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What's the Difference?
There are so many possibilities when you begin evaluating pricing structures for a SaaS (software-as-a-service) product. Giving new users free access—even if only for a limited time—can be a great way to gain traction with potential customers. Some potential customers may be interested enough to invest their time into trying your product, but not interested enough to pay for it yet. Offering a free plan or a free trial is a great way to let customers dip their toes into the water without spending money. Giving users a way to test your wares without pulling out a credit card minimizes their barrier to entry. Hopefully, once they’ve tried your product, you will be able to convert them into a paying customer.
Free plans are a “free forever” pricing tier that lets your customers access some features of your product indefinitely. Free trials may give customers access to more features than a free plan. However, free trials are time- or resource-limited. A free trial may only last a few days before users must pay to continue accessing your software. Alternatively, a free trial may only allow users to try a feature a certain number of times before requiring payment.
Let’s explore some of the advantages and disadvantages of each approach so you can determine what will work best for your product.
Free Plans
Advantages of Free Plans
In terms of user adoption, a free plan is the way to go. If your business model only makes sense once you reach a certain user headcount, a free plan will help you reach your goal faster than a free trial. Free tier subscribers are less likely to cancel their accounts than those on free trials. This gives you more time to engage with free users and convert them into paying customers.
Psychologically, a free plan may make users feel more valued than a free trial. You are offering potential customers indefinite access to a valuable product. Free plan users will not feel the same pressure as trial users to make a quick purchasing decision. They have all the time they need to evaluate your product before buying it. They may need this extended time to evaluate your product if you have a very deep or feature-rich offering.
Also, free plans are more likely to give your product some free exposure. Having an unlimited amount of time to evaluate your product means your users will become well-educated about all of its features and benefits. Those users will then become some of your best salespeople. They will refer their peers to your service if the free tier is useful enough. Furthermore, if your product is for developers, they will likely utilize your SaaS when starting new projects. This organic growth further increases your user headcount, increasing your pool of potential paid subscribers in the future.
Disadvantages of Free Plans
Unfortunately, a free plan amounts to a potentially permanent free ride. You may never convert those users. The cost of supporting free accounts on some SaaS products may be nearly negligible, but it depends on what your product does. If you need to store a significant amount of data for each user, the cost of that data storage may mean offering your free plan at a loss. Offering support to those users is another cost. However, these costs may be okay if user adoption is central to your strategy. Venture-backed companies planning to scale to millions of users may be okay with losing money upfront. Alternatively, it’s difficult to grow a self-funded company so aggressively without a clear monetization plan.
If you are selling enterprise software, it’s also generally a bad idea to offer a free plan. It can cause some users to infer that the software is inexpensive. With enterprise buyers, you want them to infer the opposite. Demonstrating that real dollars are involved is the best way to position yourself with enterprise customers. They have deeper pockets than your typical individual or small business. Focus on maximizing value that encourages them to spend more with you, not less.
Additionally, it is hard to get users to pay if they get what they need for free. You must convince them to pay for something they’ve already used. In order to have a successful free tier, you need to strike a balance between enabling useful features but giving people just enough reason to move into a paid tier. If the free tier feels too comfortable to your average user, there will be no motivation to pay you. If, however, you demonstrate value in the free tier but restrict features that may eliminate a few minor pain points, customers will gladly upgrade. The simplest way to find that balance between free and paid is to experiment with the free plan. Try offering different feature sets over time and see what limitations are more likely to entice users to upgrade.
Free Trials
Advantages of Free Trials
When you offer a free trial, you are setting a very explicit expectation for potential customers. “If you don’t feel like paying for my service in 30 days, it’s gone.” That’s it. This is great if you’re concerned about incurring the cost of carrying users who are not willing to pay you. By the end of their trial period, you will definitely know if they’ve found enough value in your product to make a purchasing decision.
Also, free trials give you more freedom in unlocking valuable features. As opposed to a “free forever” plan, you won’t discourage users from paying later for features they have already used. Customers expect free trials to give them a taste of what they’ll get if they choose to pay. As stated previously, users will understand their access is time-limited if they do not pay.
