The secret world of SaaS free trials
Metric Stack 30: Trial Conversion Rate and more!
Welcome to edition 30 of the Metric Stack Newsletter!
I’m Priyaanka Arora, and it’s my job to get you excited about all things metrics.
Because metrics are much, much more than random numbers pulled out of a magician’s hat.
When utilized correctly, metrics are the difference between acting on your intuition alone and making informed decisions with a future vision in mind.
Today on Metric Stack, we’ll look at one such metric that can seem straightforward but hides subtle complexities that make a ton of difference to how you measure success.
Excited? Good! Let’s dig in:
What is Trial Conversion Rate?
Trial Conversion Rate is the percentage of free trial users that successfully convert to paid users. Here’s the formula:
Trial Conversion Rate = Trial-to-Paid Users / Trial Users
The formula is the easy part. Your next steps are to determine the length of your trial period (and whether that’s really the best duration), debate opt-in or opt-out, and, uh, decide whether you want to offer a trial at all (maybe?).
Let’s figure out those answers one by one.
That elusive perfect free trial length
The industry still can’t come up with a definitive answer for one of the oldest problems in SaaS: what’s the optimal free trial length?
Answers vary from the classic “it depends”, to anywhere between 7 and 30 days. Here are the top 3 factors that influence trial period length:
Time to Value: how soon does the average user get to their first Aha! Moment when using the product? That gives you a rough estimate of how long your free trial could be.
Customer Acquisition Cost: realistically, how long can you support free trial users before you start losing money? Remember that CAC is the startup killer, increasing steadily year after year. Balance your costs against revenue from free-to-paid conversions.
Ease of use: how easy is it to set up and use the product? The time & effort needed to onboard, configure, and master the product prolongs time to value by hours, days, or even weeks.
Allan Wille, CEO of Klipfolio, summarizes trial period length best:
“Successful conversion of potential customers into paying clients is impacted by the first few minutes of a trial as opposed to the length of the free trial period.”
That’s right - the first few minutes. The optimal free trial period length doesn’t exist because it varies incredibly based on each unique situation.
But the decision to stay or churn is often made early in the trial period - and the best way to positively influence that is by striving for product excellence.
The case for opt-in vs opt-out free trials based on benchmarks
Before I unveil the “best benchmarks latest 2022 SaaS metrics trial conversion rate b2b” let’s understand what we are actually searching for when we google trial conversion benchmarks.
Lincoln Murphy, Growth Consultant and founder of Sixteen Ventures, calls out the need to differentiate between the two types of free trials, opt-in and opt-out:
“Not all Free Trials are the same, and conversion rates across the two types will be very different.”
Opt-in free trials do not require a credit card upfront to start the trial. The trial user is required to either convert to paid or let the trial expire.
A good benchmark for opt-in free trials is around 25%.
Opt-out free trials require a credit card to sign up for a trial. Users either stay and start getting billed at the end of the trial period, or opt-out any time before the trial ends.
A good opt-out free trial benchmark is around 60%.
Yay! Opt-out free trials wins, right?
Not necessarily. In the current world with 50% YoY increase in CAC, customers have endless options and will pass your product by at the slightest hint of an obstacle.
And mandatory credit card info is a pretty big obstacle. Opt-out free trials get significantly less sign-ups, which increases the trial conversion rate but not the conversion volume.
You may argue that 60% trial conversion rates indicate high quality sign-ups, but you are still losing a huge percentage of potential high quality sign-ups who simply have other, less cumbersome choices.
Weigh these factors carefully before deciding on the type of free trial your product will offer.
Speaking of which:
Are free trials the best path to conversion?
Short answer, yes. Free trials lead to high rates of conversion if you check all other boxes: short time to value, excellent on-boarding, continuous improvement, and product-market fit.
Do not make the mistake of grouping freemium together with free trials. They are completely different:
Freemium is essentially a free version of your product that has limited features - but is free forever.
Freemium-to-paid conversion rates are much lower, around 2-5%.
That seems pretty low compared to the 25-60% conversion rates promised by free trials, but sign-up volumes are naturally much higher with freemium.
Freemium can benefit both your business and your customers. Customers can take their time trying out your product in a no-pressure environment, while you save acquisition costs by attracting new customers with the appeal of a “free” product.
Yes, freemium may lower sign-up quality.
But depending on the stage of your business, the wealth of customer behaviour data can be a valuable resource to elevate your product closer towards perfection.
The one and only free analytics tool you need
Speaking of freemium, did you know that Klipfolio’s lightweight BI tool, PowerMetrics, is free forever?
You’ve seen how metrics can drive your business decisions in the right direction.
What’s important is consolidating the right data at the right time from the best data sources. And PowerMetrics connects to 100s of data services to instantly populate your KPIs with an easy, no-code approach.
Create beautiful custom dashboards in minutes and unlock the power of your data!