Which customer acquisition model is preferable—free trial or freemium?

It’s one of the oldest and most spirited debates in the world of SaaS.

The answer is of course “it depends”... but I’ve seen more companies using a 7-day free trial with a credit card required recently. It’s the model that we’ve used at Outseta for the last two years, after using a freemium model for nearly four. 

I’ll cut to the chase—this model is not always loved by potential customers, but it’s often the best model. Especially for small, bootstrapped companies. 

Whether you’re a founder or a customer, this article discusses the advantages and disadvantages of this model; and my hope if you'll come out appreciating the nuances of these decisions more fully.

The data—conversion rates, lead volume, and new customers 

I have spent much of my career experimenting with these customer acquisition models, but I now also have the benefit of sitting on top of all of our customers’ data as they experiment with these models, too. I have the free trial versus freemium discussion with founders every week.

While that’s the case, the data below pertains to Outseta specifically—I’m focusing on our own data because I can attest to its cleanliness and I’ve captured equivalent sample sizes across a time period where as many other factors in the business were as consistent as possible. The story told by our data reflects what I see in our customers’ data at large, too. 

I’m comparing slightly more than 3000 freemium sign ups with 3000 free trials.

Conversion Rates

• Freemium to paid: 7.25%
• 7-day trial credit card required to paid: 35%

The other caveat here is that the actual conversion rates for both models is actually higher—I’m specifically counting “conversions” as someone who is still a paid subscriber 30 days after conversion. This is a more accurate measure of who is actually becoming a customer. It filters out people who forgot to cancel their trial as well as people who signed up to test the product prematurely without any real intention of becoming a customer.

While the 7-day trial model resulted in a conversion rate 4x-5x higher than the freemium plan did, it’s worth noting that this introduces significant friction—lots of potential prospects simply aren’t willing to pull out a credit card in order to sign up for a free trial. Without question, you’ll see a smaller number of sign ups with this model.

Lead Volume

The 7-day trial model resulted in 43% of the sign ups compared to what we saw when offering a freemium product.

Those are the most significant data points that I can share based on our own experimentation, so let’s extrapolate out the impact.

New Paying Customers

• 100 freemium sign ups X 7.25% conversion rate = 7 customers
• 43 free trials X 35% conversion rate = 15 new customers

We were able to effectively double our growth rate by moving away from a freemium model and adopting a 7-day free trial model with a credit card required.

While that’s the truth, there’s more to this story and topic to consider.

Historical context

When we launched Outseta in 2017 we came out of the gates with a freemium model, where the user would eventually trip over some usage thresholds and move onto a paid plan. The idea was to give the user as much time as they needed to integrate Outseta with their products and I was specifically looking to build the most customer friendly acquisition model possible.

That’s the school of thought that I was indoctrinated in—I loved that model, and I hope we get back to it someday.

That said, as interest in Outseta grew we soon found that support volume grew with it. We were spending tons of time supporting non-paying customers—many of whom we’d invest time in for months, only to see them abandon or shut down their projects altogether. 

There couldn’t be a bigger waste of resources for a small, bootstrapped team. 

We intentionally overcorrected, experimenting for a short period of time with no freemium product or free trial—I’ve written about that prior. I would not recommend a direct-to-paid model, as I think buyers deserve the opportunity to kick the tires on software before purchase.

With the 7-day free trial with a credit card required model, we found a wonderful middle ground. It gave customers the opportunity to try our software, it doubled our growth rate, and we got so much time back that was previously wasted working with non-paying customers. That allowed us to invest a lot more time in our product and with our paying customers.

Customers: It's not meant to be predatory, it’s meant to better serve you

While that sounds like it’s all roses, it’s not lost on me that a short trial duration where a credit card is required is not something many customers are crazy about. As a software buyer myself, I’d certainly prefer to have unlimited time to evaluate a product without pulling out my credit card! Who wouldn’t?

But what buyers often get wrong is they think that this is some sort of predatory customer acquisition model, where the company hopes that you’ll forget to cancel your trial and will have the opportunity to charge you. Nothing could be further from the truth!

In fact, that’s a scenario we explicitly try to avoid—it results in high churn rates and refunds. Nobody wins when that occurs. To combat this, we’ve:

• Made it clear that you’ll be charged after 7 days, but you can cancel anytime
• We send reminder emails letting you know when your trial will expire
• We always offer refunds if someone’s trial does accidentally convert

From time to time we do get aggressive emails—usually people asking us to let them sign up without putting down a credit card, or people asking us for very extended (often 3-6 month) trials. I politely decline these requests and take the time to explain our reasoning. 

