Freemium or Free Trial Models. What works best for your business?

By Mike Morini

Free trials and freemiums are two common pricing tactics frequently used by businesses with recurring revenue models. While conceptually simple, these tactics can be tricky to implement effectively to drive adoption. It’s important to emphasize that free trials or freemiums don’t fit every business. Let’s take a look at some key questions to determine if these models can work for your organization.

The strategy behind both models is to expose potential paying customers to a service with reduced functionality in the hope that some of the users will convert to a fully functional paid service. Freemium models offer basic functionality, use or content for free. Essentially, a user can use the freemium service for as long as they’d like without cost. We’ve all grown very familiar with such services as LinkedIn, Facebook and DropBox that offer freemium services.

Free trials and promotions provide the user with a service for a defined period of time. These trials frequently provide reduced functionality compared to the paid options. In addition, the free trial ordinarily has an opt-in or opt-out requirement at the end of the term.

Can a freemium or free trial work for your business?

There are four questions every business needs to evaluate before moving toward either model.

Can your service sell itself? That is, will users quickly determine the value of your offering or will they require selling first?

How easily can a user get started with your free service? If your freemium or free trial requires significant effort to configure the service, to integrate data from other systems or learn how to use it, users will probably begin searching for an alternative. A simple service with an immediate time to value is best for these free offers.

Does your free trial promote your offering’s real value? If most of the benefits from your service are only offered in the paid version, such as support, service and add-on services the user won’t get a chance to grasp the benefits of your paid product. Some businesses overcome this hurdle by offering partial or even full technical support to increase their conversation rates.

Is there any cost associated with delivering your free offering? From a financial perspective its necessary that free trials and freemiums provide incremental profit that is greater than the incremental cost of delivering the free service.

Metrics for success

The primary metric for measuring the success of a freemium or free trial is the adoption rate. Usually there are three causes for weak adoption: insufficient perceived value, better or equivalent free alternatives, or your offering is a solution without a problem.

To encourage adoption of a freemium it is essential that your offering does something useful for your target customers. Preferably it also needs to be better – or a least just as good as – your competitors’ offerings. Finally, it needs to be easy for prospects to access and refer to their colleagues.

If premium features are considered as only minor conveniences rather than a must-have solution to a pre-existing problem conversion may remain low even with strong adoption. On the other hand, conversion may grow as users perceive greater value in the paid version.

For an in-depth discussion of best practices for using free trials or freemium models to promote your service, click here and download the Aria Expert Series Whitepaper, Comparing Free Trial and Freemium Models.

Finally, I’d enjoy hearing from you about your experiences using freemium or free trial models to drive recurring revenue. Drop me a line!