When A Saas Free Trial Is A Bad Idea: Potential Risks And Possible Alternatives

When A Saas Free Trial Is A Bad Idea

The importance of offering a free trial to potential customers cannot be understated. Many SaaS companies employing free trials report that these account for up to 10% of their total new sales. After all, many customers need time to try out your SaaS product and learn how it works before making an investment.

However, have you ever considered when a free trial might not be the right option? Offering too-good-to-be true deals could backfire and cost your SaaS company significantly in the long run.

In this article, we’ll explore what risks could surface if you choose to provide a free trial as well as different strategies that may be more advantageous for both your SaaS business and its users.


What Are SaaS Free trials?


A SaaS free trial is a period of time in which customers can use certain services offered by a company for free. This helps businesses attract new customers and allows them to test out the service before committing to it long-term. While these trials can be beneficial, they also come with some risks that should be taken into consideration when making the decision to offer a free trial.

There are two types of SaaS free trials:


Free trials with no time limit


Free trials that have no time limit don’t require customers to make any kind of purchase or commitment before they can access the service. These are beneficial for businesses because they allow them to collect customer information and entice users to transition into paid customers.


Time-limited free trials


Time-limited free trials are typically available for a period of 14-30 days during which customers can use the service and decide if they want to continue using it. After that, they must make a purchase or commit to a certain plan in order to keep accessing it.


The Risks of Offering a Free Trial for SaaS Companies


When considering offering a SaaS free trial, it is important to understand the potential risks associated with doing so. Among the biggest risks are as follows:


Risk of revenue loss


Allowing users to use your SaaS product for an extended period of time without sharing any payment information could lead to more people signing up but fewer actually becoming paying customers in the long run.

This could potentially mean that some SaaS businesses are in fact experiencing revenue losses from their free trial offer when considering the number of non-converting users!

Many people use the free trial simply for the sake of getting something for ‘free’ and then canceling afterwards, never to return.

Fortunately though, by making sure that customer experience remains high quality during their free trial and providing extra discounts on services, you can still be successful in making those conversions while offering free trial programs.

Moreover, you must carefully analyze your customer behavior models, determine their likely reaction to free trials, and try to change your tactics accordingly.

For example, if you see that most customers who sign up for a free trial cancel the service shortly after, you may consider implementing a time-bound model with shorter trials.


Risk of data leakage


Data leakage is a serious concern and can occur when customer information is shared without authorization or safeguards in place to protect this information.

It is important that you put the necessary measures in place to ensure that customer data remains secure. This may include requiring customers to provide payment information upfront or use two-factor authentication for additional security.


Risk of fraud


Fraud can be an issue with free trials as people are able to sign up for multiple trials using fake or stolen information. This can lead to business losses as they are not receiving payments from these customers.

Requiring payment information upfront or using two-factor authentication can help you avoid this risk.


Risk of abuse


People can sign up for multiple free trials, or abuse the terms of use. One way to help avoid this is by making sure that customers are aware of any limits or restrictions during their trial period and that they understand what happens when the trial ends.


Risk of customer dissatisfaction


If customers experience problems with your SaaS tool or customer service during their trials, this can lead to customer dissatisfaction and possibly even negative reviews about your company.

Therefore, it is important to ensure that you are offering the highest quality in terms of SaaS product and of customer service during the trial period so that customers have a positive experience while they test out your software.


Risk of competitors


Offering a free trial can make it easier for competitors to learn about your product and copy it, leading to potential competition damage. To avoid this, you should consider putting in measures that protect sensitive information during the trial period.


Risk of customer acquisition cost (CAC)


The cost associated with acquiring new customers can be quite expensive. Offering a free trial could lead to more people signing up for your service, but it will also increase the customer acquisition cost, including marketing and support, in the long run as you’re essentially giving away your product for free. In order to keep costs down, you should consider a time-limited free trial or offering extra discounts on services.

By analyzing the risks associated with free trials and taking the necessary steps to mitigate them, you can reap the rewards of offering a free trial without suffering any losses. Just be sure to weigh up the pros and cons first before deciding whether it’s the right choice for your business.


Possible alternatives to offering a free trial


While offering a free trial may be beneficial in some cases, it is not always the best option. There are several alternative options that businesses should consider when deciding whether or not to offer a free trial.


Offer limited-time discounts


Offering limited-time discounts allows customers to experience your full service while still giving them the incentive to purchase.

It is a great way to introduce users to your SaaS tools. By offering exclusive deals, you can entice users to try their services without having to commit to a longer period of time.

Discounts also help you capture leads and build consumer relationships as customers are more likely to make repeat purchases or recommend products when they receive some kind of incentive. 

