Free Trials and Freemiums – Are They Effective Customer Acquisition Strategies?
Users always want to try a product before making a purchase decision, irrespective of the business model, and the geographical location. You could go door to door in case of B2B and demonstrate your offerings to potential customers. But the tedium is usually discouraging. And how do you reach out to the millions of potential users out there in the case of B2C?
There are two widely adopted models if you want users to try out your product before they commit their money.
- Free Trial
Both of these models have proved to be effective for customer acquisition. Let’s explore them in detail.
What is Freemium?
Freemium is a business model in which you offer limited features of your product for free, indefinitely. Users can explore the products at their own pace since there isn’t a ticking clock on their access.
While certain features are available for free, users are often required to upgrade to be able to harness the full potential of those features. Dropbox is the perfect example to understand the freemium model. Storage up to 2 GB is free on the platform. But you can buy additional space, up to 1 TB for a mere $9.99 a month.
What is Free-Trial?
The free-trial model is where you offer your entire product suite for free, for a limited period of time. The aim here is to show your users the value your product provides, and get them hooked in such a way that they have no choice but to buy from you.
Netflix is one company that has aced this game. It offers free trials to its users, during which they’re captivated and engrossed in the multifarious content options available on the platform. By the time the trial is over, users are so deep into their addiction to the OTT platform that almost 33% of them end up taking paid subscriptions.
Do Freemium and Free-Trial Models Help Acquire Customers?
Freemium and free-trial are both cost-effective strategies for customer acquisition. There are various scenarios where they work and where they don’t. You must be in a position to take a call as to whether or not you need one of these models to further your business.
The Effectiveness Of The Free-Trial Method
According to Sixteenventures, companies, where free-trials require no card details, should aim for a conversion rate of 25%, and companies that require card details should aim for conversions up to 60%.
The free-trial model helps acquire customers in the following cases.
1. Your Product Is Great
A great product sells itself. But in order to see the greatness of it, your users must have access to try it out, which can be provided by a free trial.
2. When Your Product Involves Significant time Investment
If a customer has invested enough time in your product during the trial period, he or she is more likely to stick with it. It’s always preferable to keep using what you’ve mastered, rather than switch to a whole new product and start from scratch.
One great example, in this case, is Spotify, where you spend so much time training the app that it starts suggesting the perfect options catered to your taste in music. You don’t then want to let all that effort go to waste and spend time in training another music app. You’d rather just pay for the Spotify subscription.
When Free-Trial Doesn’t Help acquire Customers
Here are three scenarios where the free-trial model is ineffective at conversion into paid users.
1. When Even A Reasonable Period of Time Isn’t Enough To Showcase Your Product’s Full Potential
The co-founder of Crowdability states, “Do not offer a free trial when your customer can’t get a complete picture of how your product benefits them during a reasonable free trial period.”
It’s not always feasible to extend the time period in such cases. No matter what you do, a trial is simply not enough to demonstrate the power of your product.
2. You’re Selling An Extremely Complicated Product
Don’t expect your customer to invest time in learning how to use your product during a free trial if it’s too complicated. It’s better to adopt other strategies in such cases, as done by companies like Marketo.
They’re fully aware of the complexity of their product and rely on a model where they offer free demonstrations instead of free-trials.
3. The Entire Value Is Realized In The Trial Period
If the value of your product is realized in the trial period, why would customers pay for an extension? Let’s consider an example. You’re offering software that helps organize your employees’ goals for the current year and allows them to rate themselves on the basis of their last year’s performance.
If the users are smart enough, they’ll sign up for a free trial and get the entire task completed during the trial period, post which they will not have any need for the software for another year, except to view the data they have already entered.
Freemium Is Effective At Customer Acquisition
Some researchers have compared the freemium model to drugs. You try some, over and over again, and you’re left wanting more. Companies like Linkedin earn around $1billion dollars in revenue each year from the freemium model, even though only about 20% of its customers are paid, subscribers.
This particular model works on something known as the network effect. Users attract other users on the platform, thus increasing your overall user base, resulting in an increase in the number of paid users. Linkedin will not be able to able to function without recruiters and job applicants. More applicants attract more recruiters, and vice-versa.
Since the typical conversion rate for freemium is only about 2-4%, it’s not a great strategy for bringing in the big bucks. But it’s great for customer acquisition.
When To Avoid Using The Freemium Strategy
While the freemium strategy helps convert free users to paid ones, it’s advisable to avoid this model in the following scenarios.
1. When Your Business Volumes Are Low
The conversion rate of freemium is around 1% to 2% for non-established businesses. If you’re just starting out and have a fairly low volume of users, this number will hardly give you any paid users.
It’s better to spend your resources in formulating other strategies in such cases, rather than putting all your eggs in the freemium basket.
2. Limited Scope
If your product offers most of the features int the free trial and there are very little benefits to upgrading to a paid model, users tend to not convert. If they’re paying a premium for additional features, they expect better versions of what they’re getting for free.
Adopt a different strategy if you think that your product is valuable, but limited in scope to provide significantly useful features in a free vs paid version.
3. If you’re dealing in B2B products
Corporate clients want quality products that benefit their company and usually have set budgets. They’re seldom drawn to free offerings, unlike B2C customers.
Freemium is not the way to go in the B2B line of businesses. There are various other models you can look at, just not this one.
Freemium vs Free Trial- What Should You Choose?
The strategy that you should choose depends on your business model. There’s no one-size-fits-all here. Different strategies are better suited to different companies.
If you have a wide range of features and a larger market, freemium is better for you. Free trials are better in case of smaller market sizes but come with various hidden costs.
Some experts would say that instead of deciding on freemium vs free trial, opt for a hybrid of both. It gives you the benefits of both worlds while absorbing the drawbacks of each model when implemented individually.