SaaS – There’s No Such Thing as a Free Trial
As the popular adage goes: “There’s no such thing as a free lunch.” In SaaS – there’s no such thing as a free trial – there just isn’t.
As a SaaS provider, you pay for it one way or another, it’s a known, sunk cost of doing business and a part of your Customer Acquisition Cost (CAC). However, how large a part of your CAC it is depends on a variety of architectural and operational factors, as well as your maturity level in both areas.
Operationally
At a high level, a free trial process will typically look something like the following:
Now, let’s briefly break-down typical approaches in each of the three high-level operational phases:
Processing Trial Request
Manual – A prospect places a request with a sales rep or submits a request form via a SaaS provider’s website, which is then emailed to someone to process and pass along for provisioning.
Automated – A prospect submits a request form via a website, which is then automatically validated and the prospect receives some form of confirmation of their access (either the actual access, or a follow up email shortly thereafter).
Provisioning Trial Account
Manual – After the request is processed, someone (or worse yet, multiple people) are responsible for provisioning the trial account access. This can range from as manual as people coordinating with one another to setup a new machine or image, to someone clicking a few buttons to provision the account, and everything in between.
Automated – After the request is processed, the account is provisioned automatically, without any intervention. This could mean automatically spinning up a new VM image, creating their username, password, new DB and account, or simply granting them a subscription with proper entitlements to the application (same single DB as production customers … same everything).
Now, I know there will be people that say, “My application is far too complex to provide automated provisioning.” For a great breakdown of why automated provisioning will work in almost all scenarios, check out this post from Sinclair.
Transitioning Free Trial to Paid Account (with data if necessary)
Manual – The trial period is up and the customer wants to move to a paid account. They somehow communicate that to their SaaS provider, and in the worst-case-scenario they need to provision a brand new account, via one of the manual provisioning approaches listed above. Then, if the customer would like to keep their existing account data, customizations they’ve made, etc., their provider will need to migrate those to the newly provisioned account, as well.
Automated – The trial period is up, and best-case, the customer has been reminded a few times in advance of the trial period coming to a close (either via email, or somewhere in the product itself). They’ve decided they want to move to a paid account, so they simply choose the paid plan of their choice from a screen, input and submit their payment information, and they’re back in and using the product – same account, same data, same everything.
Of course, the entire process is much more costly if the end result is a negative outcome – where the user wants to shut their trial down, and isn’t interested in purchasing!
Architecturally
Depending on what level of resource allocation you have for each free trial account, this will, of course, factor into the cost of providing free trials to your users as well.
Physical Machine and Stack Per-Trial Customer – This extreme option entails setting up a physical box with a full application stack, associated licenses, etc., per trial account. This is the courses grained resource allocation.
Virtual Machine and Stack Per-Trial Customer – This entails spinning up a virtual machine image with a full application stack, associated licenses, etc., per trial account. In this option, there is hardware resource sharing, but each trial account requires its own virtual machine, and licensing costs.
Separate Database Per-Trial Customer – Here, there is hardware resource sharing, sharing of the application instance itself, but each trial account requires its own separate database.
Subscription to Single Instance, Co-mingled Data Application – Here, there is fine grained resource sharing, with each individual trial account having little to no incremental resource cost.
Once again, if the outcome of your free trial is not a customer win, having to manually reclaim physical hardware resources (in the most extreme case), each time a free trial ends is that much more costly.
Free trials are a great way to get the product you so lovingly promote in the hands of your potential customers and, if done right, gives them an experience that they can’t live without when the trial is about to end. Making this process as frictionless for you and your prospective customers, and cost effective as possible is a must. It won’t be “free,” but it CAN be pretty close.
I’d love to hear what others have done, and how they’ve managed to implement free trials successfully.
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You make a good point Jesse… Certainly, there are things you can do operationally to minimize your costs. Free trials — for which your exposure is limited — can be a cost of doing business just like samples and coupons are in the CPG world.
To build on what you say, free trials are one thing but Freemium is different. Freemium offers are the gift that keeps on giving — usually without the vendor getting anything in return. (How much is “buzz” worth if it only attracts more freeloaders?)
No matter how low you drive your costs, you can get into real trouble if there are too many frequent users of the Freemium product. The simple reason is there may not be enough total margin from the paying customers to offset the margin lost to the Freemium users.
Many times Freemium users convert to paying customers at astoundingly low rates (<10%). The question becomes: "What is the breakeven point for paying customers to cover all costs PLUS the costs of the Freemium users?"
Just like you say "There is no free lunch", I contend the only users that count are the ones you get money from often referred to as "customers" — unless you can get someone else to foot the tab via ads or capital "donations".
Jim,
Thanks. Excellent point with regards to the Freemium model. Companies with freemium models have even more pressure to ensure their operating at the highest levels of efficiency when it comes to delivering their SaaS offering. Giving something away forever, when you have razor thin margins and extremely low conversion rates for your premium product is a recipe for disaster.
- Jesse
The Free Trial is free, to the user. But you are right is a cost of acquisition. And while minimizing the cost of processing a trial is important, it’s a great way to get your product in people’s hands. We find it to be an effective way to get customers – cost per conversion being much lower than trade shows or advertising.
We’ve automated all of the steps of the trial process exactly as you mentioned above. We’ve included the automated emails with helpful tips and tutorials etc. We also have a “Subscription to Single Instance, Co-mingled Data Application” architecture in place. Most customers pass by the trial before purchase.
We’re about to launch a new product with a Freemium offer. Jim is right and it’s a different game, with higher stakes.
The biggest challenge is optimizing this funnel and increasing conversions. But we do have good visibility on every step of the chain.
Great stuff Stephanie. Yes, once you have the right architecture and operational pieces in place, the next challenge is optimizing that funnel to keep increasing the conversion rates. You already touched on some things that are key to that, like automated emails with helpful tips and tutorials. Sounds like a good follow on post.
Would digging into ways for optimizing the free trial conversion funnel be something of interest to you (and others)?
- Jesse