How to Offer Both Freemium and Free Trials

free-trials-and-freemium-primaryI got this question from a SaaS vendor about offering both Freemium and Free Trial options and I wanted to share my response to him with you.

UPDATED FOR 2015!

Our current app has two pricing tiers – free and paid. Simple pricing has its advantages!

We’re coming out with a major redesign of the product (plus new features) in early 2012 and need to decide how many pricing levels to have. So far, the discussion is free plus two pricing levels.

I have also questioned whether we should continue to have both Free and Freemium, as this combination seems to be the minority case.

And here was my response to him…

Steve… thanks for the question.

You’re right that having a Freemium version and paid version w/ Free Trials is not common, and while I have seen it more lately, only 7% of those I’ve surveyed report having both Freemium & Premium w/ Free Trials, so it is pretty rare.

That doesn’t mean it is a good or a bad thing, though… just that it is rare.

But to make it work, there are a couple things you need to make sure you do if you continue going down that path:

  1. Clearly understand the psychological differences between Freemium – free forever – and Free Trials.
  2. Have a clear path to conversion for BOTH Free Trial users and Freemium users.

Where most companies fall short with Freemium is the same place people fall short in everything else… they fail to map out how – once you have someone’s attention – you can move them through to becoming a customer.

How to Offer Both Free Trials and Freemium

Whether that takes 14 days in a Free Trial or 6 months as a Freemium user, you need to know what that path looks like and actively move the user closer to becoming a customer every day.

And if you have a Free Trial that ‘downgrades’ to the Freemium version if they don’t convert – which is what most vendors with this hybrid approach do – you need to have a clear idea of how to move them back to becoming a customer again, or how to get them to spread the word for you, or how to monetize / leverage / productize them in other ways.

Otherwise, why just let them hang out as a free user – after they didn’t become a customer the first time around – and waste resources?

What’s the quid pro quo for on-going free use of your product?

But you should also work diligently to get those in your Free Trial to convert rather than failing to convert and falling back to the Freemium level.

Should You Pivot to Profit and ditch Freemium?

For immediate consultation and advice on pivoting away from – or otherwise optimizing – your Freemium model, schedule at least a 15-minute meeting with me via Clarity. If you feel a more involved engagement is required for me to help you, email me with the specifics of your situation (as much detail as you’re comfortable giving) and we’ll setup a meeting to work through the particulars.

– Lincoln

About Lincoln Murphy

I am a Customer Success-driven Growth Consultant. I wrote the Customer Success book which you can buy at Amazon. If you need help growing your SaaS, request at least a 15-minute call with me via Clarity. Be sure to join my mailing list - I send awesome stuff to the list every week or so. Also, connect with me on LinkedIn or follow me on Twitter.

Comments

  1. I can see why it’s rare, including options for free trial and freemium seems too complicated. Too many choices – having to choose between free options adds friction.

    There are only two reasons I can think of for doing both:
    1) you’re transitioning from one model to the other or testing both
    2) if both of the following apply
    – you have a lot of complexity in premium that can’t effectively be tested in freemium e.g. team support, technical integration
    – you gain from having free users who stick with free permanently for network effect e.g. skype

    • Confused minds don’t buy, or sign-up, or click, or whatever it is we want them to do… so yeah, too many options can be a major problem.

      The reasons you listed for why someone might have both a Freemium version and a Premium version with a Free Trial are absolutely valid, though there are others.

      An example would be OfficeDrop who added a Freemium version to appease those who discovered their service through Mobile App stores and didn’t like that the app was free, but he service cost money.

      But where there’s not a solid reason – like OfficeDrop – the main culprit is generally lack of a strategy.

      If your app isn’t selling, give it away for free and then cross your fingers I guess.

      Good points and thanks for your comment!

      – Lincoln

  2. Thanks Lincoln for your great insights. This article above is now more than one year old and in the meantime more and more companies do offer fremium and premium w/ free trial such as Dropbox, Evernote, Pandora, Automattic and many more. What’s your stand on this evolution?

    • That’s the problem with posting stuff a year ago… everything is evolving.

      We’re seeing a lot of companies that started with bottom-up, Freemium-powered, viral expansion strategies regrouping to take advantage of the massive growth within larger companies and finding ways to come in from the top-down (i.e. through the company rather than via lots of individual employees).

      Yammer may or may not have pioneered this hybrid approach (come in bottom-up and then monetize top-down), but they certainly proved it was a feasible model by disrupting in the marketplace – and then being acquired for $1.2B by – Microsoft.

      Then you have something like Dropbox where they look and say “we have 1000 individual accounts – many free – all from the same company, I bet if we went to the company and offered them a way to consolidate that under one account so they’d have control and ownership, they’d pay for that.”

      It’s an evolution, but as you see, still offering a free product for Dropbox – as an example – makes total sense because that’s how you get that bottom-up-driven internal critical mass in a company that makes the top-down approach feasible.

      The gist of what I said is still true… don’t offer a free version if there’s no quid pro quo from the free user. If they add value, like spreading the word inside of an organization for you to eventually pounce on and monetize, then you should keep’em around even if they don’t upgrade to your premium version.

      But, what also hasn’t changed is this: if they don’t add value, if you can’t extract value, and if you don’t think there’s value to someone else later (i.e. an acquirer will purchase you and monetize it themselves like Instagram or Tumblr) and you have the runway to hang on for that, then why keep them around, letting them use your service for free? That makes no sense.

  3. Hi Lincoln!

    What do you think of offering a free plan to users (they are not decision makers, but can be good influencers) while we sell the premium plan to their decision maker in a B2B model?

    Thank you!

    • that’s an awesome model as long as you’ve fully orchestrated the process of knowing when to reach out and sell to the decision makers.

      • Thanks Lincoln! We still need some hard work to figure out the best moment and process to reach the decision maker but I believe it will be worth it. Thanks a lot!

  4. Hi Lincoln,

    Very valuable information and posts. Thank you for that. How are you seeing the situation with double sided market platforms where freemium is an important driver to get ‘stock’ into the system to allow meaningful choice and in order to create needed network effects? Market share and traffic can then be capitalized through additional revenue streams like programmatic advertising or by offering additional solutions to the ecosystem. And premium upselling arguments are related to specific pain points (more usage, better visibility, advertising).

    • My exposure to double-sided marketplaces is relatively minimal, but what I can say is this: don’t mistake a long-term, integral Freemium strategy with short-term offers of free access (or other concessions) used to kickstart traction.

Trackbacks

  1. […] And if you’re curious about offering both Freemium and a Premium Product with a Free Trial, I wrote a post a while back that specifically covers that crazy idea. […]

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