Free Trial Pricing: Low-Cost Customer Acquisition Strategy for Subscription Businesses.

February 7th, 2024 by Felix Cheruiyot

free trial pricing strategy

Unless you are in SaaS, giving your product away is not everyone's idea of a viable marketing strategy. Discover free trial pricing, its benefits, and use cases.

Statistics suggest that up to 92% of SaaS startups fail. The reasons for these failures include insufficient product market fit, poor marketing, and product mistiming.

Some SaaS startup failures also stem from weak pricing strategies. Besides raising capital, SaaS startup founders struggle to convince people to try their products.

Your SaaS subscription product will not take off if you can't convince enough people to try it. That first group of users helps to validate your market promise. It can serve as evangelists for your product, who will help convince more target users to sign up.

Since people generally do not want to risk their money on products they have not tested, free trials are a viable pricing strategy for SaaS products. This article will discuss the free trial pricing marketing strategy, showcasing how it helps demonstrate a product's value.

What is a free trial subscription?

A free trial pricing strategy offers target customers a chance to try your product for free for a limited time. It is a sales promotion technique that uses the product to market itself.

Free trials are commonly used to market SaaS and other digital products. The working theory is that only a company confident in its product's value is prepared to offer a free trial.

Free trial pricing works for both parties. Customers get the assurance that your product is everything it is cracked up to be. For the startup, it gets your target customers to experience your product first-hand, which is the ultimate test of its market fit.

Often, SaaS and subscription services companies overestimate demand. So, offering free trials is a good way to gauge demand, especially in the early days. If you cannot convince target users to try your product for free, you will find it much harder to get them to pay for it.

How does free trial pricing work?

Free trial pricing allows target customers to experience all your product's features for free for a short time. Most free trials last a week, others two weeks, while some last up to a month.

Your regular subscription price would kick in at the end of the free trial, often automatically if you have collected the customer's payment information at sign-up. You can then consider the customer activated and fully signed up.

It's a fair bet that a customer will sign up for the paid subscription if the product meets their needs. Still, many will procrastinate until some other shiny new tool takes their attention.

It is helpful to design your free trial sign-up process to collect payment details and automatically start the paid subscription at the end of the free trial. But only do this if you have sufficiently tested the product and are sure it works.

Requiring target users to supply their payment method, even if you will not charge it, scares off some people, which will reduce the number of people willing to take you up on your free trial offer. Consumers generally don't like sharing their payment information, especially where they are unsure a purchase makes sense.

What is the best free trial period?

The length of your free trial will depend on who you are marketing to: other businesses (B2B) or consumers (B2C). Consumers have too many things and products competing for their attention. Hence, a shorter free trial period, usually one week, helps to convey a sense of urgency to your offer.

How long your free trial period is also depends on the complexity of your product. Some SaaS products, for example, have many features, which equates to a steep learning curve.

Complex and feature-rich products, therefore, demand a more extended trial period. Otherwise, the user cannot discover the product's full potential and accurately gauge its value. Therefore, a one-week free trial may be too short even for a B2C product.

B2B products generally require longer free trials, with 14-30 days being the most preferred. Free trials rarely last longer than 30 days.

Free trials for B2B products need to be longer, not usually because the product has a high learning curve but because the B2B buying process involves various workflows.

Before selecting a vendor or supplier, B2B buyers must evaluate different options, which means testing your product against competing solutions. The evaluation stage of the buying process may involve more than one person or department.

A higher-up in the company may also have to approve the purchase. All this means you must allow a longer free trial for B2B customers than if you market directly to consumers. So, the best free trial period is one that allows you to demonstrate your product's value adequately.

Benefits of using a free trial pricing strategy.

There are other ways you can price your SaaS product or subscription service. These include:

The best pricing strategy encourages target customers to try your product, convinces them to re-subscribe, and allows you to generate enough revenue to make a profit, not just to keep the lights on.

But first and foremost, a good pricing strategy must get target users to try the product. If the product solves users' problems, they will sign up for a paid plan. This is a more sustainable way to grow a business and is why the free trial pricing strategy works so well.

Here are the other benefits the free trial pricing strategy offers:

1. Allows customers to experience your product risk-free.

It's asking too much for customers to gamble their money on a product they have not tested, especially if you are marketing a one-of-a-kind solution.

