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Freemium or Free Trial: Which “Free” is Right for Your Business?

  • February 2013
  • Posted By Janet Muto
  • 0 Comments

 

Janet Mutoby Janet Muto

“Try it before you buy it” has turned from a sales pitch into both a consumer and business expectation. It’s now the baseline standard that customers will get some level of access to test out a product before they commit to buying it. This can be helpful for the business: it provides a great way for businesses to gain users.  Both for warm lead generation and for providing immediate feedback on how smooth their customer experience is. But “free” also raises many questions: exactly how should the product be free?

One of the questions that I am most often asked is should I offer my users a free trial or Freemium solution, and my answer is always “it depends”.  This blog will look at what factors to consider for and what to expect with Freemium, free trial or pilot as your engagement offer.

Freemium:

What it is: Freemium typically offers a “stripped down” version of a product. Users download this version, and can use this indefinitely. It’s up to the business to decide what goes into the free version vs. the paid version but most often, companies try to generate a model that generates paying opportunities as users become more and more dependent on the product.

Pros:

    • Freemium has the lowest barrier to entry for your users: they can download the product online and get going instantly. Many companies vary even in terms of how much information they ask of users for the free download. Questions can range from a general form requesting consumer’s demographics to nothing at all.
    • Because it is so easy to engage customers Freemium also typically has the highest yield for consumer sign-ups. This doesn’t mean this nets you the most paying customers, but it does put your product in front of lots of people, quickly.

Cons:

    • Your product is scaled down. In order to get customers to sign up for the paid version, companies have to hold features back under Freemium. This can create an inferior user experience and consumers can get confused with what your product actually offers. If you use Freemium, it’s important to make sure that you articulate just how drastically different the user experience is between the free version and paying version: consumers need to know what they’re missing.
    • It’s hard to draw the line. You need to put some appetizing features into the Freemium offering to whet the consumer’s appetite. But where do you stop? It is critical to find a reason  that some number of people (in your business plan) will pay.   Some companies have difficulty balancing a good user experience in the free product version vs. a superior experience in the paid version.

Level of Commitment: Minimal. Typically, Freemium requires the fewest initiation barriers and therefore the least commitment of users.  It can also be perceived as “low value’ to both customers and prospective customers.

Who should use it: Use it if your company could benefit from a social network effect or an advertising effect. What is a social network effect? A common example of Freemium is LinkedIn, a social network for employers and employees. LinkedIn requires a large user base; no companies would post jobs there if there were not a substantial number of people looking for jobs. By allowing companies and employees to set up LinkedIn profiles for free, LinkedIn is able to generate a large enough user base. LinkedIn generates their revenue from the services that users can upgrade to from their free accounts (such as highlighting your resume to potential employers).

Freemium can also generate free advertising.  In my early days at Constant Contact we had a freemium offer.  User who sent emails with the Contact Contact did so with a Constant Contact Try it Free  logo at the bottom of each email.  A significant number of new trials were generated by people who received the emails from their trusted sources, and realized that they too could use an email newsletter or promotion.

Free Trial:

What it is: Free trial allows the consumer to experience the full product for a limited time, then sign up for the product after the time period has expired.  The key to a free trial is to understand that the trial is either your greatest sale maker  (or not) for your product.  Every step of the user’s path to conversion needs to be “pressure tested” and “speed bumps” eliminated in order to optimize the experience and, maximize conversion.

Pros:

    • The user gets the full product experience and results.  They can test their usage of your product in “real life” situation and easily understand how the product can impact their business.
    • Trial users will invest time and effort in your product, and if their experience is good, will stay with you.  Cost of time can be as important as dollars – and if your solution works, that may be the end of their search.

Cons:

    • Bigger initial investment: in order to keep track of the free trial, users typically have to provide more information about themselves than with a freemium offer. Anything that stands between consumers and the product will cause some users to disengage from the product. The silver lining is this does mean that consumers who “stick it out” and go through the process to sign up for the trial tend to be more serious about the product that you’re offering.
    • The life-cycle of your product might make this infeasible. Some products are used on a daily basis, such as email. Some products might just be used once a year, such as software to prepare your taxes.  If your product falls into the latter category, people might just download the free trial as a sufficient work around to buying the full product. You need to examine what type of time table your product operates on to ensure that you are not just giving it away for free.

Who should use it: Use this if you need your full product solution to hook the users quickly. Allowing complete access gives the user a full understanding of how your product can drastically change their daily routine. For example, a program such as Photoshop offers a “free trial” option since it wants the user to have full access to all the photo editing tools. Since people will most likely require editing on multiple batches of photos, Photoshop is safe in assuring itself of paying customers if the product performs well for the consumer.

Level of Commitment:Free Trial offers the “middle” level of commitment. Users need to jump through more hoops to sign up so the company can keep track of users and ensure that no one is skirting the rules for a free trial, but the installation process is still typically a simple download and does not take that long.

Pilot

What it is: A pilot test is typically a for a complex solution, one that requires significant work to enable the solution (and typically a support team).  A pilot is a way to try the solution out with a subset of the actual users who will ultimately use the product (often one location, or a department who are the “test case) for the overall solution.

 Pros:

    • Companies who are solving a complex business problem will need to test processes, integration methods and actual solution usage.  A pilot is the only way to do this.
    • Companies will often agree that if the pilot is successful, they will acquire both the pilot equipment/solution and also a larger roll-out.

Cons:

    • This requires a heavy investment by the buyer and seller.  If things do not work as planned, both companies will have exerted huge effort and cost.
    • Pilots are often long affairs – with significant time for set-up and integration, and then 3-6 months (or more) for the actual pilot period.

Who should use this: Pilots are typically used by companies with a complicated solution that requires integration with the customer’s infrastructure or solutions and requires significant support.  It is most often used when selling these complex solutions to large enterprises who are looking to roll-out a solution that is replacing or integrating with existing infrastructure (think networking) and across multiple sites.

Level of Commitment: High. The time and resource requirement of installing the solution and properly training the employees in the proper usage makes this solution the most onerous. Most often it is accompanied by a process change as well – therefore also requiring training on the process as well. However when the problem being solved requires a solution this large, typically companies understand and are willing to undergo this investment.

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This provides a guide for what different types of “free” exist and when each “free” can be employed. But remember that even within the same company, you might wish to employ different free solutions for different types of companies.

In the early days at Constant Contact we had both a freemium model (for any user with a subscriber count under a certain number) and also a free trial.  Users who didn’t pass the free number were allowed use of the service indefinitely.  Others, who crossed the threshold could use the service for 60 days (for free) and then were invited to convert. Free isn’t a one-size-fits all solution, and it’s important to keep your business plan, and your target consumer in mind when you try to determine the right solution for you.

 

Do you have experience with any of these three models? Share your perspective in the comments!

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