It’s incredibly fashionable these days to bash on the freemium account idea. If you’re not familiar with “freemium” it’s the idea that you get the core services for free, but have to pay to get advanced features. Typically the free service is marred by ads and constant requests for you to upgrade, but there’s never any real need to upgrade if you don’t mind the ads and nagging – and apparently, very few people mind those things. There’s countless stories about companies going under because people love free and won’t pay for anything that isn’t. There are as many stories about companies taking away the freemium package and switching to some other thing as well, many of which simply have a free trial period.
Well, I’m here to tell you…
Beware the free trial, SaaS builder!
How I Lost My Shirt
Not quite a year ago, I announced the opening of SignalLeaf.com – a new podcast hosting service that I was building. This wasn’t a big launch. It wasn’t anything that I planned and worked at – there was no launch sequence or anything like that. I just blogged about my idea one day and kept hacking away at it. Eventually I made it available for the general public under the idea of it being “beta”. I knew the “beta” label would scare some people away and I was ok with that.
As a trade off for the beta label and the bugs that I knew would be in there, I offered something stupid: a 90 day free trial period.
Now, I say this was stupid in hind sight. At the time, I was offering such a great thing because I wanted people to know that they didn’t have anything to worry about, financially. I wanted people to be more interested in the service than worried about the cost.
Well, as I said, this turned out to be stupid on my part and I’ve been paying for this mistake for a long time now. Literally. I’m paying a lot of money every month because I made this mistake. I’ve spent upwards of $500 a month for the last few months, in fact… and I’m bringing in less than $100 a month. It’s pretty simple math to see that this is a fail on my part.
And Thought I Looked Good Doing It
Here’s the part that really made this so deceptive: I slowly but surely started getting “customers” with this 90 day trial. When people found out about this, they were instantly interested. I had a lot of customers (for me, at least) sign up. At peak, I was averaging 2 new “customers” per week! For a bootstrapped SaaS that I am building on the side of everything else I have going on, this was amazing!
But notice how I continue to “quote” the word “customer”?
It turns out, I was getting a lot of people to sign up for the free trial but very few people were actually engaging in the service. Roughly 50% of the people that signed up never even created a podcast, let alone uploaded an episode. Of the 50% that did create a podcast, about 80% of them uploaded more than one episode, leaving about 20% of them to never uploaded an episode or only upload one episode.
These “customers” were not really customers. They were window shopping. They were just checking out the service to see what it looked like, and most of them never did anything more than walk in the door.
The FAQs Of Life
Fact #1: 80% of all podcasts FAIL before the 8th episode is published.
Yes. Fact. I first heard this statistic from another very well known podcast hosting service. I have verified this with my own service, time and time again. Of those that make it past this, only about 50% of them make it past episode 20 or 30 (I don’t remember the actual number for this part of the stat – but that’s ok, it’s not as important to me).
Fact #2: Most podcasts attempt a weekly schedule – one episode per week.
Somewhere along the way, people get it in to their head that they have to be a weekly podcast for people to maintain interest. I cry foul on this, personally, but having a regular schedule that you stick to is important – it just doesn’t have to be weekly, in my experience. But that’s not the point…
Here’s the real issue… can you predict the problem for me and my 90 trial period, based on these statistics?
If the vast majority of podcasts are ending before episode 8, and the majority of them are also attempting a weekly podcast schedule, guess how many weeks go by before you stop producing your podcast?
Yup. 8 weeks.
And now for some more difficult math…
There are 7 days in a week. I was giving away 90 days of free service. What’s 90 divided by 7? 12.85something… that’s nearly 13 weeks of free service!
If I’m giving you 13 weeks of free service, and you are done with your podcast after 8 weeks, well… I’m never going to collect a dime from you, but I sure am going to pay through my teeth for all the bandwidth that your podcast sucked up.
Beware The Free Trial
SaaS builders! BEWARE!
That free trial you are providing might not be worth your time and money. In my case, I was literally giving away my entire service for more than the entire life of the podcast in 80% of the cases. And I’m still paying dearly for this, in spite of having removed the free trial period entirely. Yes, I removed it entirely. And yes, I still have a few dozen accounts on the free trial period, taking up bandwidth and costing me money. And I am not going to do anything about that, because I promised those people that they had 90 days of free service.
An Alternative To Free: PAY ME NOW!
Yes, I could have shortened the trial period. I could have gone 30 days or even 14 days like some other podcast hosting services. I decided not to, based on some advice from a number of people. So here’s what I’ve done instead:
I charge your credit card immediately, and I offer a 30 day money back guarantee.
I’m proud of this guarantee. I stand by it and if you don’t like the service. I will give you your money back.
But here’s the thing: In the time since I switched from a free trial of excessive size to a money back guarantee of more reasonable size, I haven’t dropped my signup rate! In fact, I’ve improved my statistics by a large margin. Not only am I earning income IMMEDIATELY, I am also seeing a substantial increase in the number of people that are creating a podcast and publishing at least one episode.
I have to admit that I’m early in the 30 trial version of things, but I also have yet to see anyone request a refund. I don’t expect that statistic to remain in place forever, but I do expect that most people who sign up will be more motivated to make it work.
People Don’t Value Free Things
Plain and simple – people don’t value the things that they did not work for or pay for. People value what took a long time to get, or what they worked hard to get, or what was expensive and they had to save for. This is basic psychology… it’s called cognitive dissonance. The more we work for something, the more we value it – otherwise it wouldn’t be worth the effort we expended. This is both a benefit and a detriment to us as SaaS developers. When someone pays for a service up front, they try to make it work because they have already paid for it – this is the benefit for us! (But conversely, when we have so much time invested, we are unwilling to set it aside – this is the danger!)
Of course there are exceptions to the cognitive dissonance and general attitude of “I’ll make it work”. Someone will eventually publish a crazy popular podcast and 29.9 days later ask for a refund… and I will grudgingly give it to them, wasting my time and money. I’m already working on my rage face for those jerks, but I know it will happen. Some people just love screwing other people, and that’s really sad. It’s part of selling things, though, and I accept the risk for the potential reward.
Is A Free Trial Worth It?
Honestly, I can’t answer that question for you. You need to look at the data in your market. Is your customer base going to abandon ship before the end of your trial period? Is your customer base going to actually use your product or service enough that they can’t live without it when the trial period ends? Are they going to be so ingrained in “I’m not paying for this” that the notion of now having to pay for it will set them off and they’ll abandon ship in spite of using the service frequently?
There are a lot of questions to ask, and to answer. But I would suggest, at least as a trial run, that you get rid of the trial people and replace it with a money back guarantee. Reduce the risk of the buyer while increasing your revenue. So far it’s working for me. Time will tell if it continues to work.