Offering target users the chance to try the product and test its features at no cost removes the risk element and eases the fear of commitment.

2. Shows you as confident in your product.

Offering a free trial period demonstrates confidence in your product. It sends the message to target customers that you are willing to stand behind your product.

It works better than asking customers to risk their hard-earned money on a product they may end up not liking. Target customers can see what they stand to benefit or what they will miss out on if they don't sign up. All without paying any money upfront.

3. Helps you collect valuable customer data.

Even if customers who take you up on your free trial offer do not end up subscribing to a paid plan, you can collect a lot of data from their interaction with the product. Not least of these data is their email addresses.

You can tell which features testers tried, which suggests you may need to improve them. Usage patterns from the free trials can also tell you which features are the least popular. Without this data, you may waste time and developer resources on features the market does not need.

4. Lowers your acquisition costs.

A common reason for SaaS startup failure is that founders burn through capital so fast during the development stage that nothing is left for marketing the product.

Free trials can fill the marketing funding gap by using the product to market itself. They help to validate your value promise by allowing customers to thoroughly test your product without worrying about the price.

If your product's quality and performance match the value you are promising in your marketing, people will sign up for a paid plan. And since you are technically not spending money when you offer free trials, they can significantly lower your customer acquisition costs.

Is a free trial really free?

Free trials are indeed free. But as trials can only last so long, after which it should be considered actual product usage, they have a time limit. Free trials should last for a short time.

When you sign up, free trials typically ask for a payment method at sign-up, usually a debit or credit card. Unless the customer cancels their free trial, this card will be charged automatically when the free trial ends.

If you do charge the customer's supplied payment method at the end of the free trial period, it will be the first paid subscription period the customer is paying for, not the free trial.

Free trial vs freemium pricing model. Are they different?

A free trial is not the same thing as a freemium pricing strategy. Free trials offer all of the product's features for a limited time so a target customer can try it risk-free. On the other hand, a freemium pricing strategy allows users to use a limited number of a product's features forever at no cost.

So, the main difference between a free trial and freemium pricing model is the former has a time limit and provides complete access to the product while the latter has no time limit but provides partial access to the product.

The freemium pricing strategy gives users a taste of the product while making it clear that the experience will be a lot better if one buys a paid subscription. It unlocks just enough of the product's features to arouse and retain the customer's interest.

The freemium pricing strategy aims to poke the question, if the free version of the product is this good, what could I get with a premium subscription? That's often what it takes to get the customer to upgrade to a paid plan.

Is the free trial pricing strategy right for your business?

While the free trial pricing strategy may be free to the customer, it is not an entirely free customer acquisition strategy for you. Yes, it lowers your acquisition costs, but you still have to spend money on attracting people to your free trial offer.

The effectiveness of the free trial pricing strategy also drops if your competitors are also using it. Your product must then truly promote itself and be better than the options available. It is not enough to just offer a free trial; you must find other ways to distinguish your product.

Free trials can prolong the sales cycle.

Finding the sweet spot for your free trial period can be challenging. You want to give target customers enough time to try your product's features, test its functionality, and ascertain its value.

But that can also expose you to exploitation by people who opt into the free trial without the intention of ever upgrading to a paid plan. With access to the product, people might take longer than they need to decide whether to pay for the subscription, prolonging the sales cycle.

Free trial pricing is not an effective acquisition strategy if your product is complex and requires the involvement of your sales team to convert target customers.

You should also have enough resources to handle a large volume of users signing up simultaneously. Can the product handle the volume? You will not convince customers to upgrade to a paid plan if your SaaS product constantly crashes. Free trial pricing will, therefore, not be an effective strategy to pursue.

Automatic billing is the key to success with free-trial pricing.

The conversion event for businesses that pursue a free trial pricing strategy is when the free trial period ends. You can't leave it up to the customer to perform the sign-up action.

Your billing system must automatically charge the supplied payment method to start the paid subscription. Otherwise, the customer may take their time, or a competitor may entice and snatch them away with a better offer.

An automatic billing system like the one we provide at Intasend gives you control over customer acquisition and retention processes, from plan creation, billing, invoicing, upgrading/downgrading, cancellations, and dunning management.

Streamline billing, lower customer acquisition costs, boost customer retention, and manage your free trials painlessly with Intasend's robust subscription and automatic billing software. Sign up here to get started.

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