Freemium or Free Trial: What's for your SaaS?
How your go-to-market strategy can help you decide which pricing model to opt for: Freemium or Free Trial?
Hi 👋, Welcome to the 45th newsletter post.
It would be an understatement to say that founders/teams don’t struggle with pricing their products. In fact, it can be the most overwhelming decision.
And it’s a never-ending process so you’ll have to keep visiting it from time to time. And face questions like, what if increased price goes all against? The fears are endless.
And then there are pricing models - should I offer a freemium, free or free trial or have different plans for different segment users? 🤷♀️
Pricing is a lot of times like a front-row seat of an award show. Helping us understand the worth, value and market share. How much does your product provide value to the users, how much would they pay to solve the problem and how much does this solution cost in the market? But that’s also true that most startups suck at product pricing just because there’s no one way of getting it right.
The core reasons for the product pricing failure:
Not knowing or understanding the users.
Not having a deep understanding of pricing.
Thinking to offer the complete product for free will get a huge list of users & later they’ll convert.
Having a full price on the product when there are better options available.
Thinking your product should be making a lot of money before understanding the perspective of customers.
How your Go-To-Market strategy comes to help here?
Deciding which pricing model to go with can be overwhelming and you need to be extremely careful as it can make it or break your product. You can’t assume that following others’ strategies or asking fellow founders or just google about it will get you the best results.
The fast-changing trends are rapidly changing customer expectations and acquiring customers is getting harder and harder. Whether a company should focus on its core functionality and expand its growth or get into the hyper-growth stage by changing itself with trends, which isn’t possible for every company. That’s why having the right go-to-market strategy will not only help you be on the right front but also help you acquire customers fast.
It’s good to go for case studies but as the business model and customer segment is different, the way to price the product changes completely. What works for them won’t necessarily work for you. You need to have your own framework, strategy and understanding of customers to plan the pricing model - free-trial or freemium.
Let’s first see what is free-trial & freemium model
In the free trial model, the product is provided either completely or partially free of charge for a limited time period, say 7 days or 14 days. Whereas in the freemium model, you provide access to part of the software product free of charge without any time limit.
A lot of businesses prefer free trial but when you know your go-to-market strategy it will become much clearer which way to go.
Now one of the aspects of deciding which go-to-market approach to take is how quickly you want to grow. If you get the job done better and charge less you’ll win all types of customers because you’ll be dominating the market. Or charge more and win underserved customers. But that isn’t sometimes an option for early-stage startups as they might be competing with some established companies.
How big is your market? If you’re a very niche business then you wouldn’t want to give a freemium model to a very few users who might actually pay to use it.
Being in the specialized market will definitely help you take away some of the market shares, say you discovered an underserved niche in Airbnb, and now you can tailor the product for that audience and offer a free trial to them (and significantly charge more).
Offering free trials or free versions of the product can increase the value of the product in the eyes of the customers.
Questions to ask when deciding on this strategy:
Did you find an underserved customer area in the market?
Will you be able to upgrade free trial users fast?
Could your product give the best experience to the users?
To go for the freemium model, you need to have a disruptive growth strategy. For example, see Notion and Canva though they both have a huge list of competitors. But with such a big market they both build a much simpler product that solves a very specific pain point - getting things done at a faster and easy way.
Keeping costs low, solving problems fast and easy, for a very specific niche, scales the customer base fast.
Now, freemium also means that your investment in acquiring people needs to be very less. Can customer onboarding be completely self-service? One of the big things a SaaS struggles with pricing is defining Customer Acquisition Costs. They are like silent killers.
The majority of the customers want to use the product fast and by themselves. Offer great customer acquisition through a self-service option, where the prospect goes through the acquisition and adoption stages on its own without the help of a sales or marketing person. This makes the companies focus on “try and buy” the product and upscale after and making the freemium and free trial models more popular.
Quick questions to ask that will make you think:
Is your market big enough to support a freemium model?
Does your product solves a core problem significantly better and at a lower cost than anyone in the market?
Does your company need to explain to users why you have a better offer than the competitor in case of money value?
It’s good to look at these things before making your final call:
How much does it cost for user acquisition & development of the product?
What are your goals in relation to product growth & market share?
Understand if your market is dominant or disruptive. Also, look at how most competitors segment their customers.
Understand that you don’t need to price very low to acquire new customers.
Your pricing doesn’t need to be one for every type of customer. Adopt the pricing plan relative to different sizes and solution requirements.
Now, I’m really curious to know how and when did you decide what pricing plan works for you? Reply to the email or comment below.
See you next time.
👋 PS: I’m Ritika founder, product marketer and advisor for early-stage startups, find more here or connect with her here. If you’re a first-time founder looking for curated resources, download here. You can also promote your product in this newsletter. Also, you can share your feedback or questions here.
Thank you for being a consistent reader of this newsletter, it wouldn’t have reached here without your support. 🤗
Great read - thanks a lot and keep it up!