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Summary:

Do limited time try-before-buying offers work for tech vendors? That’s the question Totango addressed in new research that shows that companies can boost their conversion rate simply by paying attention to the people who sign up and — shocker — communicating with them.

Many tech startups rely on limited-time free trials to get customers to try (and then hopefully buy) their product or service. What’s not clear is how successful they are in converting those trial users. Totango, which wants to help vendors get the best user response to free-trial (and freemium) offers, drew some interesting conclusions from new research on what makes a free trial work (or not.)

Palo Alto, Calif.-based Totango sees aggregate free-trial conversion rates below 8 percent for most companies and as high as 20 percent for a select few players. What contributes to that higher rate? Super simple sign-on processes and easy work flows that help customers get up and running fast are important, said Totango CEO Guy Nirpaz. (Conversion rates from freemium to paid –  depending on who you ask — range from 1 and 10 percent with most hovering in the 2 percent to 4 percent range.)

money dollar bills benjamin franklin cashTo see how companies are faring with trials, Totango signed up for ten name-brand trial services as a regular customer. And then it waited — not using any of them. Six of the 10 were oblivious (or at least seemingly oblivious) to the fact that a prospective customer had registered. There was zero follow-up. The best of the companies acknowledged the potential customer with what appeared to be personal emailed offers of support including, in some cases, the email address and phone numbers (!) of an actual person who could help them get acclimated.

When the companies did communicate, 60 percent did so without addressing the customer by name.  Nirpaz called out Jive Software and New Relic as two companies that did things right. Update: Totango blog post with more info is here.

Note to vendors: Communicate, communicate, communicate

The best companies also increased their attempts to engage the customer as the trial progressed — They scheduled a call, offered a webinar, sent a satisfaction survey. Jive won plaudits by sending personal email from a “success coach” that engaged the recipient by first name, offered links to their trial instance, to a community site, along with the coach’s email address and direct phone number.

Free trials may be a more attractive to many startups than the freemium model — which offers a limited version of the overall product or service forever, but “upsells” a full version to people who want to pay for more storage or more services. Dropbox — and its 50 million users — is the poster child for freemium. No one doubts that tens of millions use Dropbox to store and share files. But, how many actually pay for the privilege? Dropbox does not share that.

Speaking Sunday at the Harvard Business School Cyberposium, Dropbox co-founder and CEO Drew Houston said revenue is not his top priority — gaining critical customer mass is.  “If people aren’t using it they’ll never pay. If lots are using it we think they’ll come,” he said. Given that Dropbox now has something like $260 million in funding, it has wiggle room that other startups do not.

At another Cyberposium session on freemium and subscription models, freemium wasn’t feeling the love at all. “I like free trial, but I’m not a fan of freemium for startups. It’s too easy to build something that people can use but not pay for. So build something that people are willing to write a check for,” said InsightSquared Co-founder and Chief Product Officer Sam Clemens.

“Freemium is a cop out.”

Feature photo courtesy of Flickr user Alan O’Rourke

  1. Freemium works well for mass market consumer startups like Dropbox and Evernote. The goal is to get as many people using it as possible and the power users will pay, easily covering the costs of the free users. This can work because of the volume of users – many millions.

    It doesn’t work so well with B2B products because there are fewer users. A free product also produces skepticism about the value and long term viability of the company. This is why a trial makes more sense so you can get people into the funnel and work on converting them.

    At Server Density we send a couple of automated e-mails (with a real person replyto address) and phone each signup to start building a relationship. This gives us valuable feedback about how people are using the product and lets us quickly solve problems for new users who might not otherwise get in touch.

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    1. David, completely agree. I probably should have prefaced my anti-freemium comment with a B2B caveat. :-)

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  2. This is a really useful article and I couldn’t agree more. Customer service is the most under-used sales tool out there. It’s quite shocking how bad companies are at it. Regardless of how it’s delivered – social media engagement, email, phone call, etc. – it absolutely should be part of a potential customer’s free trial experience.

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  3. I wonder what kind of free trials worked better than others.

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    1. Rita, you should see the latest benchmark report we did at Totango that audited 10 companies on their free trial and signup processes: http://blog.totango.com/2012/11/signup-and-trial-process-benchmark-report-the-good-the-bad-the-ugly/

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  4. This is a great article, Barb. You called out Jive and New Relic as examples of doing follow-up right and you can see that reflected in their growth rates. This is further proof that products don’t sell themselves — at least not complex ones. Free trials are a way to engage and if they are supported by a professional approach, it can be a valuable opportunity creator. If they are not, then the assest is wasted and it could even wind up being negative work — actually proving to prospects that they DON’T want the product and inoculating them against the solution for ever!

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  5. I truly believe that barriers to entry are no longer created by patents or by tech differentiation alone, but by driving strong traction in the marketplace. Freemium models can create this situation. I think people have to look beyond the dollars and cents and look at the effects it can have pulling users away from others. So the value in the user is sometimes not in what they pay to you, it could be what they are not paying to others.

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