Studies have even shown that limited-time discounts can lead to an increase in sales compared to free trials, making them an ideal option for businesses looking for cost-effective solutions.


Provide demos or webinars


Demos and webinars allow customers to get a sense of the service without providing a full trial. This can be beneficial as it gives customers an idea of what they may be missing out on if they don’t purchase the service.

By giving potential customers a glimpse into how their solution works and allowing users to get hands-on experience easily, you can give more direction on the benefits and efficiencies available in your product over competitors.

Moreover, it eliminates the need for large investments in training and educating users which is associated with free trials.

In addition, through demos or webinars you can target leads who are ready to buy since they will have received enough information on the features, functionalities and overall value before making any purchase decisions.

Therefore, providing webinars or demos instead of offering free trials shows a greater long-term commitment to customers that is sure to pay off in terms of customer loyalty.


Offer free limited-time access


You can also offer free access to their service for a limited time, such as one week or one month. Experts suggest though that B2B SaaS products should confine their trial period to 14 days. This allows customers to experience the full service for a limited period of time without any risk.

By giving them access to more features and capabilities upfront, they can explore the tool at their own pace and get a better understanding of its value proposition. They can also use the additional time for integration, training, and feedback, which can help to improve customer satisfaction in the long run.

In addition, you benefit from providing users with free limited-time access because it allows them to gather valuable data about how customers interact with the platform and make informed decisions about product improvements.


Offer freemium models


You can offer a freemium model, in which customers get access to basic features for free and pay for additional features. This allows customers to test out the service while still providing an incentive to purchase the full version.

Freemium models can provide lasting ROI for SaaS tools, whereas free trials are a one-time investment. Typically, an effective freemium model will entice users to purchase premium plans without feeling like they are being forced into it. For example, it may seem more attractive for users when the freemium offering provides tangible value and access to certain features right away.

Not only is this cost-effective, but it also gives customers time to test out the product’s features and decide whether they want the paid version or not. In addition, marketing costs associated with free trials may often outweigh any potential profits.


Offer tutorials


Tutorials can be a great way to let customers experience the service without requiring them to make a commitment.

They allow customers to explore the features of the service and learn more about what it has to offer before deciding whether or not they want to purchase it.

With tutorials, users have direct instruction from an experienced user, who can answer questions and demonstrate all of the features of the tool. They also gain insight into how they can best leverage those features to achieve their intended outcomes.

Furthermore, tutorials don’t leave users hanging when the trial period runs out – after completing one they are left feeling confident and prepared to make use of their newly acquired knowledge.


Offer a pilot program


You can also offer a pilot program, in which customers get access to all of the features for free. This allows them to test out the service and provide feedback that can be used to improve it before launching it commercially.

Unlike free trials, which merely allow users to test out the platform before purchasing a subscription, a pilot program gives users the chance to actively use the product in order to validate its value and measure its results. This allows them to truly experience how their process might look if the tool were implemented, before making any long-term commitment or investment.

It also has the potential to save users money by focusing on targeted areas that need improvement rather than trying out different solutions that could ultimately prove ineffective.


How to Determine if a Free Trial is not a Good Fit for your SaaS Product


When deciding whether or not to offer a free trial, it is important to consider the potential risks and alternatives mentioned above. There are also several other factors that should be taken into account when making this decision.

  • Product type: Depending on the type of SaaS product you have, offering a free trial may or may not be a good fit. For example, products that require extensive technical support or setup may not be suitable for free trials as customers will likely need more guidance during the trial period.
  • Target market: Offering a free trial may work for a product that appeals to the general public, but may not work as well if your product is more specialized or niche. For example, a product that only appeals to a specific industry or profession may not benefit from a free trial as much as one that is more widely appealing.
  • Time and resources: Implementing and managing a free trial requires time and resources, both of which should be taken into account when deciding whether or not to offer one. You should also consider how long the trial period should be and how much support you will be able to provide during this time.
  • Cost of customer acquisition: The cost of acquiring customers through a free trial should also be taken into account. If the cost of acquiring customers is too high, offering a free trial may not make financial sense as it could lead to losses.
  • Pricing: If you are offering a product with a high price tag, then offering a free trial may not be the best option as customers may feel more hesitant to commit to something that is expensive.
  • Competition: If your competitors are offering a free trial, then it might be worth considering in order to remain competitive. On the other hand, if your competitors are not offering a free trial, then it might be better to explore alternative options.


