Freemium vs Free Trial vs Hybrid Customer Acquisition Model in SaaS:

How To Develop a Customer Acquisition Strategy

  • What is the most effective way to entice prospects to try your product?
  • Is it better to offer a freemium or a free trial?

Table of Contents:

PART 1: What Is a Customer Acquisition Strategy?

#1 Customer (WHO)

#2 Market (WHERE)

#3 Product Offering and Pricing (WHAT)

#4 Channels (HOW)

  1. Acquisition stage, where the buyer's goal is to quickly assess pain-product fit and obvious benefits and take action to evaluate the product.
  2. Adoption stage, where the buyer's goal is to learn how to use the product, experience initial value or benefit, evaluate, and make a buying decision.
  3. Retention stage, where the customer goal is continuously receiving value and benefit from the product.
  4. Expansion stage, where the customer's goal is to explore how to be more empowered and successful with the product and new features and capabilities.
  1. Drive awareness and demand (or in other words getting your brand into the consideration set)
  2. Design initial prospect-product interaction so the prospect can try your product
  3. Design a journey to deliver value to prospects
  4. Convert prospects to paid customers

PART 2: Why Is Customer Acquisition Strategy Important?

Boost product growth

Reduce Customer Acquisition Costs (CAC)

Shorten the sales cycle

Force a focus on the initial interaction

PART 3: How To Design a Customer Acquisition Strategy

3.1 Four Psychological Aspects of a Customer Acquisition Strategy

  1. The Endowment Effect

3.2 What Are Freemiums and Free Trials?

  • Feature-limited
  • Capacity-limited
  • Seat-limited
  • Customer class limited
  • Effort limited
  • Support limited
  • Time or bandwidth limited
  • Storage and space limited
Freemium vs Free Trial: The Pros and Cons
Price vs Complexity Framework

3.3 Considerations for Designing an Effective CAS

  • A large addressable market
  • Low costs to serve free users
  • Low barriers/commitment for users to start with your product
  • How long does it take for prospects to realize initial value on average? How long should the trial last?
  • What features should and can our team limit or remove from the free trial process?
  • How do we nurture a free-trial user? What in-product behavior correlates with an optimal trial-to-customer conversion rate?

Questions to consider when designing a freemium or free trial

  • What goals do we want prospects to achieve during free trials?
  • What value do we want to deliver to prospects?
  • What valued features do we want prospects to try?
  • What are the requirements for a freemium user to become product qualified leads (PQLs)?
  • Do we provide a self-service option to buy at the end of the trial?
  • What type of free trial or freemium will we offer?
  • Will we limit our free trial in any way?
  • How will we limit our freemium?
The Importance vs Satisfaction Framework | Credit: “The Lean Product Playbook” by Dan Olsen
  • What features do we want to offer and/or limit during the free trial?
  • What are the valued features that we want to offer?
  • How long should the free trial last?
  • When and why would we extend the free trial duration?
  • How much will it cost to sustain a large segment of free customers? Is a freemium model scalable for our business?
  • Can we provide enough value for users to realize product benefits but still limit value to entice them to pay for a subscription?
  • What is needed and how much will it cost our company to offer a free trial?
  • How do our Customer Acquisition Costs (CAC) and free trial costs align with our PQL goals?
  • Are we attracting the right kind of customer? (i.e., a customer in our target market with a real need, an urgency to purchase and a desire to expand the subscription?)
  • Do we expect that only end-users will sign up for a free trial, or will managers and/or others also sign up?
  • Does it make sense to differentiate between influencers, decision-makers, and end-users during a free trial?
  • If so, how do our signup process, journey to experience initial value, and nurturing efforts change?
  • How difficult is it to get started with the product? Does it require technical integration and broader organizational approval?
  • What is our signup process for a free trial?
  • What information do we request from prospects?
  • How many steps are in our free trial setup?
  • What is required from prospects to access a free trial (for example, corporate email, credit card, social login, third-party integration information)?
  • What are the steps in the buyer/customer journey to experience initial value or the desired outcome?
  • What is considered an initial value?
  • How often do we want prospects to log in and use our product during the trial period?
  • Can our product become a part of their daily routine?
  • How will we communicate with prospects during the trial (emails, in-product messages, etc.)?
  • What content would be helpful for prospects to review before and during their free trial?
  • How will we nurture and prioritize freemium users that are ready to purchase?
  • What metrics do you want to measure during a free trial?
  • What in-product user behavior do you want to track?
  • How will you measure and report signup-to-PQL and signup-to-customer conversion rates?
  • What customer segments and roles correlate with shorter time to PQLs and closed deals?

3.4 Why Do Companies Fail With Freemiums?

3.5 The Hybrid Approach

The Hybrid Customer Acquisition Model

Summary

Acknowledgements / References

References:

Books:

  • Survival to Thrival by Tae Hea Nahm and Bob Tinker
  • Mastering Product Experience in SaaS by Nick Bonfiglio, Mickey Alon, Myk Pono
  • How Brands Grow by Byron Sharp
  • The Art of Thinking Clearly by Rolf Dobelli
  • Behind the Cloud by Marc Benioff
  • The Lean Product Playbook by Dan Olsen
  • The Strategy and Tactics of Pricing by Thomas T. Nagle,‎ John Hogan,‎ Joseph Zale
  • Play Bigger by Al Ramadan,‎ Dave Peterson,‎ Christopher Lochhead,‎ Kevin Maney

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