
SaaS Builders: Beware The Free Trial - revathskumar
http://derickbailey.com/2014/05/14/saas-builders-beware-the-free-trial/
======
scolson
I am a huge fan of the unlimited (duration) free trial. How many of us sign up
for something, poke at it, forget for a few weeks, and then go back again more
seriously? I'm sure I do it all the time. By the time I remember, I am most of
the way through a trial period and haven't actually evaluated wether the
product is a good fit for me or not.

Regardless of how long your trial runs, people really need to bake in resource
limits. I assume most SaaS companies have offered (or will offer) tiered rate
plans based partially on consumption, so if you are starting as a free-only
beta, why not bake in some sane resource limits from the start? Some ideas for
this might be:

* maximum podcast size/duration (10 min or 3MB free?)

* 4 free uploads, then you pay

* Retention period - free accounts only store data for 30 days from upload

Sure, you are still technically paying for the free folks, but you greatly
limit the cost damage while providing reasonable motivation for people to move
to a paid tier when they are ready.

~~~
camus2
the problem is often unlimited free trials == subsidized by paid customers.

I'm sure if Heroku, for instance, was a paid product without free trial,it
would potentially cost less to paid customers. This and services like
mongohq,mongolab,... clearly subsidize free accounts with paid ones.

I think the amazon free tier model is a better model.You have one year to mess
around but you still have to pay if you abuse resources.

Of course in the podcast hosting space,things are different since there is a
lot of competition. Not that much in the paas market,where good services are
rare. Most paas suck,we all know which are the good and the bad ones.

~~~
scolson
Of course unlimited free trials are subsidized by paid customers. It is a
marketing cost and is baked in to the CAC figure that every SaaS should known
and understand.

The trick isn't removing free trials, or changing unlimited to limited.
Instead, the trick is to find the sweet spot between costing as little as
possible while offering enough functionality that someone can actually figure
out if it might be worthwhile for their use without giving them too much that
they never pay. It strikes me that the OP was too far to one end of the
spectrum--knowing their demographic as they were hoping to, they offered a
trial that was bigger than the average podcaster would ever use. Where is the
incentive to convert if you can get what you need for free?

While I would never presume to know the OPs business like they do, from a
strictly personal standpoint, I find great utility in the unlimited-time
aspect if budgeted appropriately.

------
TomGullen
I'm struggling to see why bandwidth is costing you so much. We have a
dedicated server with 10tb bandwidth on 1gbps port for under $100 a month.

Also, if the podcasts are failing they can't be using much bandwidth? I think
this is cognitive dissonance, you're complaining about free users costing you
a lot of money in bandwidth yet apparently they are all failing (very few
listeners?)

~~~
derickbailey
I'm serving files from Amazon S3. This gives me the benefit of world class
storage and streaming, without having to own / run the servers myself.
Bandwidth from them is "cheap" at $0.12/GB... but with an average podcast of
30 minutes being 25meg file, an episode with 1,000 downloads is 2.5GB of
bandwidth.

i have a customer that averages 20,000 downloads per episode, and a bunch of
others with close to 1,000 downloads per episode. it adds up fast.

~~~
thejosh
Right, but if you go with a "budget" dedicated supplier of dedicated servers
for cheap (probably based out of EU such as Hetzner/OVH) or out of the US
(through someone who provides "unlimited" bandwidth), have everything through
s3 as a backup incase the server has any issues, you will be able to save
money.

25 meg downloads don't last very long, so the very worst is that your gigabit
pipe gets caught for a bit - hell even a company like Linode does 2GB out for
$160/m :).

S3 is very expensive for what you are doing, saying you don't need to own/run
servers for things like a podcast is just pissing money into the wind.

~~~
derickbailey
"saying you don't need to own/run servers for things like a podcast is just
pissing money into the wind." \- that's probably true. i may end up doing
something like your suggesting in the future. right now, the streaming side of
things is not something i want to concern myself with. i have other things
that need my attention.

linode's $160/mo plan would cover me for a while. i'm transfering around 4TB a
month right now, and that would cover 16TB.

thanks for the feedback and suggestions! this is something i'll need to keep
in mind in the near future.

~~~
thejosh
We might come across as brash, but we really want everything to succeed. :)

------
programminggeek
I'm currently thinking that for my next SAAS project it's going to be pay up
front with a 30 day money back guarantee. I've done freemium and 30 day trials
and the data I got early made me think that people would convert and they
didn't even though they would use the product every day. Maybe my pricing was
bad or my sales technique was terrible. I don't know.

What I do know is if you price something up front you'll know right away if
your sales pitch works and if your pricing is remotely reasonable.

I know the conversion rate without a free trial won't be maybe as high, but
when you are looking to just validate a product and a marketing strategy, you
need to know if it will turn into real sales. You don't have to have a free
trial to sell a product.

~~~
hagbardgroup
This is a good compromise -- certainly better than the take-your-credit-card
free trial that surprises you with a charge. 'Money back guarantee' has worked
for a long time, particularly in pre-internet days.