Tips on Offering Free Trials on SaaS Revenue


While free trials can be a great way to get people interested in your SaaS tool, they can also have an adverse effect on revenue.  Below are a few things you can do to mitigate the risks:


1. Define your goals


What do you hope to achieve by offering a free trial? Do you want to increase sign-ups? Drive more traffic to your website? Get more people to use your product? Once you know what your goals are, you can tailor your free trial period to help you achieve them.


2. Choose the right duration


The next step is to choose the right duration for your free trial period. If you want people to use your product, then you’ll need to give them enough time to get familiar with it and see its value. On the other hand, if you’re just looking for sign-ups, then a shorter free trial period may be sufficient. It’s important to strike the right balance so that people have enough time to try out your product without feeling like they’re being asked to make a commitment too soon.


3. Provide clear instructions


Once you’ve decided on the duration of your free trial period, it’s important to provide clear instructions to users on how to sign up and what they can expect.

Make sure that the sign-up process is simple and straightforward, and that users know exactly what they’ll be getting with their free trial. It’s also a good idea to set expectations by letting users know what will happen when their free trial expires.

Will they be automatically charged? Will their account be deleted? Providing this information upfront will help avoid any confusion or frustration down the road.


4. Offer customer support


During the free trial period, it’s important to offer timely and helpful customer support in case users have any questions or run into any problems. This will help ensure that users have a positive experience with your product and are more likely to continue using it after their free trial expires.


5. Monitor user engagement


Finally, it’s important to monitor user engagement during the free trial period. This will give you insights into how people are using your product and whether or not they’re finding it valuable. This information can help you make decisions about how to improve your product and make it more likely that users will continue using it after their free trial expires


The Importance of Clear Terms and Conditions for SaaS Free Trials


Having clear terms and conditions set in place will help ensure that customers understand what they are getting into when they sign up for a free trial and will help protect your SaaS company from any legal issues that may arise from offering free trials.

Unclear terms and conditions can lead to a number of issues, such as customers not understanding their rights and obligations when signing up for a free trial. This can lead to confusion and frustration on both sides and may even result in legal disputes.

In order to avoid this, ensure to do the following best practices:


1. Keep it Simple


The first step to creating clear terms and conditions is to keep the language simple. Avoid using legal jargon or technical terms that your customers may not understand. Instead, use clear and concise language that everyone can easily understand.


2. Be Transparent


Being transparent means making sure you should not contain any hidden clauses or surprises. Customers should know exactly what they’re agreeing to when they sign up for your service.


3. Be Fair


Your terms and conditions should be fair to both you and your customers. For example, don’t include a clause that allows you to cancel a customer’s service at any time without notice. This would not be fair to the customer, as they would not be able to rely on your service.


4. Get Consent


Make sure that you get consent from your customers before you start providing them with your service. This can be done by including a clause in your terms and conditions that requires the customer to agree to the terms before they can start using your service.


5. Keep it Updated


Finally, make sure that you keep your terms and conditions up-to-date. As your business changes, so too will your terms and conditions. For example, if you start offering a new product or service, you will need to update your terms and conditions accordingly.


How to Measure the Effectiveness of a Free Trial for Your SaaS Product


Now that you know how to offer free trials and set clear terms and conditions, it’s important to also be able to measure their effectiveness. After all, offering a free trial may not be worth your time if it isn’t bringing in new customers or increasing revenue.

To measure the effectiveness of your free trial, you should track the following metrics:


1. Conversion Rate


The conversion rate is the percentage of customers who sign up for a paid subscription after their trial period ends. This will give you an indication of how successful your free trial was in converting customers into paying customers.


2. Retention Rate


This is the percentage of customers who remain a paying customer after their trial period ends. This will give you an indication of how successful your free trial was in retaining customers and ensuring they stick with your product.


3. Customer Satisfaction


Finally, track customer satisfaction to see if the free trial had any positive or negative effect on customers’ experience. This will give you insight into whether or not customers enjoyed the free trial and if they were more likely to become a paying customer as a result.


Final Thoughts


Getting started with a SaaS free trial may not be the best long-term decision for your business. While there are potential benefits, associated risks could leave you vulnerable to revenue losses and dissatisfied customers. Plus, there are numerous cost effective alternative that may get you further results without putting your business at risk.

Consider offering opt-in incentives, creating value-adding content, and leveraging user referral programs to build your customer base without committing to costly SaaS free trial plans.

Furthermore, tap into multichannel marketing tactics like email marketing and engaging in social media conversations to break through the noise and drive leads ideally aimed at the right demographic.

To learn more about how you can strategically use digital strategies while growing your SaaS business safely and cost effectively, visit our blog for more tips on what methods work best for different types of businesses.

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Ken Moo