Insight: SaaS (34) Freemium or Free Trial: which is better for SaaS?

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Insight: SaaS (34) Freemium or Free Trial: which is better for SaaS?

We discussed the mid-life crisis of SaaS in the last post ‘Insight: SaaS (33) Quarter-life crisis of SaaS’; today, we’ll identify two SaaS models: Freemium and Free Trial. They’re the most popular business strategies right now. After reading this article, you can easily figure out which one a SaaS company is utilizing. We also compare and examine their similarities, differences, strengths, and drawbacks.

We first convey our own definition: Freemium and Free Trial here are based on the premise that customers can reach the product themselves. The discussion excludes the SaaS that needs contact sales and cannot be used straight from the company’s website.

Free Trial: Customers can sign up for SaaS on their own, and there is a free trial period. If the period has expired, the consumer will be unable to use it again unless they purchase it.

Freemium: Customers can use the free version of the product until they upgrade to a premium plan. Users can freely switch between plans, upgrade from the free plan to the premium plan, and downgrade from the premium plan to the free plan.

Before we get into detail about them, let’s take a look at how the SaaS company dealt with clients before the introduction of Freemium and Free Trial. I summarize it as Request a Demo. Customers cannot test the program on the SaaS website, and they must contact sales to obtain access to the software. Request a Demo is a commonly used ‘Call to Action’ modification.

Requesting a Demo is a relic of a bygone era, the software era, and SaaS businesses who use this strategy firmly adhere to the sales-led growth engine. Customers must enter a variety of details, such as their name, age, company name, title, contact information, firm type, budget, and so on. The customer then waits for sales to call them after submitting this information. The level of sales, not the product, determines the success of the transaction. As a result, as long as sales are brilliant, the company’s revenue can expand quickly.

Downsides of Request a Demo

1. People are becoming increasingly resistant to accepting Request a Demo, which is behind the times. The customer notices the information forms that must be filled out and moves away. Consumers are reluctant to share private information, especially if they haven’t made up their minds about a purchase. And an increasing number of people are opting for self-education. These clients are unwilling to approach Sales, preferring to gather more information through their own inquiries, leading them to exert greater transaction dominance.
2. It’s impossible to make customers feel the value for the first time, and the process of reaching out to customers is far too complex. This is why Request a Demo is being phased out. Even if they are willing to provide a lot of information, and wait for sales to contact them, the original enthusiasm will gradually dissipate through waiting. After requesting a demo, the consumer will have to wait at least a few hours for sales to call him. They could obtain access to the demo or trial version of the negotiations go smoothly. This type of procedure is too protracted and detrimental to the deal. It’s crucial to understand that the goal of closing a deal is to minimize friction as much as feasible. The lengthier the sales process, the higher the chance of a bad transaction.
3. The target market will be narrowed in the face of competition, and the emerging market cannot be reached. Maintaining a demo request is only a passive defense against opponents who update their gear. Whether employing Freemium or Free Trial as a tier, those new SaaS can compete on a large scale. Request a Demo is like carrying WWII-era infantry weapons against advanced stealth bombers. They can only compete in very vertical markets or restricted industry marketplaces.

Request a Demo, on the other hand, has a slight advantage:

Requesting a Demo could boost ACV through Sales. It is frequently linked with a pricing page that lacks a clear price tag, therefore its ACV is dependent on the client’s budget and sales skills. They have the chance to enhance the ACV dramatically, including such onboarding charges.

Returning to the topic, both Freemium and Free Trail are popular models at this time, and they are frequently associated with PLG (Product-Led Growth). Freemium or Free Trial is used by a large number of PLG members. Both of these models rely on products as the primary conversions channel, which coincides with PLG’s basic concept.

Whether it’s a Freemium or a Free Trial, both have their own set of benefits:

1. Use products to complete conversions, not sales. Customers try the Free plan products initially, and if they are not satisfied with the products, they will not purchase the advanced plans. Free Trial also strives to achieve consumers' success during the trial period in order to encourage users to purchase when the trial period expires. The product serves as a sales channel in both Freemium and Free Trial.
2. A high conversion rate, transparent pricing, and a lower threshold allow customers to check it out on their own. Pricing tables for SaaS companies that use Freemium and Free Trial are usually well-defined. The details are available to customers. The customers have complete control over whether or not to acquire the premium plan and have the decision-making flexibility. Allow clients to utilize it first, and the ultimate conversion rate will be high since this is the era of the best product.
3. There’s no need to contact sales and no psychological pressure. Once the customer has completed the registration, they can start using the product. They have the option to leave on their own if they are not satisfied. They can purchase it through Self-service as their wish. It will have the highest efficiency without sales engagement (Applicable to SMBs and the Mid-market).

