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The recent OpenView-Chargebee 2022 report had SaaS benchmarks as its focus, but also touched in passing on a topic I’ve been curious about: reverse trials, a pricing model that offers SaaS companies a middle ground between freemium and free trials. Let’s explore. — Anna
A binary choice?
As more SaaS companies adopt product-led growth (PLG), a sales method in which user conversions are driven by the product itself rather than a sales team, founders are often faced with a pricing model dilemma. If their startup opts for a freemium model, most users will never get a taste of the premium features reserved for paying users. But if the company offers a time-limited free trial, users who don’t become customers at the end of that period might be gone forever.
There are many other pros and cons to freemium and free trials.
As OpenView partner Kyle Poyar told me, “freemium models tend to drive more acquisition and more signups to your product, for example, while free trials have fewer signups but have a higher conversion rate from free to paid.”
As a result, founders often think they are facing a binary choice, Poyar said. In an interview, Airtable head of growth Lauryn Isford told him that these two choices are often thought of as prioritizing user growth (with freemium) or revenue growth (with free trials.)
Poyar, however, doesn’t think freemium versus free trials is the only alternative. For companies to “get the best of both worlds,” he and OpenView advocate for the reverse trial model, exemplified by Airtable. But what are reverse trials all about, and are they for everyone?
Psychology 101
A reverse trial means that users get to use pro features for some time before reverting to a more limited free usage tier if they don’t open their wallet. At Airtable, this means being able to try out its “pro” or “plus” plans for 14 days before saying goodbye to features such as Gantt views and multiple integrations.
A reverse trial taps into a powerful psychological lever: loss aversion. I reached out to Wingback CEO Torben Friehe, who explained it well: “If you take something away from someone they got used to, they will want it back.”
There’s also switching costs for users who already got some of their data, or workflow, into a service. Sure, the sunk cost fallacy may be just that, but it’s a strong one — and probably one of the main reasons I am still using Evernote when seemingly everyone else is telling me I should try Notion. Similarly, if I have spent time inviting my team to Airtable and setting up integrations, I am probably a lot less likely to decline to stay on a premium plan.
Of course, the effect of reverse trials isn’t only psychological: It also gives users a chance to test features they wouldn’t have accessed on the free tier of a freemium plan, features that could turn out to feel indispensable to them.
For the reverse trial to work, Friehe said, “you have to find those features that your customers will desperately miss once their trial ends. If you turn nice-to-have features into premium/paid features, you won’t get the desired effect of an uptick in signups once the trial period ends.”
If your reverse trial fails to trigger loss aversion, you’ll have missed out in vain on the FOMO effect of a time-limited trial.
Then again, not every SaaS offering is suited for urgency. For instance, a Gmail user might not pay for storage for years — until their inbox is full and they finally fork over the bucks.
If your product, too, is a slow burner, you might get more revenue from freemium or usage-based pricing, in which bills are tied to consumption, not (just) features. After all, if there’s one thing to know about pricing, it’s that there is no one-size-fits-all.
No one-size-fits-all
Before considering reverse trials, Friehe thinks SaaS entrepreneurs should ask themselves a more basic question: “Is PLG even the right way to go for you?” His startup offers a pricing model recommendation tool, and PLG isn’t always the answer, he noted.
“Maybe your product actually needs some explanation or has a complex onboarding process that requires handholding for your customers. In this case, it does not matter if you offer a free trial or a reverse free trial; your conversion will be low.”
In her interview with Poyar, Isford gave some advice on conversion goals from free to paid: “Start with the 80:20 rule. If you are trying to figure out ‘how much value’ to give away for free, draw a line on feature usage where roughly 80% of users will stick to the plan they have and 20% will want to upgrade.”
In retrospect, I would be tempted to retort: “In this economy?” After all, unless you monetize them in some way, free users aren’t free for you — and cloud costs aren’t as easy to dismiss as they were a few months ago.
If you are offering a free trial, “you want to design [it] in a way that it gets the right customers to sign up, and not just a high volume of users that in the end does not convert to paying customers,” Friehe cautioned. This is true not only for startups, but also for their bigger peers who recently raised their freemium bar.
In a way, reverse trials could be a good fit for our era. “Everyone wants to grow their acquisition and conversion at the same time, so it’s something that many folks are looking at,” Poyar said. But since it takes some time to adopt, we will be checking back in a few quarters to see if it is indeed on the rise.
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