However, this doesn’t mean you have to unlock all of your product’s features in a trial. A trial period may still limit functionality. This is a useful tactic for encouraging customers to purchase before their trial expires. If paying means getting access to more valuable or beneficial service, users will not wait for the trial to expire. They may make a purchasing decision earlier than you expect.
Disadvantages of Free Trials
While the limited duration of a free trial can be a blessing, it can also be a curse. It explicitly limits your timeline for convincing a user that your product is worth paying for. While you can use email campaigns after a trial expires to pull users back in, the interest in your SaaS offering will quickly fade after the trial. If users do not make a purchasing decision quickly, you may find yourself looking for ways to re-engage detractors. Extending the trial is one way to remind users you exist. Give them a second chance to try—and hopefully buy—your product without giving it away forever.
It can be difficult to determine the right parameters for a free trial. Should it be time-based (e.g., 30 days)? How long is too long? Should it only allow so many uses before locking? Competitors that already have free trials can help guide you. Aim for something at least as good as their trial, but preferably undeniably better in one way. Perhaps you go with a slightly longer trial period, or longer data retention. Maybe you offer something alongside your trial or offer incentives for referring friends.
Technically, trials can be more difficult to implement in your SaaS than a free tier. Free trials require you to eventually lock trial users out of accessing anything other than a payment screen. Comparatively, free plans just require you to hide restricted features. If you are rolling your own payment solution, locking out expired trial users is extra work. Thankfully, subscription billing solutions like Chargebee make trial management—and subscription management in general—much easier.
Choosing to Offer a Free Plan or a Free Trial
There’s really one big question to ask yourself when choosing between a free plan or a free trial. Do you want free users to stick around forever, or do you see them as a burden you will have to carry? Free plans are better for maximizing user adoption, but free users don’t necessarily become paying users. Trial plans are better for attracting serious buyers who are willing to compensate you for your service. Companies looking for hyper-growth prefer free plans so they can own a larger segment of their target market, even if it doesn’t immediately make them money. Companies looking for sustainable, organic growth will prefer free trials.
Preparing a Free Plan or a Free Trial
If you are going to offer a “free forever” plan, prepare to do it well. Your SaaS product will incur costs for storage, bandwidth, and customer support. You must be ready to not only give away your product, but also to invest money in retaining free tier users. You should also consider longer-term marketing efforts such as email drip campaigns to convert free users. While users are in your app, it’s also helpful to indicate what features would be available if they upgraded to a paid plan. Chargebee does this well. You can see premium features while on their free plan, but are notified that you need to pay for access if you try to use the feature.
Instead, if you’d prefer offering a free trial for your product, give yourself the ability to be flexible. Being able to easily extend a trial is powerful when working to convert users that may just need a little longer to evaluate the product. After all, who hasn’t started a free trial and then forgotten about it? Additionally, you’ll want your marketing efforts for converting these users to happen on a shorter time scale. Email marketing can be an effective part of that. However, you will also want to find ways to engage users within your trial window. It will be much more difficult to users back after the end of their trial.
Using either pricing strategy, consider sending a personal note to each new user. Thank them for trying your product and point them to a “getting started” guide they can reference later. Ask for their feedback, and give them an easy way to provide it. Early and frequent engagement that makes users feel valued can help you pull them up into paid plans.
Inventiv's Approach
I’ve decided to offer free trials of our products. Since our company is bootstrapped, it doesn’t make sense to offer a “free forever” plan right now. I would very much prefer organic growth with products that sustain themselves. Free trials are great for this. The trial gives anyone an opportunity to evaluate our products before making a purchasing decision. Psychologically, I also feel much more motivated to help a user on a free trial than a user on a free plan. Just as certain expectations are set for our users, they set an expectation for me. I only have 30 days to convince them that they should use my product. Every interaction must be positive, and the value of our software must be clearly demonstrable.
At least with Critic, I did not open up access to all features as part of our 30-day trial. It only supports one product per account. There are two reasons for this. First, it reduces some complexity with support. If a user experiences a problem during their trial, I know which product is causing problems because they can only have one product. Second, if a user is looking to add a second product to their account, they have moved out of evaluation territory. I consider a user adopting Critic in a second product as a clear indicator that they are in this for the long haul. If the user is on a 30-day trial and is integrating Critic into multiple products, it’s a pretty sure bet that they will pay soon. So why not ask them to pay now?