Freemium vs. Free Trial: Choosing the Right Model for Your Digital Product

One of the most common dilemmas when designing a digital product is whether to opt for a Freemium or Free Trial model. The ultimate goal is to create an engaging user experience that leads to that desired "aha moment" of falling in love with the product while also ensuring that conversions meet the expectations of investors and shareholders. Striking this balance can be challenging, but it's essential for achieving sustained growth and a strong foothold in the market.

In our experience building and guiding launches and revamps of successful applications or software product ideas for companies, there isn't a correct answer. Instead, both models have extensive pros and cons and successful cases of renowned digital products that support each strategy.

While the Freemium model offers services without any cost to build a long-term connection and to set the base for future dealings, advanced features with improvements are provided for a periodic payment. On the other hand, a Free Trial gives access without cost to the digital product for a limited period (2-4 weeks), and once this time is over, the user must buy a plan to continue. Pros and cons? Sure, here we go!

Advantages and disadvantages of a Freemium model:

Pros:

• It improves retention, which allows users to establish a habit with the software product or app before the update.
• It does not have a time limit. It would permit the user to embrace the features tool and try them all at their own pace, reducing friction and committing to pay.
• It is a low-cost acquisition channel for users.
• It helps to grow by attracting a volume of users.
• It allows the company to study its target better to improve services.

Cons:

• Users might never convert to paying users: if usage is sporadic or have everything they need.
• Users could get tired of the advertising bombing.
• It can cause money losses if the conversion rate to paid mode is shallow.
• Too many functions can avert users from moving towards premium versions.
• The conversion rate is between 2-5%.

"...smart companies see freemium not only as a revenue model but also as a commitment to innovation.…" according to HBR.

How to address some of the concerns of the Freemium Model:

Having too many features can be overwhelming for users: 

To address this issue, companies can take a more strategic approach to feature implementation, focusing on key features that are most relevant to the target audience. Companies can also consider offering feature tours or onboarding experiences that help users understand how to use different features and how they can benefit from them.

The fear of being bombarded with ads:

To address this, companies can limit the number of ads displayed to users and make sure that the ads are relevant and non-intrusive. Companies can also offer users the option to upgrade to a paid version of the product that removes ads altogether.

Advantages and disadvantages of a Free trial model:

Pros:

• For a simple digital product, users can demonstrate fast if the value is high and if it helps obtain results in the short term.
• It is used for products based on the number of functions. For example, if your customer has large teams with several projects that need the work of a large number of people, the best is to have a pay plan (ex, Figma).
• It increases the conversion rate.
• Even if the purchase is not made, it can help by interviewing the customer and discovering their needs.
• The conversion rate is 10-15% for paying at the end of the trial. And 30%, sometimes 50-60%, if they asked for a payment method at the beginning of the trial.

Cons:

• When companies have limited time, they lack discipline/habit.
• As a consequence of the above, they might not accomplish testing all of the features and may not see the product's entire value.
• 14 days trial is a short time to test a complex product, meaning that if it has too many functions, for example, a CRM with a large interface of many options confuses a person before having clarity on how to achieve a task.
• It creates friction if the payment method is asked before starting the trial. Or once the test is finished and they choose "do not continue" the charge is made anyway.

How to address some of the concerns of the Free trial model Model:

Limited time frame to evaluate the product: 

To address this, companies can provide users with a comprehensive product tour that highlights key features and benefits of the product. Companies can also consider extending the free trial period or offering users the option to request an extension if they need more time to evaluate the product.

The fear of being charged after the trial period ends: 

To address this, companies can be transparent about their billing policies and provide users with clear instructions on how to cancel their subscription before the trial period ends. Companies can also consider offering a no-strings-attached free trial that doesn't require users to provide payment information upfront.

Overall, addressing user concerns is critical for creating a positive user experience and increasing conversion rates. By being transparent and proactive in addressing user concerns, companies can build trust and credibility with their audience, ultimately leading to higher retention and revenue.

