What’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
