Freemium and free trials are two key strategies for Product-Led Growth (PLG). Here’s a quick breakdown:
- Freemium offers basic features for free, attracting a large audience but with lower conversion rates (average 7%). It’s great for crowded markets and products with viral potential.
- Free Trials provide full access for a limited time, leading to higher conversion rates (up to 50% with credit card trials) but a smaller initial user base. Best for complex products with immediate value.
Quick Comparison
| Aspect | Freemium | Free Trial |
|---|---|---|
| Conversion Rate | 1–10% | 30–50% (with credit card) |
| User Base | Larger, less qualified | Smaller, more qualified |
| Market Fit | Crowded markets | Niche or complex products |
| Support Costs | Higher ongoing costs | Limited to trial period |
| User Commitment | No urgency to upgrade | Creates urgency |
| Revenue Impact | Slower growth | Faster initial results |
Which should you choose?
- Go freemium if your product is simple, thrives on network effects, or targets a large market.
- Opt for a free trial if your product is complex, delivers fast value, or targets high-intent users.
The right choice depends on your product, market, and long-term growth goals.
Free Trial vs Freemium – Use the MOAT Framework to Decide
1. How Freemium Works
Freemium models offer basic features at no cost while charging for advanced options. Popular platforms like Dropbox and Slack have successfully used this approach. Here’s how the model typically operates:
1. Value-Based Feature Segmentation
Freemium works by offering enough value in the free tier to attract users, while reserving premium features as an incentive to upgrade. For example, Dropbox provides 2 GB of free storage to its over 700 million users, resulting in a 2.5% paid conversion rate .
2. Usage-Driven Conversion
Usage limits often encourage users to upgrade. Slack, for instance, restricts free accounts to a 90-day message history. This strategy has helped Slack achieve a 30% conversion rate. Across SaaS, conversion rates generally range from 6–10% for small-business B2B and 2–5% overall .
3. Continuous Improvement and Support
To succeed, freemium models require ongoing updates and strong infrastructure. Spotify excels here by providing a compelling free experience that naturally leads users to its premium tier .
"Freemium is like a Samurai sword: unless you’re a master at using it, you can cut your arm off." – Rob Walling
Tips for Effective Freemium Implementation
To make freemium work, companies should focus on these strategies:
- Design personalized onboarding to quickly show users the value of the product.
- Use well-timed upgrade prompts based on user behavior.
- Analyze usage patterns to identify key features and set effective limits .
Keep in mind that optimizing a freemium model can take 12–18 months and requires significant investment . LinkedIn is a great example of scaling this model successfully, with nearly 500 million users and one in five million subscribing to premium features .
| Key Metrics | Industry Average |
|---|---|
| Visitor to Free User | 13.7% |
| Free to Paid Conversion | 3.7% |
| Time to Optimization | 12–18 months |
| Support Cost per Free User | Higher than paid |
The freemium approach works best when companies address core user needs first and then create clear pathways to premium features. This strategy helps grow a broad user base while ensuring a steady flow of paid subscribers. Next, we’ll dive into free trial strategies and how they differ in driving conversions.
2. How Free Trials Work
Free trials let users experience the full product for a limited time, giving them a chance to explore its features without committing. These trials often lead to higher conversion rates than freemium models .
Trial Structure and Performance
Free trials stand out from freemium models by offering immediate access to all features. They generally come in two formats:
- No Credit Card Required: Conversion rates range from low single digits up to 25% .
- Credit Card Required: Conversion rates are higher, typically ranging from 30% to 50% .
Opt-out trials, where users are automatically enrolled unless they cancel, deliver strong results. These models see conversion rates of 48.8% from organic traffic and 51% from paid traffic .
Implementation Strategy
To make free trials successful, delivering value quickly is key. For example, Snappa removed the email activation step during onboarding, which increased their monthly recurring revenue (MRR) by 20% . Simplifying the onboarding process reduces friction and keeps users engaged.
| Trial Type | Conversion Metrics per 1,000 Website Visits |
|---|---|
| Free Trial | 30 sign-ups → 5.1 paid customers |
| Freemium | 60 sign-ups → 3 paid customers |
| ROI Difference | 70% higher paid conversion yield |
Key Success Factors
-
Personalized Onboarding
Customize the onboarding experience for different user groups. Kontentino, for instance, boosted new user activation by 10% with an interactive walkthrough using Userpilot . -
Show Value Quickly
Help users achieve their goals as soon as possible. Rocketbots saw their activation rate jump from 15% to 30% by adding an interactive walkthrough . -
Keep Users Engaged
Provide ongoing guidance and support during the trial so users can easily explore key features and hit important milestones.
Monitoring Performance
Track these metrics to evaluate your free trial’s success:
- Activation rate (industry average: 6.8% by day seven)
- Time to activation
- Free-to-paid conversion rate
- Monthly recurring revenue (MRR) from trial users
- Customer lifetime value (LTV)
Free trials work especially well for complex products in less crowded markets , as they encourage users to fully engage with all features and learn the product thoroughly. This aligns with the Product-Led Growth (PLG) approach of driving quick engagement and delivering value early.
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Benefits and Drawbacks
When using the PLG framework, it’s important to weigh the trade-offs of each model. For example, trials have seen a drop in market share from around 40% to 20% .
| Aspect | Freemium | Free Trial |
|---|---|---|
| Conversion Rate | Lower (1–10%) | Higher (30–50% with credit card) |
| User Base | Larger, less qualified | Smaller, more qualified |
| Market Entry | Better for crowded markets | Best for complex products |
| Support Costs | Higher ongoing costs | Limited to trial period |
| User Commitment | No pressure to convert | Creates urgency |
| Revenue Impact | Slower but steady growth | Faster initial results |
These factors highlight the strengths and challenges of each model.