~~~
programminggeek
What is really funny is when you think about it, we all buy things without
trying them every single day. We make assumptions that a product will work or
that it can be replaced/refunded when it doesn't.

Surprisingly, in the online world we think everything is different and that
nobody buys things without a free trial of some kind, but over and over again
I see products and services that sell without a free trial.

I think it's doing early stage products a disservice to assume you have to
have a free trial to make money. When you are proving out if a product will
sell, you need to know if people will pay you money for it, not if they are
casually interested in trying it.

If it don't make dollars, it don't make sense.

~~~
hagbardgroup
The internet is similar to mail order but faster with a lot of tricky details
(in the same way that mail and print have tons of tricky details). People
don't change all that much.

'Free' gets you a lot of tire-kickers automatically, whereas a guarantee pre-
qualifies the customers to the people who can afford to float you some cash.
If they're a tire kicker, at least they're not a totally broke / budgetless
tire kicker.

There are other free sweeteners that you can offer that aren't a free trial.

------
andyakb
I agree that your free trial was at the very least much too long, and that the
money back guarantee makes a lot of sense for a bootstrapped SaaS company
[Jason from WPEngine strongly recommends this as well]; however, I would
interpret some of your data a bit differently.

50% of your signups never uploaded a podcast, but once they did, 80% uploaded
more than one. Your takeaway from this should be that you absolutely need to
do everything you can to onboard the user and get them to upload their first
podcast because once they do, they are much more likely to continue using the
service. I am guessing that now that you have a money back guarantee your
average customer will be more motivated than before, but you still need to
work to build processes that help users get started and continue using the
service, otherwise your churn is going to be horrible.

------
fasteo
The only problem I see here is that yours: You wanted customers to discover
bugs but you didn´t think that this would cost you money.

As I see it, paying $400 a month for a "bug discovery" service is not that bad
if it helps to improve your product. It is your expectations that are not in
line with yours actions.

It is true that "people Don’t Value Free Things", but it is equally true that
you don´t value your customer´s time.

------
Axsuul
Anyone know a good collection of SaaS articles like this? We're about to
launch our first SaaS service and would love some battle hardened good
practices.

~~~
gk1
As a marketer working with SaaS companies, I would caution you _against_
reading articles like this.

They make big generalizations (free trials are bad!) based on hindsight
reasoning and very few data. For every article you find that says you should
do X, you can just as easily find one that says you should NOT do X.

With that said, two good sources of information are Jason Cohen[0] and Patrick
McKenzie[1].

[0] [http://blog.asmartbear.com/](http://blog.asmartbear.com/) [1]
[http://www.kalzumeus.com/blog/](http://www.kalzumeus.com/blog/)

And if you're looking to have someone in your corner who has done this, give
me a shout!

~~~
Axsuul
Thanks for the info and the offer!

------
wildpeaks
Whatever you do, just make sure that cancelling really is easy if you expect
them to give you their credit card because consumers beware of scammy 30 days
moneyback guarantee that are designed to make you jump through so many hoops
that most give up, or worse, continues billing you until you manage to.

An example, eFax: a black hole of pure evil when it comes to cancelling:
anyone who ever tried wants to murder kittens afterwards. Whatever you do,
never ever _ever_ signup for that thing. Seriously. (At least in the U.S.
there is the chat and twitter options, but in Europe, you're basically screwed
unless you cancel your credit card).

------
drchiu
About to launch a Saas here as well and have been struggling in regards to the
free trial thing.

I think it depends on the market and the business tastes of the
founders/owners.

I've ran a couple of businesses, and I tend to agree with Derick that I'd
prefer to get my money now, rather than at some point in the future.

This can be off-putting for some potential customers, but then again this
depends on the market.

If I'm creating a vertically integration Saas in a very niche market, I think
it's appropriate.

If I'm doing a social app, then you basically have to give it away to increase
user acquisition, and book the cost of the new user as part of the user
acquisition cost equation.

------
brc
It really depends on the market. My prior project went well with 10 day free
trials. People installed it, it did what they wanted, so they kept it.

Current project...trials are popular, but getting people engaged in the trials
is tough. Lots of engagement diet day..then it drops sharply off,many no
amount of emailing bumpsup the return rate about a percent or two.

I think it depends on the market, the product and the price point. I think for
free trials to work, the person has to have a recurring use for the product,
and can easily get value after a short and simple install/initiation session.

~~~
noir_lord
Why 10 days, just a nice round number? (don't mean that disparagingly) or was
there some statistical basis for it?

