Choosing the Right SaaS Trial Strategy: Time-Based or Credit-Based Models
According to The State of Product-Led Growth 2023 report, most PLG businesses prefer to charge customers based on how much they use their product. More than half of the surveyed B2B SaaS companies in the PLG ecosystem said they use a pricing model that tracks and bills for product usage.
This is not a new trend. OpenView's State of Usage-based Pricing report has been showing an increase in usage-based pricing for a few years now. In fact, the adoption of usage or consumption-based pricing has increased by 15% from last year. This means that 3 out of 5 SaaS companies now use some form of usage-based pricing.
We dug a bit deeper into the survey responses and noticed that this is the same pricing trend with companies that offer a free trial of their product.
Figuring out the product packaging is as important as figuring out the right pricing strategy. In this blog post, we are going to discuss two important product packaging strategies that are popularly used with a usage-based pricing model.
Free trials can be time-based trials (30 days free) and usage-based trials ($1000 in credits). The choice between time-based and consumption-based free trial offerings depends on multiple factors.
It's important to analyze your product, target audience, and business objectives to determine the most appropriate approach for your specific context. These are some of the factors you should mull over before making a decision.
Most PLG companies employ a product analytics tool like Amplitude to understand product usage patterns. Take a look at your analytics tool to understand if your product’s usage or consumption patterns are relatively consistent across user profiles. If yes, a time-based free trial can be more suitable.
Zapier is a great example. The 14-day free trial lets the user try out their premium features and decide to go for a pro plan or stick with the forever free plan.
Consumption-based models are typically more advantageous when there is significant variation in usage levels among different customers, allowing for more tailored pricing based on actual consumption.
Copy.ai offers free credits that get consumed as it generates more words for the users. A social media manager’s use case with the product typically would use up more credits compared to an engineer. The usage varies depending on the user’s job profile so, the credit-based trial makes more sense for their business.
If your product has a short adoption cycle, meaning users can quickly see the value and make a purchase decision, a time-based free trial can be effective. This is especially true for products with immediate and tangible benefits that users can experience within a short timeframe. For example, PandaDoc’s 14-day trial gives a fair understanding of their product value.
For more complex products with varied use cases and longer product adoption cycles, offering free credits and not limiting the usage to a time frame or having a longer trial period is the way to go. For example, Snowflake has a 30-day trial period combined with free credits that get used up for storage, computing, and data transfer functions as used.
Conversion rate optimization
By offering a specific trial duration, you create a sense of urgency and encourage users to explore the product intensively within that time frame, potentially leading to higher conversion rates compared to a consumption-based model.
Inflection's pricing model is designed to charge out customers only based on the number of contacts they market to every month (Monthly Marketable Contacts or MMC) and offer a 30-day trial for PLG businesses to evaluate our product for their use cases. We are seeing better free-to-paid conversions after implementing this strategy.
But, if the value of your product is tied to deeper product adoption and engagement, users may feel rushed to evaluate the product within the trial constraint, potentially impacting their decision-making process.
In the case of a hybrid pricing strategy
If you have a usage/consumption-based pricing strategy, offering credits for trying out the product is the way to go.
However, if you have a hybrid pricing strategy, combining usage with tier or per-seat pricing, a time-based free trial provides a simple and more transparent experience. It allows the customer to have some traction with your product before the time expires.
For example, Twilio SendGrid offers pricing plans that are a hybrid combination of usage, per seat, and tiers. Their 30-day free trial for paid plans comes with upper limits for the number of seats, emails sent per month, APIs consumed, etc.
The choice between free credits - a usage-based pricing model and free trial - a time-based model depends on the specific context and goals of the PLG business. Consider the target audience, product complexity, and revenue goals to determine which strategy aligns best with their overall growth objectives. It is optimal to iterate and improve the trial strategy along with pricing.
If you made it this far and are thinking about your trial to paid conversions, you should check out Inflection.