Blog 89: Pricing models: Freemium vs. Trial vs. combination (Reverse Trial)

In this blog we are looking at three pricing models, Freemium, Trial and Reverse Trial.

A. Freemium

Freemium is a way to quickly showcase value to prospective customers. A freemium strategy involves offering potential customers value for free, typically in the form of a lightweight version of the product. It helps to grow the user base and we get more opportunities to convert them to paying customers (refer blog 88 for more on pricing models; blog 87 for more on recurring revenue streams; blog 41 for more on channel-model fit & model-market fit ).

Some best practices include:

Effective tiers with upgrade triggers: According to Amplitude, we can offer a feature for free if it helps us, to acquire, activate and retain customers. Every other feature can be paid. It is also important to identify the upgrade trigger (such as limiting the number of shares and saves etc.). For example, in Miro, anyone can access a board someone shares, even if they’re not registered. But to create a board a user must sign up.

Understand who the buyers are: It is important to distinguish between freemium users and buyers. As we need to send upgrade messages to the buyers (who have the authority to upgrade). At Box, freemium users could create accounts and start collaborating. After the number of users grew to a decent scale, the buyers (decision makers) were contacted and nudged to purchase an enterprise package.

Offer value outside of the product: Freemium features need not be only with respect to the product. For instance, the product’s website can also offer valuable content for free. For example, Amplitude’s website shares various industry benchmarks and playbooks for free. Encouraging people to use the product.

Show people that they can control cost: If the billing is variable based on usage, the management will be worried about a bill that is above their expected budget. So, it is important to let management know that they can control cost. For example, Google Cloud allows management to get alerts and notifications when they reach certain usage or price thresholds.

Understand the cohorts within freemium users: Just as paid users are bucketed into cohorts, we must do the same or even more when it comes to freemium users (refer blog 14 for more on user personas; blog 78 to understand the different types of customer segmentation).

The main drawback of freemium is that users have no idea what the paid features are or what value they would provide.

B. Trial

Trial refers to a model where companies offer a paid version of the product for a limited time. After the trial period ends, the customer either pays or must stop using the product altogether. Some products, require prospective customers to enter credit card information while others don’t.

Trial (with credit card information) has extremely high trial-to-paid conversion rate because there is less friction. Only a highly motivated prospective user would enter his/her credit card information. Hence, as many as 70-80% of users who start this trial will convert (according to a Amplitude blog). The benefit of free trial (without credit card information) is that we can get more people to try our product (thus, widening the top of the marketing funnel – refer blog 42 for more on marketing funnel).

The main drawback of free trial is that users have a limited time to experience value and product companies have a limited time to exhibit their value.

C. Reverse Trial: Best of both the worlds?

A Reverse Trial allows freemium users to use all the paid features for a free trial period. It helps users understand the value of paid features. Instead of only using free features. If they do not upgrade, they will NOT get cut off completely. They will continue to be freemium users. At the same time, they understand what they’re missing, so they may upgrade later when needed.

For example, LinkedIn allows users to access paid features (such as InMail) for a brief trial period. Once the period ends, they will have access to only freemium features. However, they do understand the different features they will lose out on. And they can upgrade whenever they feel the need to. Spotify is another example. Spotify gives access to ad-free music for 3 months. Post which the users are downgraded to freemium features.

Hence, reverse trial can push product usage, boost conversions, and reinforce a growth loop.

Note: Refer blog 90 for more on metrics to measure the effectiveness of our freemium or free trial strategy.

Jump to blog 100 to refer to the overall product management mind map.

Source:

https://amplitude.com/blog/freemium-model-strategies

https://amplitude.com/blog/reverse-trial

I wish you the best for your journey. 😊