Business Tips, SaaS | 6 MIN READ

Freemium or Free Trial: Which Model Is Better for Your SaaS Business?

Freemium or Free Trial: What is the difference and choosing which will be suitable for you in the long run? Get all your answers and information inside.

Simran Mohanty
Nov 24, 2020

Freemium-or-free-trial

Let’s get it straight – the one thing common between freemium or free trial is that none generate revenue. Before we dive into what both terms mean, it makes more sense to know what it is not. With a heavy heart, accept the fact that neither of them can protect an already ailing SaaS business. If there is no much spark in your customer experience or service, both of these might not shine that bright. Choosing one from the freemium or free trial is like hovering less on decisions like picking from ‘black and white’ and more on the varied ‘shades of grey’ kind.

On that note, know that there is no right answer. It all depends on what fits best to your current situation and needs. If you are evidently a part of the ‘data-hungry’ audience, you are in luck! Here is a blog that is going to regale you with a bunch of information. This is what you’ll get:

  • What is meant by Freemium? 
  • Structure of a Freemium Plan
  • Restrictions of a Freemium Plan
  • What is meant by Free Trial? 
  • Structure of a Free Trial 
  • Restrictions of a Free Trial
Freemium or Free Trial

What is meant by Freemium? 

A freemium model exempts the users from the time limits that are supposedly imposed in a free trial. Instead of using a particular application for a specific time frame and then going premium, you can use its limited edition for free. As compared to the premium tool, you will fall short of some of its updated features and product usage.

The version of freemium will let the user access some of all the features of your application, without charging them a dime. And that too, forever! There is no real need to hand over cash to have access. Additionally, if the user wishes to gain premium access, he or she can always upgrade their accounts, whenever they wish to.

Before we jump into the definition of a free trial in a second, it is wiser to surface the freemium plan in detail. Broadly, two common ways give a structure to a freemium plan.

Structure of a Freemium Plan

  • Reduced Usage Capacity: When I say reduced usage capacity, the plan puts a couple of restrictions on what the user can do with the application. For example, it might limit the number of users that can have access for free. When the limit exceeds, payment is required to proceed with the usage.

    Better yet, some of the applications put a restriction on the amount of data a user can download. Let’s take the instance of a Dropbox here. The free plan of Dropbox lets the users consume only a certain point of storage when free. Exceeding the point asks you to go premium.
  • Reduced Feature: The reduced feature plan applies when the user can have access to only some of the features in a freemium version. A good example of this is Grammarly. You can use some of its basic facets on the free trial. But in order to gain access to all of its nifty features, you will have to go for a paid subscription.

    But then remember, it is free forever. Although you will have access to limited or reduced features. If this sort of version is not sufficing you enough, you will always have the option to pay up and go premium.

Restrictions of a Freemium Plan

  • Cross-Sells: Even though some of the freemium plans operate fully functionally, access to them is more like an entry point that incentivizes the purchases in the future.
  • Addition of Ads: To top up the quota of limitations is the addition of unnecessary advertisements in the freemium plans. This calls for a trigger to go premium, as this is completely taken care of in a paid subscription.
  • Feature and Usage Limitations: Not only the number of users will be capped, but the storage and access to the server is a big reason to worry about a freemium plan.

What is meant by Free Trial? 

In a free trial, a user will be given access to all of the application’s features for a certain time. Differing from a SaaS company and their services, it is typically from a window of 7 to 30 days. This period is generally given to the user to evaluate the worthiness of the app. Within a time frame of 7,14,2 or 30 days, a user can set up, try out and ascertain a verdict whether they wish to go ahead with the product or not.

In some of the cases, the users add their credit card credentials while signing up, and this activates the trail. Until and unless the user voluntarily doesn’t cancel the subscription, the user will be charged at the end of the free trial.

Just like in a freemium plan, the structure of a free trial comes in two formats.

What is meant by Free Trial?

Structure of a Free Trial 

  • Opt-in free trial: This is where the user uses the application without having to pay right up-front. Simply put, the user will have to provide his card details only when he wishes to convert. Till then, he can use the account as is. One such example is Basecamp. Here, you can use and explore the product until the free trial expires. And then you can decide whether to pay up or get out.
  • Opt-out free trial: In an opt-out free trial, the user puts up the payment information before he can use the product. This model will typically start billing the user when the trial period ends, provided, the user must not have voluntarily logged out of services. Netflix is a good example to demonstrate this. While you sign up, it will ask you to provide your credentials for the free trial.

Restrictions of a Free Trial

  • Time-Bound: Even though you will have access to all of the features that you were to get in a premium plan, you are on the clock. All of these facets will eventually expire when the trial ends.
  • Willingness to Pay: As the user gets to explore the free product for a certain period of time, there is always a chance that the user might not revert and convert. In simpler words, he can churn away without using a paid subscription.

That’s a Wrap 

To decide which of the following – freemium or free trial is better for your SaaS business, all you need to delve into is what your business demands. It is a fundamental question that sets the tone for shaping and molding your business. In the end, the critical consideration of how well you execute the strategy. This influences the larger influence on how the evaluators convert to purchasers.

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Originally Published November 24th, 2020, Updated December 30th, 2020

Simran Mohanty

Simran hails from the content marketing backdrop with extensive knowledge in blogs, articles, and technical whitepapers in the non-fictional domain. She uses her 'gift of the gab' to explore new possibilities on her way and to make an exquisite impact on her readers. In her spare time, she likes to read journals on artificial intelligence or play with her cute kittens. You can connect with her on LinkedIn here.

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