Key Advantages
Freemium model advantages:
- Encourages viral growth through shareability
- Builds long-term presence via word-of-mouth
- Allows users to explore basic features at their own pace
- Works effectively in highly competitive markets
Free trial advantages:
- Creates urgency, boosting conversion rates
- Attracts more serious, high-intent users
- Works best for products with clear differentiation
Real-World Impact
The competition between Atlassian and Slack from 2017 to 2019 offers a great example. Atlassian’s Stride used a trial-based model but struggled to compete with Slack’s freemium strategy. This led Atlassian to sell Stride to Slack and later introduce free tiers across its cloud products.
"The right choice between a free plan vs. trial entirely depends on the nature of your product and market as opposed to your target conversion rate. This is what makes it a strategic choice."
Implementation Challenges
Despite their benefits, both models come with challenges.
Freemium challenges:
- Ongoing costs for supporting free users can be high
- Risks losing revenue by giving away too much for free
- Needs a massive user base (about 50 million active users) to succeed
Free trial challenges:
- Less effective for products requiring in-depth training
- May fail to deliver enough value quickly
- Can strain customer support teams during trial periods
- Often leads to unsustainable short-term gains
Vidyard provides a compelling example of adapting to these challenges. After struggling with low conversion rates from a 30-day free trial, the company introduced a free Chrome extension in 2017. This freemium approach brought in over 100,000 users within a year, showing how the right model can drive adoption (Source: ProductLed, 2024).
Understanding these benefits and obstacles is crucial for selecting the right model, which will be explored further in later sections.
How to Pick the Right Model
Choosing between freemium and free trial models depends on several key factors. Let’s break it down.
Market Position Assessment
Your market position plays a major role in deciding the right approach. Freemium works better in crowded markets, while free trials are ideal when your product’s unique value stands out .
Freemium models require a massive user base to succeed. Jason Lemkin of SaaStr highlights this, stating you need about 50 million active users to build a $100 million business . On the other hand, free trials are better suited for smaller markets with higher conversion rates – 10–25% compared to freemium’s 5% .
Product Characteristics
The nature of your product also influences the choice. Here’s a quick comparison:
| Factor | Freemium Works Best When | Free Trial Works Best When |
|---|---|---|
| Complexity | Product is simple and easy to use | Product has complex features needing guidance |
| Time to Value | Value builds gradually over time | Benefits are immediately apparent |
| Cost to Serve | Low cost per user | High cost per user |
| Network Effects | Strong potential for viral growth | Limited reliance on network effects |
| User Type | General end-users with basic needs | Niche users with specialized needs |
The MOAT Framework
The MOAT framework can help you evaluate your options systematically :
- Market Strategy: Are you competing in a crowded (Red Ocean) or untapped (Blue Ocean) market? Freemium often works better in crowded spaces where early traction is key.
- Ocean Conditions: In highly competitive markets, freemium can help secure users early on.
- Audience: Think about your users’ motivation and technical skills. Low motivation means your product must be extremely easy to use.
- Time-to-Value: How quickly can users see real benefits? This is especially crucial for free trials.
Warning Signs
Neither model may be ideal if your product is too complex for self-service, targets highly qualified leads, or struggles to sustain free users.
Hybrid Approaches
A hybrid model could be the answer. For example, you might offer full access initially and then transition users to a freemium tier . This combines the urgency of a free trial with the long-term engagement of freemium, giving you the best of both worlds.
Key Decision Drivers
Here’s when to choose each model:
Freemium is better when:
- Your product thrives on network effects.
- Marginal costs per user are low.
- There’s a clear path for users to upgrade.
- Self-service onboarding is effective.
- Your market size is large enough to support massive user acquisition.
Free Trial is better when:
- Your product shows value immediately.
- You’re targeting a smaller, niche market.
- Educating customers is essential.
- Higher conversion rates are critical.
- Support costs per user are substantial.
Josh Kopelman from First Round Capital puts it perfectly:
"Scaling from $5 to $50 million is not the toughest part of a new venture – it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny."
These insights will help guide your decision, setting the foundation for your next steps.
Conclusion
Choosing between freemium and free trial models plays a key role in shaping your product-led growth (PLG) strategy. These models serve different purposes, with conversion rates generally around 5% for freemium and 10–25% for free trials .
For businesses aiming to quickly gain traction in competitive markets, freemium can be an effective starting point. On the other hand, free trials shine for more complex software. For instance, Autodesk built a $5 billion enterprise by offering 15-day free trials followed by subscriptions, demonstrating the power of this approach .
"The right choice between a free plan vs. trial entirely depends on the nature of your product and market as opposed to your target conversion rate. This is what makes it a strategic choice. The right strategy needs to maximize your long-term revenue growth as a company, not short-term sign-up and activation rates."
This highlights the importance of focusing on long-term revenue growth rather than short-term metrics like sign-ups or activations.
To succeed, you must align your model with factors such as product complexity, market size, pricing strategy, user acquisition goals, and available support resources. Companies like PandaDoc and Vidyard demonstrate how thoughtful execution can make all the difference. Their success stems from prioritizing user experience, clearly communicating trial terms, and strategically dividing features between free and paid tiers .
Whether you go with freemium or a free trial, the priority should always be delivering value that encourages users to convert into paying customers. The ultimate goal remains clear: provide undeniable value to turn users into loyal advocates.
