’ll get into the freemium model in the next section, but this can be an alternative to paid trials. Rather than charging a nominal fee, you limit the functionality of the product. Another way of putting it is that this like a demo vs. free trial. Once users see the potential, they will be more likely to pay for the full service. As long as the free trial content is worthwhile, that is.
Simply put, if you want to qualify your leads, then a paid trial can be valuable. If you want a higher number of leads, though, a free trial is a better choice.
Benefits of the Freemium Model
Typically, with a free trial, the user has a specific amount of time to use the software before getting hit with a paywall. With a freemium trial, however, there may not be a time constraint. Instead, the product is limited in scope, so the user can’t access all of the features. For example, Skype has a free-to-use version of the software, but if you want to access more features, you have to pay for the full subscription.
When it comes to the freemium conversion rate, the percentage can vary significantly based on the product being offered. For example, Spotify has a 26-percent conversion rate, compared to the average of 1-10-percent. In many cases, users will get enough value out of the free version that they won’t be inspired to upgrade. However, certain elements can improve your freemium conversion tunnel, such as ads or limited functions.
Pros and Cons of Freemium
The primary advantage of the freemium model is similar to free trials. In most cases, you can get a lot of new users to sign up, which can make your product and brand more valuable. The downside, however, is when your free version is too useful, meaning that users have no incentive to upgrade. Finding that balance for converting freemium to premium can be challenging, but all companies should adjust their offerings to get there.
When talking about a B2B freemium conversion rate, that number can be a little higher, since B2B companies have more incentive to get paying users. In most cases, the product is much more limited, aimed at giving customers a taste without allowing them to abuse the freemium model.
So, if your product has many different features and you want to boost your audience, a freemium trial may be the best option, especially when compared to a free trial.
Free Trial Examples
It’s easy to discuss the ins and outs of free trials from an abstract standpoint. However, if you really want to see the value, then you need to look at how other companies are utilizing them. In this section, we’ll go over various free trial marketing campaigns and strategies to show how they can work for your business.
Netflix Free Trial Marketing
Streaming services have quickly become the norm, and no one does it better than the original, Netflix. A substantial part of Netflix’s marketing strategy is to offer free trials for new users. Even more incredibly, a Netflix free trial conversion rate is around 33 percent. More importantly, although the Hulu conversion rate is roughly the same, more users opt to cancel their Hulu subscription. A big reason for this is that Netflix invests a lot of time and energy into customizing the user experience, as well as generating new and original content. Plus, because Netflix was first to the streaming game, it has much higher brand recognition. Finally, Hulu has commercials, even on some premium subscriptions, which can turn a lot of users off.
Let’s take a look at some other free trial marketing examples to understand better how they can bring value to a business.
- Dropbox – this company is a lesson in growth hacking and the value of a free trial. By giving free storage to users who recommended the software, Dropbox went from 100K users to 4 million in 15 months.
- WedBuddy – this brand helps people build websites for their weddings. They adjusted the layout of their free trial marketing and increased conversions by 73-percent.
- Zoom.us – by focusing on building the best video-conferencing software, and adjusting the product based on user feedback, Zoom went from three million users to 100 million in just a couple of years.
When looking at conversion rate subscription businesses, you can see that they focus on the user experience and building a high-quality product first. This way, the free trial encourages customers to sign up and pay for the full service. As long as the value is there, users are more than willing to pay for it.
Increase Free Trial Signups
As we’ve mentioned, the main benefit of a free trial is that you can get more leads. However, the big question is how to increase signups for a paid version. In this section, we’ll outline the various methods that help your business. Here’s what you need to know.
Strike a Balance Between Usable and Uncomfortable
When looking at the best free trial software, these companies will offer a service that adds value, but not so much that users can get enough with the free version. For example, with Dropbox, free customers can only store two gigs of data. Not enough to make it worthwhile for the long term, but not so low that people cancel the service. Overall, you want to encourage upgrades organically, rather than forcing users to make a decision.
Build a Quality Product Using Customer Feedback
If you want to improve the retention rate after a free trial, you need to keep users from canceling as soon as the next payment is due. Netflix retains users by creating new content; Zoom retains users by being a high-quality video conferencing service – the value is inherent and ongoing. To maximize this value, you want to get feedback from users to see which elements they like the most, as well as identify potential pain points. As long as you have a model of continuous improvement, you shouldn’t experience much churn.
Make it Easy to Upgrade
Once users have had a taste of the product, they will hopefully want to start paying for it. The payment portal should be streamlined and easy to use. An excellent method is to build it for the lowest common denominator (i.e., less tech-savvy users). If those individuals can upgrade without any hiccups, then everyone else can too.
Bottom Line: Let Your Users Dictate Your Free Trial Offering
Free trials are an excellent idea in theory, but not necessarily in practice. If you want to make the most of your free trial product, then you have to focus on value and the user experience. Customers are always willing to pay for things they need, as long they continue to need them.
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