A lot of trials I see are 14 or 30 day, 10 not so much.

~~~
mdesq
Just a guess, but maybe that it always gives the user a full calendar Mon-Fri
to check it out?

------
paukiatwee
SaaS business is not based on some random failed example, but A/B testing,
marketing, product development, and more. Any business come with risk and SaaS
is the same.

------
jusben1369
The problem about drawing any broader conclusions here is it appears to boil
down to "Don't offer a 90 day free trial in the podcast hosting business
because most customers run their course in 56 days" Not sure it really tells
us anything about the effectiveness of a free trial for x days and pay vs a
charge now with a 30 day money back guarantee

~~~
derickbailey
true! i tried to make that point at the very end of the post... maybe should
have emphasized it more

~~~
gk1
I enjoyed reading the post, and was relieved to see the caveat at the end, but
when you shout things like:

> "Beware The Free Trial ... SaaS builders! BEWARE!"

I don't think it's just a lack of emphasis... It's the presence of jumping to
conclusions and offering that as a general lesson.

------
nkozyra
I think the big caveat here is that the _space_ you're in makes it
particularly dangerous to offer a free trial.

In other words, there are spaces where those costs are far more negligible,
such that you could certainly afford 500+ abandoned free trials to convert 1
paid customer.

~~~
gk1
In other words, you need to understand your acquisition costs and your
conversion funnel. Then you can decide what form of a trial--if any--makes
sense for you.

~~~
nkozyra
Right, and maybe that's tough to do from the onset, but as you learn those
lessons you can and should adjust.

So if your conversion rate is X and you offer Y and you're losing money, you
probably need to reduce what Y costs (or can cost) you.

------
lubos
Well, that was interesting. Now my thoughts.

What is he offering? Podcast hosting service? That's commodity. Of course it
doesn't make sense to offer free trial if you are selling commodity-based
service. How many hosting companies are there offering free trial? Hint: Not
many.

However, if you are offering a service with lots of added value which has
strong lock-in effect (it's difficult for customers to switch), then do free
trials by all means. If you don't, you will eventually do anyway. Let me
explain...

When your startup acquires first customers, you really want to be selective
about who your first customers should be. Ideally you want to find "zero-
maintenance" customers who just use your service, pay monthly and never really
bother you so you can concentrate on growing your startup.

It's true your conversion rate will decrease when you do free trial because as
a new product, your free trial will suck so much that hardly anybody will make
it through (think 5% if you are lucky) but those that make it true will be the
most forgiving and the easiest customers you will ever have.

If you charge up-front, many people who would normally drop off during free
trial will try to make your product work by making various compromises. They
have all the incentives to do so because that will avoid them hassle of trying
to cancel their subscription and get refund.

But I'm afraid this will also kill your little startup. Now you will get needy
customers who are not completely in love with your product, made certain
compromises and basically hate you for tricking them into using your service
and they will make you work hard for a few dollars they are paying you. Not to
mention, your churn rate won't be anything to write home about.

You need to work hard to acquire new customers, and hardly work on supporting
existing ones. Your startup can't afford your existing customers to be pain in
the neck when you are the most vulnerable.

By the time you have a lot of customers, your free trial on-boarding process
will improve so much that you won't even think of charging up-front anymore.

------
zipfle
It's interesting that this was a "failure" because it was supposed to be a
customer acquisition strategy/business plan. I wonder how the math would shake
out if you looked at it as a market research expense.

------
brianbreslin
Has anyone found any good ways to force free users to upgrade to paid? i have
a SaaS with a freemium option that has led to 2500 free users and only 1%
conversion to paid. The support costs of the free users far outweighs the paid
revenue. My guess is most of those free users won't upgrade, but has anyone
had success in cutting the dead weight/forcing upgrades?

~~~
ricardonunez
Have you tried removing more features in the free version? It may be you
solved the problem to almost all of them and they don't see a reason to
upgrade. You need to figure out if is a pricing or a business model issue so
you need to do a lot of testing. If you are talking about your WordPress
Backup service, in one of my projects we provide WordPress services and I can
tell you that most of my clients rarely get over 200MB. Also, if you have a
dashboard or a newsletter, try running a special discount to older users
(split test it). Hide the free version for a month or two and see if
conversions increase.

------
pessimism
I once used a SaaS—or whatever you call the abstraction on top of that—and
ended up paying $80 for a “sample” EC2 instance of theirs that was just
idling, after I had activated it a month earlier.

Soured me on trying out new platform services pretty damn hard.

------
DenisM
The salient point: author has replaced free trial with money back guarantee
and his signups did not decrease!

Anyone has similar experience with removing free trial? I wonder if it's
actually a trend or a single occurrence.

------
djyaz1200
I think he was right to offer the trial and then right to change strategies
after the product got more refined. Can't jump to the top of the mountain in
one leap. Still interesting data point!

~~~
derickbailey
good point. maybe a shorter trial to start with, for the early version though
:)

------
marincounty
Thanks for the info! So many people are fooled into parting with their hard
earned money, and time. I guess that's capitalism?

------
chaotic_good
I strongly suggest you don't take ANY business advice from someone who decided
to get into the podcast hosting business in 2013.