We’ll now compare and contrast Freemium with Free Trial. Both of these models are really popular right now. What are their distinct benefits and drawbacks?

Free Trail’s unique advantages:

1. Upgrading from Request a demo is simple and does not necessitate redesigning Free Plan products. Free Trial is more similar to Request a demo than Freemium in terms of product structure. Since Freemium requires a redesign of a Free plan product, while Free Trial merely requires the addition of a trial period on the same premise. It is more conducive to rapid implementation from an engineering standpoint.
2. Trail’s cost can be controlled. Cause the SaaS company only has to cover the expense of the trial period if the customer leaves. However, the Freemium company must always retain the daily use of Free plan users. The Free plan’s subscriber base typically accounts for more than 90% of the overall number of customers. No matter how much they consume, SaaS companies can only afford it.
3. The customer feels ‘compelled’ to pay, and the transaction rate is increased as a result. This has always been a noteworthy benefit. Free Trial’s SaaS software will send users emails or pop-ups when their trial period is about to expire. This creates a significant sensation of anxiety in the buyer, driving them to pay. Many people put off taking action until the last possible moment. Freemium, for example, does not have the same sense of urgency. Many consumers will be intent on staying on the Free plan and exploring cautiously, but they will not close a deal. Leads that are on a Free Trial must convert at a higher rate than those who are on a Freemium plan.

Disadvantages of Free Trial:

1. Since the client trial period is limited, strong product pressure is required to reveal the value. Customers will leave forever without perceived value, and the threshold seems to be higher. The trial period has two sides: it can drive users to buy their tickets, and it also forces SaaS to express product value to clients within this timeframe. This product’s design difficulty is substantially higher than that of Freemium.
2. Even if customers purchase a Free Trial SaaS, CSM will be under a lot of stress and will find it difficult to keep consumers. Many customers buy the SaaS product because the trial expires. His judgments aren’t dependent solely on product success. Only half of the clients may be satisfied during the trial time, and the other half may contemplate investigating the value after subsequent purchases. The CSM will be under a lot of pressure at this point, because even if the consumer purchases, they may not necessarily renew the charge.

CSM seems to have a challenging time recognizing customers who will renew in MRR.

Advantages of Freemium:

1. The customer experience cycle can go on indefinitely, yet the pool of customers will always exist. Consumers may perceive the value of your items as long as they have genuine needs, and the threshold is lower. As the urgency of the client issue changes, so does their needs. When a customer signs up for your free plan, they are considered a candidate for life. Customers’ tolerance level for Free plan items is still fairly high, no matter how problematic your product is in its early stages.
2. Upgrades from free to premium must have significant, real demand. It’s easier to ensure NDR. Customers won’t buy the paid plan if they don’t have a lot of trouble, therefore they’ll just utilize the free plan all the time. CSM tasks are simple to complete; all you have to do is serve those paying customers. These customers are naturally growing, renewing, and easy to upsell. They exemplify the ideal client persona.

Disadvantages of Freemium:

1. Product design is complicated, and there is a distinction between free and paid plans, but the free one has value as well. This balance must be achieved by CEO and the product team. In normal circumstances, the most basic functions should be included in the free plan, while the most valuable features should be included in the premium plan.

This is the pricing table of Trello’s Freemium SaaS, we can find that it has put some valuable functions in the Standard plan.

2. Freemium costs are difficult to calculate and regulate. Customers on Freemium’s Free plan will spend a lot of resources, as described under the benefits of Free Trial. Many SaaS businesses fail here, forcing them to transition from a Freemium model to a Free Trial model. They can more readily attract paying customers and devote more to serving them.

We discussed Freemium and Free Trial in this article. I hope it inspires you.

Please send me an email (jasperhanlingyi@gmail.com) if you have any questions or suggestions.

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