Some experts in SaaS products, like Nick Chasinov, lean towards the Freemium mode, while others, like Tien-tzuo think Free Trial is best for business. Meanwhile, Drew Teller, prefers to evaluate if a hybrid mode is best.

What about hybrid mode?

A hybrid model is a combination of both Freemium and Free Trial models, offering users the opportunity to experience the product's full value before committing to a paid plan. This way, you are "selling Premium in Freemium." There are many configurations to try on. The hybrid model can be an effective way for companies to attract new users while also encouraging them to upgrade to a paid plan.

One way that companies can implement a hybrid model is by offering a free trial in one of the higher plans. For example, a company that offers a project management tool may offer a free trial of their premium plan, which includes additional features and functionality. This approach allows users to experience the full range of features before deciding whether to upgrade to the premium plan.

Another approach is to offer a full free trial for a brief period or a limited number of uses, followed by a Freemium version with locked features. This approach is sometimes called "selling premium in Freemium," where companies provide a taste of premium features in the free version to entice users to upgrade. Dropbox is a well-known example of a company that successfully uses this approach.

Notion and Calendly are also successful examples of companies that use the hybrid model to give users more flexibility and options. Notion offers a free version with limited features, as well as a paid version with more advanced features. Calendly offers a free version with basic scheduling functionality and a paid version with more advanced scheduling features.

In practice, the hybrid model can be beneficial for digital products because it allows companies to attract new users while also encouraging them to upgrade to a paid plan. By providing users with a taste of premium features in the free version, companies can increase the perceived value of the paid version, making it more likely that users will upgrade.

In conclusion, the hybrid model can be a powerful strategy for digital products, providing users with a taste of premium features while also encouraging them to upgrade to a paid plan. Companies that successfully implement the hybrid model can increase user acquisition and retention, ultimately leading to higher revenue and growth.

Some Advices

Deconstruct the user's mind and determine what is loved about your services, investigate even more into the key obstacles your brand is covering, then make a problem-solving offering free features. Trust on product retention to develop strict premium functions with a payment in exchange. And don't leave aside to innovate to grow a better-paid offer.

FAQ

What is Freemium?

Freemium is a pricing model where companies offer a basic version of their product for free, with limited features, and charge for access to more advanced features.

What is Free Trial?

A Free Trial is a pricing model where companies offer users free access to the full version of their product for a limited period, usually between 2-4 weeks. After the trial period ends, users must purchase a plan to continue using the product.

What is the difference between a Freemium model and a Free Trial model? 

The Freemium model offers some services without any cost and advanced features for a periodic payment, while a Free Trial gives access to the digital product for a limited period for free, and users must buy a plan to continue after the trial period ends.

How do I know which pricing model is best for my digital product?

The choice between Freemium and Free Trial models depends on various factors, such as the type of product, target audience, and business goals. It's important to evaluate both options and consider a hybrid model that combines elements of both pricing models to give users more flexibility and options.

Can companies switch between pricing models?

Yes, companies can switch between pricing models depending on their goals and user feedback. However, it's important to communicate any changes to users and provide clear instructions on how to upgrade or downgrade their plans.

Conclusion: 

In conclusion, choosing the right pricing model for a digital product requires careful consideration of various factors. Companies must evaluate the product type, target audience, and pricing strategy to determine whether Freemium, Free Trial, or a hybrid model is the best fit. To increase conversions, companies must analyze conversion rates and make strategic adjustments to their pricing strategy. Ultimately, the goal is to create an engaging user experience that leads to that desired "aha moment" of falling in love with the product while also ensuring that conversions meet the expectations of investors and shareholders. By carefully considering these factors and making strategic adjustments, companies can achieve sustained growth and a strong foothold in the market.

Are you ready to take your digital product to the next level? Contact us today to learn how our team of experienced developers can help you choose the right pricing model for your business and implement it seamlessly. Whether you're considering freemium, free trial, or another option, we have the expertise to help you make the best decision for your product and your customers. Don't wait – let's get started!

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