Freemium vs Free Trials
Many companies have gone back and forth between free trials and freemium programs, but for SaaS companies, which one is better? Well, lets start with some basics.
Freemium is a pricing strategy where you give people limited access to your product for free, but charge additional for premium features. It might be limited in terms of time or usage.
For example: Mailchimp is a top platform for sending emails. They offer a freemium model for up to 2000 subscribers. This makes Mailchimp a great option for smaller growing businesses who dont have a big budget for marketing.
A free trial, by comparison, gives users full access. They get everything you have to offer for a limited time, rather than just part of the pie. At the end of their trial, they have to make a choice to buy or not to buy. A great example of this is Basecamp, a project management tool for businesses. They offer a 30 day free trial of Basecamp Business, at which point you have to upgrade to a paid plan to continue.
So what is the benefit of freemium over a free trial?
Pros
- Drives Traffic
Freemium drives traffic. Traffic means more people see your company. Why? Because everyone loves free stuff! If you give away anything for free, even if it is just a piece of the pie, more people will check you out. - Increases Users Faster
You can also increase exposure to your company and product by offering a refer-a-friend opportunity that goes hand-in-hand with your freemium offer. For instance, if you give people two downloads for free before they have to pay for more, you might offer them a free download for each friend they recommend. It prevents them from getting everything for free, but it encourages them to share with other people. - Gather Data and Feedback
Why should you care about getting data and feedback? Because you can use it to improve the product, which is critical to newer companies, especially those who are working on building up their customer base. This will help you to improve your product, and at the same time, communicate to prospects that you are interested in hearing what they have to say. - Opportunity to Upgrade
When you use freemium you have a higher chance of upgrading people to a paid option. Think of it this way: if someone wants to try a full note creation/storage website while in school, they might try it with a free trial and then decide not to use it because perhaps they only needed it for the duration of the free trial.On the other hand, if you use a freemium plan, they might be able to make their study cards on your website but unless they upgrade to a premium membership they wont be able to download the cards, print them, or store them on your website. People who really need that service will certainly pay to get the whole thing even if they end up only needing it for a few months.There are other ways you can encourage people to upgrade, depending on the business model you have. You might give away free access to short news articles but not full access to analyses. You might let people use your service online but not on their computer. You might let them use a trial version but not let them upgrade to the new and revised version without paying for it. The sky is the limit here.
So with all that good, what could possibly be bad? Well
Cons
- Free Isnt Really Free
It might be free for users, but it isnt free for you. Overhead costs can make freemium a burden if not managed correctly. You always have to pay to support your product whether you make money or not. The freemium idea is great, unless your free customers outnumber the paying ones. If you are low on cash or time, you might not be able to afford managing more free customers than paying.
- More Users Doesnt Mean More Revenue
Just because you have tons of people who might, one day pay money for your service, does not mean you are making money now. In fact, lots of people who use the free service might never pay for the advanced version. If there is no real hook, no reason for them to convert to a paying customer, then they will not. So make sure you provide value with both options so people will want to pay.
So, figure out if the good outweighs the bad, and give freemium a shot. It couldnt possibly be all bad if so many big companies are using it regularly.