Technology April 22, 2016 Last updated September 18th, 2018 816 Reads share

Freemium vs. Free Trials: What Works Best for Software Businesses?

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Giving customers something free is a great strategy for attracting more business. When it comes to software, though, you’ve got two models to consider:

  • The free trial, which gives users total and free access for a short period of time
  • A freemium version, which is free forever, but has limited functionality

Both have arguments for and against them, so understanding how each works can help you decide which is right for you.

What You Need to Know About Freemium

Freemium packages are great for introducing prospective customers to your software. They don’t have to give credit card information or commit to a long-term subscription. They get as much time as they need to try out your software, albeit without all the bells and whistles that the full paid version offers.

If you do a good job with your freemium offer, including gentle pings to entice users to upgrade to a paid plan, a freemium model can help you boost your paid subscriber base. You still have to provide great value initially, but make users feel like they’d want to get even more value by paying.

There are other perks as well to the freemium model. Consider your freemium users your guinea pigs. You can test out new features and functions without disrupting the regularly scheduled program for your paying customers. You can test out what features freemium users would be willing to upgrade for. This is all valuable data to help you better serve all customers, both freemium and paid.

The downside: Conversion from freemium to paid accounts is often low, and many customers will be completely satisfied with the free version. Also, you expend a lot of energy and staff to maintain what you’ll never be paid for.

On the Other Hand, We Have Free Trials

Free trials offer full functionality, which lets users see exactly what it’s like to use your software without limitations. Because the clock is ticking (the standard is 2 weeks free for many companies), users feel like they need to come to a fast decision about whether or not to subscribe before the trial ends. And they will have taken the time to enter data and learn your software, so they’ll be less inclined to start from scratch with a different software program.

You can also beat out the competition if you have a truly amazing product that people won’t be able to live without beyond the trial.

The downside: Just like with freemium models, there are no guarantee free trial users will sign up for your paid plan. Expect to have a certain percent that don’t convert. If you’re okay with that, then proceed. Also, surveying people to find out why they didn’t sign up can net you valuable insight to tweak your free trial offer as well as your software.

Now that you’ve got the details on both freemium and free trial models, how can you decide which is right?

Financials

First, look at financials. The freemium model will be costly to maintain, with development and customer service eating up a lot of the profit you’re making from paid accounts, so you’ll want to make sure you’re well-funded. Factor in manpower, server, and development costs in the equation.

If you have lots of competitors, see what they’re doing. What could you offer that would one-up them? For example, if your top 3 competitors offer a 2-week free trial, you could stand out by offering a month trial or a freemium model.

You can find creative ways to benefit from either free trials or freemium accounts. Create a referral program where users who send you new business get an extended trial or free limited upgrade.

If your software will be 1000% useful to users immediately, the free trial will be long enough to convince them they can’t live without you. If the value grows over time, they can build a relationship with your product long-term with the freemium model, and you can find ways to make users feel they’ve just got to upgrade to a paid subscription.

Manpower

How much manpower do you have? If you’re a small team, you might get so overwhelmed with addressing customer service demands from freemium users that you have no time or energy left to devote to developing new products.

And consider whether your product is even a good fit for freemium. The most successful freemium models offer decent functionality with some limits. For example, MailChimp offers a freemium account for up to 2,000 subscribers and 12,000 emails a month. Upgrading to the paid plan is a no-brainer if you exceed those limits. But if your software is difficult to shave off features for a pared-down version, a free trial might be a better fit.

Consider what your big-picture goals are. Is it more about getting tons of paid customers, or maybe you just want to look good to investors by being able to say you have a million users? Maybe you plan to release additional products down the road, and having a database full of freemium users provides the qualified leads you’ll need to sell those products.

Consider Neither

There’s no rule that says you are required to offer either a free trial or freemium model. Many successful businesses operate without them (and many have pulled back from formerly using one or the other because they didn’t see the results they wanted). There are other ways to attract customers. Offering a 100% money-back guarantee is one way to take the stress out of the decision to sign up for users. Solid email marketing, offering a great ebook or valuable offer, is another strategy. If you’re just launching your software startup, try to start without either plan and see what results you get. That way, if you choose one of these options, you can measure against results using neither.

Both free trials and freemium models can bring great success, so really do your research to see how well either has done in your industry. There are plenty of case studies available in diverse software niches that can guide you to better understanding what results might look like for your company.

Images: ”Illustration with word cloud on the Freemium system./Shutterstock.com

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gouthambhadri

gouthambhadri

Goutham Bhadri is the CEO of Marketing Samurai, a digital marketing firm that helps businesses gain customers online by increasing traffic and website conversions. Through his help, his clients understand how to generate recurring revenue and automate their inbound marketing to scale their business in a smart, strategic manner. If you are interested in getting more customers, maximizing lifetime-customer-value (LTV) and scaling your business, set up a free consultation at Marketing Samurai or follow Goutham on Twitter @mktgsamurai or Facebook for digital marketing tips.

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