Freemium vs. trial

Q: When does it make sense to make my product free? And how do I decide between offering a free trial or having a freemium product?

Microsoft Teams came from behind and disrupted Slack’s dominance in workplace chat (145m DAU vs. 12m, respectively) by making its product essentially free (i.e. part of the Office 365 bundle). Robinhood launched the world’s first free stock-trading product and quickly built a waitlist of over a million people, completely disrupting the stock-trading space. And Fortnite generated over $5b just last year by giving its game away for free. Also, if you hadn’t noticed, freemium and PLG are all the rage these days.

Free is the ultimate value prop. I’ve come across only three SaaS products that don’t have a free (or very cheap) offering. Why? Because free, used effectively, helps you (1) get people’s attention, and (2) gives people an incredibly low-friction (e.g. no sales call, no credit card) chance to take your product for a spin. The question isn’t really whether you should give away some or all of your product—you most certainly should. The question is what you should give away for free and how to most effectively use your free offering to drive top-line growth.

Two ways to use free to your advantage

Making a product free isn’t a revenue, pricing, or monetization strategy—it’s an acquisition strategy. It’s always a means to lower CAC, increased virality, and a way to get people’s attention in a crowded market. All in an effort to monetize in some other way.

There are two primary strategies for using free to drive growth:

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1. Business model disruption: Giving away the core product while making money in some other way

Chime disrupted the entrenched banking industry by offering fee-free banking—while making money through transaction interchange fees. Robinhood broke out by launching free stock trading—while making money through payment for order flow. Square gave away free PoS systems—as a wedge into taking a cut of SMB transaction flows (and later, lending, banking, payroll, and much more). Making their products free gave these companies a way to break through the noise.

“If it’s digital, sooner or later it’s going to be free.”

—Chris Anderson, Free: The Future of a Radical Price

Find a way to make free a product that is currently not free, and you’ll get a lot of people’s attention.

2. Lead gen: Give prospects a taste of your product (freemium or trial) in hopes that they take a full bite

The more typical way to use free to drive growth is to give potential customers a way to try your product (or parts of your product) for free. This is done with a free trial or a free tier of your product. The bet is that the lower friction of trying out your product leads to more paying customers. As you’ll see below, nearly every SaaS product goes this route.

“I have never come across the business where I don’t believe there’s not a role for free at some point in their strategy.”

—Elena Verna

Find a way to make (part of) your product free, and you’ll most certainly accelerate growth.

For the purpose of this post, I’m going to stick to typical free strategies for SaaS companies, but there are other ways to use “free” to drive growth:

Free samples (e.g. Red Bull)
Free shipping (e.g. Amazon Prime)
Free prize inside (e.g. cereal boxes)
Getting a bonus for signing up (e.g. Uber)

When to go trial vs. freemium

I looked at the pricing models of about 50 SaaS products, and the takeaways are fascinating.

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You don’t have to choose—you can do both. Nearly 90% of freemium products (e.g. Slack, Canva, Airtable) also offer a 7- to 30-day trial of their paid product, and about 50% of all the SaaS companies I looked at do both. If you have a freemium product, you almost certainly should experiment with offering a free trial of your pro plan.
Go with freemium, and without a trial, if your premium product can be fully understood without experiencing it. I’ve come across only three freemium products—Figma, Miro, and Amplitude—that don’t also offer a trial. I suspect this is because their pro versions can easily be understood without being experienced (e.g. enabling increased collaboration, better administration, or support for more data). If you can get your customers to upgrade without trialing the product, you may as well!
Go with a trial (instead of freemium) if your product significantly benefits from hand-holding and has a high price point. Everyone wishes their product could be self-serve, but wishing doesn’t make it so. If your product requires complex integration (e.g. Okta, ServiceNow) or many stakeholders (e.g. Snowflake, HubSpot), or simply converts a lot better with human intervention (e.g. Front, Looker, Zendesk), go with trials instead of a self-serve free tier. Particularly if your price point can support the cost of hand-holding (e.g. adding a customer success team).
Very few products don’t offer a free product of any kind. Of the ~50 companies I looked at, only a handful didn’t have a free offering: Workday, ADP, Superhuman, Stripe, and MongoDB. In the case of Workday and ADP, I’m guessing this is because the onboarding process is too complex to simply try out for a short period. In the case of Superhuman, I suspect it’s because its manual onboarding process, involving humans, makes free trials ROI-negative. And in the case of Stripe and MongoDB, they have usage-based pricing and thus are very easy and cheap to try out already.

TL;DR: Go trial if your self-service product doesn’t convert well and you have a high price point. Otherwise, go freemium combined with a trial of your pro plan.

What to make free in your freemium product

This is a deep and nuanced topic, and I’m far from a pricing expert, so I’ll share a few suggestions and then point you to my favorite in-depth reads on the subject.

What to keep free:

Features that enable your product to spread throughout an organization/community (e.g. invites, sharing, some level of collaboration)
Features that are necessary to keep a user hooked (e.g. your killer “aha” features)
Features that are necessary to keep a user retained (e.g. meaningful usage limits)

What to charge for:

Features that professionals or teams (i.e. people who use this for their business and will spend money to be more productive) will need (e.g. billing and admin, customer support, higher usage limits)
Features that make the lives of power users much less annoying (e.g. automations, reports, history, etc.)
Increased usage limits beyond some initial threshold

For further inspiration, here are pricing tiers of 50+ SaaS products, collected by a16z:

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Finally, a bit of advice from Patrick Campbell, CEO of ProfitWell, from his previous guest post on SaaS pricing strategy:

“Don’t do freemium until you truly understand how to convert leads to customers, because you’ll end up increasing noise or false positives when you’re trying to figure out your segment beachheads. The best folks who deploy free typically don’t implement freemium until 2-3 years into their business. The exceptions to this notion are if you have a very specific need or network effect (e.g. marketplaces, social networks, etc.) or if you have a top-50 growth person on your team.

To be clear, I’m not saying don’t do freemium. I’m saying it’s a scalpel, not a sledgehammer, that requires thought. A lot of people end up reading our articles on freemium and going, ‘Cool, let’s do freemium and we’ll be a unicorn.’ I’m being pragmatic in that you need to realize freemium is fantastic, but doing freemium properly takes a lot of effort and nuance.”