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.)
To 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.”