Reasonable SaaS Free Trial Conversion Rate

Reasonable Free Trial Conversion RateWhat’s a reasonable conversion rate from free trial to a paid customer?

I get some form of this question from time to time and I’ve answered it several times over the years.

Well, I got it again so it’s time to revisit this very simple question.

As with most “simple questions” the question is easy to ask; the answer, however, is anything but easy to give.

But I tried and here’s my response that I thought you’d benefit from, too.

A Reasonable Conversion Rate

I don’t know what’s reasonable… if you have a 2% free-to-paid conversion rate right now, shoot for 5%, then refactor and shoot for 7%… then 10%… then…

Now if you’re creating a business plan, to make it compelling (regardless of the truthiness therein), indicate a conversion rate of > 50%… if you want to put a number you can definitely reach with minimal effort and exceed expectations, make it a number less than 10%.

Now, if you want to do what’s right for your business, read on..

Measurements Change

Since I first tackled this question publicly several years ago, not much has changed in terms of actual conversion rates. They’re still dismally low for most companies I talk to, work with, and have visibility into (well, before they bring me in at least).

But a few things have changed in terms of how companies are looking at Free Trial conversion rates.

More companies are measuring conversion rates on a cohort basis, often segmenting conversions (and overall activity) among qualified and unqualified (Ideal vs. Non-Ideal) prospects in the pipeline.

That’s interesting and appears to show companies maturing in their relationship with Free Trials, but measurement doesn’t magically result in more conversions; it just allows you to quantify the poor performance of your trial and lead-generation activities.

Ultimately, my feeling is that when we’re seeking “reasonable” we’re probably looking for “average” (or maybe “realistic,” which isn’t the same thing).

Which means I should remind you…

Don’t be Average

Be careful looking for averages or median Free Trial conversion rates (they’re out there, from anecdotal reports to the results of surveys, including poorly-executed ones that combine Freemium and Free Trials and should be ignored completely) since averages are just that; average.

And when so many SaaS companies completely botch their Free Trial process, “average” usually equates to “horrifically low.”

Instead of seeking the average free trial conversion rate, a better question is: “what conversion rate from free to paid are the best SaaS companies achieving?”

Garbage In, Garbage Out

Honestly, even if you asked what conversion rate the best companies get, the reality is I don’t have a great answer for you and your specific situation.

It varies too much based on your product maturity, product category maturity (is it new or being defined), market forces and buying patterns, etc. that, to get to a legitimately useful answers, you’d have to do some very specific comparisons against similar companies, in similar situations, selling to similar customers.

But one thing I can say that is true across the board, Free Trial conversion rates are – to a very large degree – dependent upon the quality of your top-of-funnel activity.

Garbage in, garbage out. Low quality leads in, low conversion numbers out. Simple.

If you have a well-optimized Free Trial process, but low-quality prospects coming in the top of your funnel, your conversion rate will be low.

On the other hand, if you have high-quality leads coming into a terrible Free Trial experience, expect a lower free-to-paid conversion rate than you should have given the quality of leads.

Okay, okay…

But what’s a Reasonable Conversion Rate?

In a well-designed and continually optimized Free Trial of a Premium product (not Freemium) with highly-targeted leads filling the pipeline, I’d want to see 25-50% conversion (at least) depending upon maturity and time in-market.

Likely you’ll end up moving from the former (25%) to the latter (50%) over time as you learn and refactor and learn and refactor and repeat. It won’t happen instantly; you don’t know what you don’t know.

I’ve seen a couple of companies in the 80%+ conversion rate range, but they are very targeted in their distribution / lead gen strategies and have designed the trial to convert their Ideal Customers. Those are likely to remain edge cases, though, no matter how much I evangelize this incredibly powerful lever in your sales process.

A Free Trial conversion rate of less than 25% for anything but the most horizontal, low-end, commodity B2B products is something that should warrant immediate attention.