Very ocassionally that’s met with a “well you must not want our business” response—and again, that’s entirely false. I can tell you with certainty that we do want your business. But when someone signs up for Outseta, we make a commitment to helping them be successful with our product. 

We do a lot of things that other companies at our price point don’t—we’ll get on calls with you, and if you need technical support it’s a software engineer with 20+ years of experience that will be helping you. We don’t pass you off to junior employees who can’t solve your problems—we pride ourselves on that and we believe that more successful projects will be launched on Outseta because of it.

So it’s not that we don’t want your business—it’s that we’ve made a deliberate decision to shrink our world and better serve a smaller cohort of people that are OK with putting down a card. You can be in that cohort if you choose to be—the choice is up to you.

We’re making a sizable commitment to you, so we’re OK with asking you to make a small commitment to us.

While I’m not saying this is the “right” approach by any means, it’s also worth considering the alternatives that I often see. 

Many of the companies that offer freemium products or extended trials are venture backed—the effects of which you’ll inevitably feel in other ways from dealing with scaling support teams to price increases.

There are also many companies that simply choose to open the floodgates and provide lousy support—they run towards helping the high potential customers, and let everyone else have frustrating support experiences. 

A final sentiment that we hear often is “I don’t want to pay you until I’m making money.” As a bootstrapped founder, I totally understand and appreciate that—but it’s also just not how business works. Business is about investing time, energy, and yes—money—into an idea in hope of turning a profit. It’s not meant to be risk free. 

The point here is simple—there are always trade-offs. While the 7-day free trial model may not feel like a customer friendly acquisition model, it allows us to be more customer friendly in other ways.

Founders: It’s about finding what fits

What I want more founders to recognize is that there are parts of your business that should be optimized for customers, and there are parts of your business that should be optimized for your business.

You need to find what fits your context.

For example, we could offer a freemium product again at Outseta—a more customer friendly acquisition model in terms of the initial product evaluation. But then we could triple the price of the actual product—the additional exposure of the freemium model and higher price point allowing us to deliver the type of customer service that we pride ourselves on.

Which scenario is more customer friendly? 

There’s always going to be some give and take.

Many founders (and customers) often ask me about the duration of the trial as well, saying “7 days simply isn’t enough.”

This is something I have experimented with a lot. My feedback to founders is that a shorter trial length is almost always preferable, unless your business runs on a schedule that’s cyclical in some way—where the user would specifically need a particular period of time to evaluate your product effectively. 

Otherwise, longer trials simply breed procrastination and create a lack of urgency to actually evaluate your product. You’ll get just as many requests for trial extensions at the end of 7 days as you will at the end of 14 days—I’ve tested this and it’s consistently proven true.

A “trial” is supposed to be about giving someone the opportunity to try your product—it’s not intended to be an invitation to only start paying when it’s convenient.

I’ll often respond to potential customers with something like:

“Our 7-day trial is meant to be used for an active evaluation of our product. Please start your trial whenever you are ready to begin that evaluation.”

The truth is you can absolutely assess whether almost any product will fit your needs within 7 days if you actually sit down with that objective in mind.

Being a bit human goes a long way. I have always taken the time to share why we use the model that we do and why freemium products and extended trials have been problematic for our business. The responses I’ve gotten when doing so have been overwhelmingly positive. That may reflect that we largely sell to other founders (who can relate to the position), but the amount of genuinely understanding responses I’ve received when sharing our reasoning never ceases to amaze me.

Finally—and perhaps most importantly—intentionally shrinking our world has absolutely helped us generate effective word-of-mouth and referrals. We can invest more of our time in 43 companies than we can in 100. We’re often told that we offer an intimate customer experience and level of service that’s not found at many other software companies. That’s tough to quantify, but word of mouth is the most effective marketing strategy there is.

Revenue optimization is not everything

So much that’s been written about the free trial versus freemium topic is focused entirely on revenue optimization—and make no mistake about it, these are customer acquisition models.

My point is that there’s often more to it—the model you use needs to fit your business. I told you at the beginning of this post that I loved our original freemium model. It was super customer friendly and in the early days of Outseta it maximized the number of people who were exposed to our product.

But the needs of a business come in seasons—the 7-day trial model with a credit card required has fit our business so well these past few years. 

That doesn’t mean I can’t be excited for the day we bring freemium back; in fact I suspect that day will come.

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