June 23, 2022

Free trial vs. freemium: Which product-led growth tactic is right for you? ‍

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Have you ever set up a free trial to test drive a product before you bought it? We bet you have (and you might have even forgotten to cancel it after the week was up – oops).

In our workshop Driving Product-Led Growth, industry guru Wes Bush teaches you to use “try before you buy” tactics – like free trials, freemium, and demo modes – to capture customers long before they swipe their credit card.

Here, with Wes’ help, we share an easy-to-use framework for picking the tactic that’s right for your business.

First of all, what the heck is product-led growth?

In traditional sales-led companies, the customer doesn’t get access to the product until they’ve signed on the dotted line. Instead, they have to rely on sales calls and marketing collateral to understand what they’re getting.

With product-led growth, the customer gets access to the product immediately, letting them experience meaningful outcomes that make them want to buy.

Think of a product like Zoom. You can use the free version forever and get real value from it.

But once you try to scale it to your whole company, the free version won’t work as well (no one wants their call to end abruptly at 45 minutes). By that point, you’ll be invested enough that you’ll think, “I know this is valuable, so I’ll pay for it.”

What’s the difference between free trial and freemium?

A free trial provides either partial or complete access to your product, for free, for a limited amount of time (e.g., a week or a month).

Showtime lets customers set up a free trial. You can stream its entire catalog for seven days, at which point it’ll charge your credit card the $10.99/month fee.

A freemium model gives your customers access to part of your product, for free, without a time limit.

HBO has a freemium model. You can watch the first three episodes of shows like The Wire for free for as long as you want, but if you want more, you have to pay. (By the way, I'm on Season 1 Episode 5 – let's talk).

So: free trial or freemium?

Wes recommends using the MOAT framework to decide between a free trial or a freemium model.

Want to see which tactic is right for you? Take our quiz!

1. Market strategy

The first step in deciding between free trial and freemium is determining your market strategy.

Dominant growth strategy means you do something much better than the market and charge a lot less. Take a look at Netflix – they’re much cheaper than going to the movie theater (yeesh, $14 for a ticket?!) and they offer many more options.

Freemium and free trial work well if you have a dominant growth strategy.

Differentiated growth strategy works if you want to go up against an industry leader, like Salesforce or Hubspot. With this strategy, you target a specific niche in the market and serve them better than the market leader – for more money.

Free trial works best with a differentiated growth strategy.

Disruptive growth strategy means you charge less for a product with fewer bells and whistles. Look at Google Docs – it doesn’t have the power of Microsoft Word, but it’s free and provides most of the tools that people actually need.

Freemium is a fantastic choice for disruptive growth.

2. Ocean conditions

Let’s dig into the two types of “oceans” your business may be in.

Red ocean companies try to beat their competitors for a greater share of existing demand, creating a cut-throat battle that turns the ocean blood-red.

Insurance companies are the perfect example of this: the insurance market grows very slowly, so companies like Progressive, Geico, and Liberty Mutual have to steal market share away from each other.

Freemium works better for red ocean companies.

Blue ocean companies expand by accessing untapped markets and creating demand.

Free trial works best for blue ocean companies.

3. Audience

If you have a large addressable market, but each contract is relatively low-value, you should explore a freemium model.

Let’s take a look at Zoom. They charge $199/person for their Business tier, which adds up to $19,900 a year for a 100-person company. And there are a lot of 100-person companies in the world. This means that they can keep a lot of companies on the freemium experience for an indefinite period of time, knowing that they just have to convert a percentage to paid.

A company that has a smaller market with larger contract sizes would want to do a free trial. They have a smaller pie to work from, so they can’t afford to let customers hang out in freemium land forever.

4. Time to value

Can people get value from your product very easily? Or will they need a full onboarding once they’ve had a taste of the initial features?

If people fall in love with your product right away, with no help, you should opt for a freemium experience.

If you want people to get a taste of your product – but then get your help implementing the full solution – a free trial is a better experience.

Want to see which tactic is right for you? Take our quiz!

Learn more product-led growth tactics in our workshop Driving Product-Led Growth with Wes Bush.

Greg Shove
Section Staff