Understanding the models: freemium and free trial explained

The freemium model – a play on “free” and “premium” – offers a free version of the product indefinitely while offering an option to upgrade for additional features. It has grown in popularity over the years for tech products and mobile apps. The percentage of freemium apps on the Apple App Store was 25% in 2009, which rose to over 80% in 2022.

In contrast, a free trial model provides unrestricted access to the full product, but only for a limited time, which is usually from seven to 30 days. After that period, the customer must pay to continue using the product. Programs under the Adobe Creative Suite are a popular example.

These models are typical for many tech startups, allowing customers to test your product before committing to their final purchase, giving them peace of mind in the buying process. And because research shows that 86% of customers would pay more for a product if they have an easy and pleasant experience, this extra peace of mind is vital in enticing customers to consider your product over the competition, particularly in a crowded tech landscape.

The pros and cons of the freemium model

The freemium model has unique strengths and weaknesses that shine under specific circumstances. The advantages of this model include:

• Accessibility: the freemium model makes your product available to anyone at no cost, widening your reach. It allows startups to build a large user base quickly
• Continuous engagement: since users can stay on the free tier with no time limit, they can keep interacting with the product, minimising churn and improving retention. You can eventually convert them into paying customers
• More feedback: a large, active user base is a wellspring of valuable feedback on features and overall experience, guiding your product improvement initiatives

On the flip side, these are the disadvantages of going freemium:

• Monetisation challenges: some startups may struggle with conversion rates, as many users might already be satisfied with the freemium version’s basic features
• Support costs: supporting many free users can strain a startup’s finances, especially if not enough people are converting to the paid version

The pros and cons of the free trial

The free trial has a different approach that complements those of the freemium model. Its strengths include:

• Full customer access: the customer can experience the product with all its features. A free trial helps them better understand its benefits and what they could get by paying for it
• Sense of urgency: the time limit can motivate users to explore the offering more and drive faster purchases. A recent study found that shorter trial lengths often lead to better customer acquisition, retention and profitability
• Higher chances of conversion: a strong product coupled with the urgency of the limited trial time can make customers more likely to commit to a paid plan

These are the pitfalls you should look out for when implementing a free trial:

• Short-term engagement: once the trial expires, users who aren’t ready to commit can drop off. There is no long-term exposure
• Churn risk: those who don’t convert at the end of the trial can increase your churn rates, affecting long-term revenue

Key factors to consider when choosing a model

Deciding whether your product should offer a free trial or a freemium model depends on multiple factors, including your goals, resources, and strategies:

• Your growth strategy: startups focused on building a large user base and maximising awareness may benefit more from a freemium model. Free trials can be a better option if you want faster monetisation and shorter sales cycles
• Product complexity: complex products requiring significant setup or training can work better under a free trial model with guided onboarding. For simpler, self-serve products, a freemium model is more user-friendly and can attract a larger user base
• Resource allocation: a freemium model may require more ongoing support, maintenance, and marketing resources, especially for its free users. On the other hand, free trials demand efficient onboarding and more engaged sales teams to maximise the shorter window of opportunity

Effectively engaging your target customers

There is no universal answer to whether a freemium or free trial model works best for a startup. The right approach depends on the product, target audience, and the decision-makers’ goals. It must help you drive engagement and sales and support your long-term vision.