Don’t Believe the Hype

A free trial conversion rate of 25% is a lot higher than most companies have…. if you look to industry averages you’ll probably see 10% or less… and you’ll see people talking about how 10% is good.

It’s not. It’s terrible and means something isn’t working.

Free Trials aren’t Freemium… the expectation shouldn’t be that conversion will be super-low.

The expectation should be that conversion rates can be super-high and your actions should work to bring that expectation to fruition.

Conversion Rate isn’t the Only Metric that Matters

Oh, and it’s important to not just focus on conversion rate, but actual numbers of customers coming out of the trial.

In certain scenarios where top-of-the-funnel activity is massive and the conversion rate is low, but the number of customers coming out the other end is high, that might be just fine.

Or it might not since fully-loaded Customer Acquisition Cost (CAC) goes up when conversion rates go down, CAC efficiency goes down, and you’ll likely burn through large swaths of your Total Addressable Market (TAM) in a way that affects future growth potential.

It depends on your market and your position therein.

Look, when it comes to Free Trial conversion rates, don’t be average… you’re better than that.

About Lincoln Murphy

I am a Customer Success Consultant focused on Customer Success-driven Growth. I wrote the Customer Success book which you can buy at Amazon. If you need help applying Customer Success-driven Growth principles in your company or would like me to speak at your event, please contact me. Also, connect with me on LinkedIn or follow me on Twitter or Facebook.

Comments

  1. This is great and I love the focus on not settling for average!

    Can you share examples of companies that have hit the 25-50% conversion rate?

    • I’m always asked for examples, but I’m not comfortable sharing specifics about clients I’ve worked with (unless I’ve received explicit permission AND feel it’s prudent to disclose those details, permission or not).

      That’s why I try to give as much detail about the “why,” to make up for the lack of specifics about the “who.”

      There will always be those that doubt what I say because I’m unwilling to name names, but there will always be those who appreciate that I didn’t name names will therefore continue to trust me. I focus on the latter.

  2. Thanks Lincoln. I love your blog, eBooks, white papers, etc. Question for you: do you have any stats and/or thoughts on PAID trials? Month-to-month subscriptions for significantly discounted rates (and limited functionality), that are then (hopefully) converted into annual subscriptions. The thinking being, if the customer is somewhat invested financially, they’ll be more committed to the process.

  3. Thad Peterson says:

    I’m really curious to get people’s opinion on something. I’ve searched around online for this but haven’t found anything. I work at a company that has a freemium model. Historically, we’ve just let our product and marketing do the work in terms of converting free trialers to paid customers. But we’re going to start experimenting with letting trialers “raise their hands” (schedule a call) to have a conversation with a product expert in the hopes that it increases conversion rates. Do you have ballpark guess on the percentage of trialers who will raise their hands to have conversations? It’s worth noting that this company has a phenomenal product and tends to create a lot of goodwill with its marketing as well.

    • First, I always suggest getting clear on the difference between Freemium and Free Trials. It’s not semantics, there are some very real differences that will dictate how you work to convert (or otherwise get value from) your users and customers.

      Next, and some will feel like this is nitpicking, but don’t call them “trialers” (I’m guilty of doing that in the past!); call them what they are… prospects. If you look at them as if they are prospective customers rather than “free users” or “trialists” or something else that takes the emphasis off of the fact that they could be paying customers, it’s easy to accept low conversion rates or just assume they’re freeloading.

      That all said, your question about the number of prospects that will want to schedule a call, it depends on who your customer is and what their appropriate buying experience is. If you have a lot of self-identified “Enterprise” customers, then you may get a lot of requests for a call. Don’t let the potential for a lot of calls keep you from doing that, though; if you get a lot of calls it will tell you either that’s the experience your prospects need… or you have a really poorly designed Free Trial and they can’t figure out how to get started. Either way, that’s valuable.

      If you do end up having a lot of Enterprise prospects in the trial, you may try segmenting them earlier in the process. I talked about that here: http://sixteenventures.com/enterprise-pricing

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