The Psychological Difference Between Freemium & Free Trial Plans
Nick Sullivan stashed this in Evernote
Stashed in: Monetization
Thanks for this link, Nick.
I love the concept of a free trial. As if you're getting something for nothing.
More importantly, it has eBay psychology: Time is running out so you better pay or you're gonna lose it...
These paragraphs are written exceptionally well:
Of course, there are thousands of instances where the freemium model works for companies, but the reason it works for these companies is that they have architected the freemium plans very very well to essentially be the equivalent of getting a cheap buffet at a nice restaurant while all the other patrons are eating their awesome steaks behind glass a few feet above your head.
These freemium customers need to be enticed by all of the cool stuff they *could* have if they just cross that divide and upgrade their account to a premium plan. You’ll notice that companies that employ a freemium plan model are usually companies where the cost of offering what they do for free is extremely cheap (to the point of being negligible in the overall scheme of things).
A good example of this is Evernote. The cost of storing the data you could possibly put into Evernote is ridiculously low. That allows them to offer you the whole product for free, where you can fall in love and start incorporating it in your life. But then one day all of a sudden, you’re out of space. You can’t bear to part with Evernote at this point, you rely on it every day. So the friction to upgrade your plan is nearly gone and you punch in your credit card info.
You're right Adam, the "takeaway close" is effective - assuming you've proven value and inserted some switching costs.
I guess the choice between these models comes down to your variable costs associated to delivering the service and the relative stakeholder value created by "active users" versus "paying customers." And that value is determined by founder goals for the business and exit aspirations. Active users are more valuable if user insight can be monetized and paying customers are more valuable if costs are higher, founder goals are long-term sustainability and/or the likely exit target is a more traditional business.
One interesting notion that might help one choose between these two revenue models is the fact that your "conversion loop" is tighter with free trial. You'll know at the end of the free trial how successful your efforts are so you'll be able to tweak your funnel with greater assurance and quicker feedback. With freemium, it's more of an open ended thing with less input to monitor and use. It's interesting to see the Evernote conversion rate plotted against time - I can imagine some interesting conversations at board meetings. "No, really, conversion rates are going up, we just need to hold on longer."
Evernote in particular has taken a no-pressure approach toward upgrading its users because they want users to see the value before they pay.
This engenders tremendous loyalty for Evernote -- they seem to have very little churn of paying customers.
That is, once someone starts paying Evernote they tend not to stop.
No wonder Evernote thinks it's building a company for the next 100 years.
With all these lifers it would be easy to believe that.