Free trial subscription business model
Free trial subscription business model
Among the various subscription business models, the free trial model has emerged as one of the more popular customer acquisition strategies for subscription-based businesses. The easiest way to entice prospective customers to sign up for a subscription service is to offer a limited-time free trial. While giving away free services for any amount of time can be a bitter pill to swallow for some subscription companies, it usually pays off in the long run.
Why offer a free trial? It may be difficult for prospective customers to take the leap the first time because a paid subscription requires commitment. A customer may be reluctant to pay for a whole month or more of a service they are unsure about. Limited-time free trials give prospects a chance to try out the product or service before they are required to pay for it.
A potential issue with the free trial strategy is that consumers who sign up for free trials may plan from the outset to cancel their subscriptions before their first payment is due. Or they may game the system by starting accounts with different contact information to string together free services. With that mindset, users may never really embrace the platform or feel that they need to get their money’s worth by exploring all the features available to them. Subscription companies should carefully evaluate this potential downside when deciding on their free trial strategy.
Free trial considerations
Unlike the freemium subscription model, which offers a limited or simplified version of the service for an unlimited amount of time, the free trial model allows consumers to try out the full-featured product or service at no charge for a limited time, usually a few weeks or months.
How long should the free trial last? If too brief, the strategy will not leave enough time to build engagement with a new user and demonstrate the service's full value to the subscriber. If too lengthy, the business may be at risk due to inadequate revenue flow.
Of course, subscription businesses want to start generating revenue as soon as they can. The longer the free trial period, the longer it takes to realize a profit on the customer. It is also a bit high stakes: Companies devote resources to the acquisition but aren't guaranteed that a customer signs up at the end of the free trial.
When possible, subscription businesses will want to start billing at full price as soon as the free trial ends. They should include notice of this stipulation when customers sign up for the free service, but an automatic charge at full price has become a friction point. Customers generally feel as if additional consent or notice is required before automatically charging at full price — and the most influential players in the payment industry are changing to reflect that position. Mastercard and VISA both have very specific notification requirements when it comes to initiating customer billing once a free trial ends.
Pros and cons of the free trial model
As Brandon Gaille points out in 14 Product Trial Advantages and Disadvantages, there are pros and cons to using the free trial business model:
- Gives the product or service a chance to sell itself
- Provides a competitive edge against similar products
- Consumers get a chance to invest time into the brand
- Businesses receive critical feedback about the product
- Provides opportunities to offer incentives
- Instills a sense of urgency
- Aligns customer interests with company values
- Provides the ability to see how serious the customer is
- If not properly managed, costs may not be worth the rewards achieved
- There is no guarantee that the product will actually be used
- There are always people who try to cheat the system
- Competitors might try to use the product trial to gain insights
- Free trial management can be a labor-intensive process
- Product trials lengthen the overall sales cycle
After the free trial ends
Once a statistically relevant number of conversions from free offers is amassed, subscription businesses should analyze where these people are coming from and adjust their ongoing marketing efforts accordingly. If, for example, a higher percentage of new subscribers come from Twitter posts rather than newsletter responses, then a good strategy would be to focus on increasing social media engagement rather than building further email lists. Subscription intelligence can help subscription companies make the best decisions regarding their free trial strategies.
The bottom line
Once the free trial has ended, it's a shame to lose a customer just because making a payment becomes difficult. Subscription businesses should make sure it's easy for customers to submit their payments. It is important to provide a wide variety of payment options so subscribers can select their preferred method.
Vindicia makes it easy to support all the payment methods your customers prefer, while protecting against fraud and minimizing chargebacks. Vindicia Subscribe delivers complete billing and payments across the entire subscription lifecycle, supporting a full range of payment methods and wallets.
To learn more about subscription fundamentals, read our eBook: The subscription lifecycle: Subscription business success requires intelligence at all phases of the subscription lifecycle.
To learn more about subscription billing and management platforms, read our white paper: Which billing platform is right for B2C subscriptions?
And to learn more about Vindicia Subscribe, read our datasheet.
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