Pricing strategy · Strategy

Free trial vs Money back guarantee?

Benjamin Bertelsen MSc in Digital Innovation & Management

December 9th, 2016

I am working on a software-as-a-service product and am trying to decide on how best to implement sign up. My product offers 4 paid plans; there is no free plan.

For those of you who don't know, Braintree's (payment gateway) sponsoring bank no longer allows new companies to offer a traditional "30-day free trial", take credit card information during sign up, and then charge customers at the end of the free trial (like 37signals).

So, I am trying to decide between the following two options:

1) No credit card required at sign up. 14 day free trial on all new accounts. At the end of the 14 day trial, if the customer has not "activated" their account (that is, provided credit card information and been charged), the account is locked/closed until they.

What I like about this method is that it should convert the most users who land on the site to sign up to use the application. My concern is that the additional step (having to provide credit card info after sign up) could lead to fewer paid users... Keep in mind, though, that I am not offering a free plan, only a free trial period.

2) 30-day money back guarantee. Credit card is required at sign up and the customer is charged immediately. But, for 30-days, the user can cancel the account and receive a full refund.

I like this method because it means 100% users are paying customers and actually get billed. My concern is that a "30-day money back guarantee" + credit card required at sign up + immediate charge will lead to a much lower sign up conversion rate on the website, ultimately leading to less customers then method #1.

What are your thoughts on Free trialsvs. Money back guarantee as options?

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

December 9th, 2016

To find out which is best for your product and market, do split testing. Alternatively present one and then the other to visitors and see which produces the better results.

As a personal choice, I've always been satisfied with the limited-time free trial, sometimes 14 days, sometimes 30 days. But I confess I've never tried split testing to confirm that gut feel and history of reaching my goals.

Thanks, Tom

David Rowell CEO & Founder at LifeLinker Inc

December 9th, 2016

You are faced with a choice - which is the greater risk - losing people at the end of a (14 day - possibly some other period might be more appropriate) free trial when they have to convert to a paid plan, or losing people who have to sign up and start paying right from day one, with the offsetting promise of a money back guarantee. Both ways involve a point at which you will lose potential members.

I have no hard data on this, but intuitively think that if you truly are adding value, you are better advised to make it as easy as possible for you to demonstrate the value add you are offering. It is much easier to give away a free trial, and with totally no strings attached, than it is to say 'trust us, you'll like it, and trust us also with your credit card and your money up front too'.

Of course, you will lose people both ways, but don't you think you'd lose fewer people, and also have fewer problems overall, by giving the 'free trial - no need to even enter a credit card'?

The 'free trial, no need for a credit card' offer is really clean and shows a great confidence on your part, and also is totally transparent. Haven't we all come to be suspicious of the 'free trial and then automatic billing that you can never stop' type of trap that many services end up tricking us into (I'm trying to undo one of those myself right now that ended up with two $30 monthly charges as between when I said 'stop' and when the billing ended)? The very nature of the transparent honest and obviously impossible to cheat 'no credit card required' offer would seem to be a much more positive approach.

You'll note I hint at uncertainty as to the ideal duration of a free trial. Without understanding the product/service you're providing, the immediacy of benefits and how quickly people will get 'hooked' on your service, I sort of feel that 14 days is probably way too short. Certainly, if you are incurring direct costs, that will constrain your ability to be too generous, but if the costs are minimal, a longer period probably will be more enticing.

Lastly, while all of this is conjecture to start with, the good news is that is is relatively easy to try out all manner of variations, just by randomly routing prospects to different landing/offer pages.  Assuming you have a reasonable flow of prospects coming to your site, you should try various offers.  In that case, it might be helpful to store the initial offer detail presented in a cookie, so that if a person returns to your site three times he doesn't see three different offers - that would probably confuse and concern the prospect, and would also make it harder to identify the exact decision making process and offer response.

Dane Madsen Organizational and Operational Strategy Consultant

December 9th, 2016

Do a full priced subscription with a 12 month deep discount for the first X customers (maybe all of them, but you do not have to tell them that). You get the charge card, product interest, feedback, and a full paying customer in a year.  Free - for the reasons you mention - means you have to sell it twice.  People also have a habit of not using free because there is no downside. 

Tom Feary Experienced marketer and operator. Actively seeking new opportunity.

December 9th, 2016

I like Tom's idea of a split test. You can get a free account with Optimizely to conduct the test and measure against the paid conversion after the initial trial period, in addition to engagement metrics you may want to understand in your experience. Good luck. 

Prashant Mehta CTO, Invessence Inc.

December 9th, 2016

Why don't you offer both choices? Some customer will provide the card and will comfortable with money back. If they sign up for trial account, then show your disclaimer about 14 days. In back end, you can keep track of active user and trial users. Just for FYI, you will still have cases in both method that some people will cancel. That is part of normal business... Sent from my iPhone

Adrian Watkins Managing Director at PerformanceAsia, Publisher Insight, The Nucleus, and The Content Performers

December 10th, 2016

Totally agree with some of the comments above - the only way to determine the most optimal conversion approach here is to split test in detail. 

There may well be several factors to consider here including uniqueness of product, price, buyer personas, routes of marketing, number of markets, different levels of product etc - the more permutations then the more different pricing options that may be available for you to test out. 

The only way to truly test these is split testing and deep data analysis... And then constantly review once you launch. Best of luck!

Vivek Srivastava Ensuring Profitability with Sustainable Business Growth

December 10th, 2016

yes i agree with you that asking for credit card details and charging at sign up will result in low signup conversion. this will also defeat the purpose of marketing if your product is new to market. In case your product is established in market If your product is already established in market then to increase the brand value you need to facilitate only serious customers, and then payback offer is a good option.

William Agush Founder and CEO at Shuttersong Incorporated

December 9th, 2016

What's the service? What's the monthly fee?

Martin Omansky Independent Venture Capital & Private Equity Professional

December 9th, 2016

I vote for free trials every time. Sent from my iPhone

Dimitry Rotstein Founder at Miranor

December 10th, 2016

As already mentioned, the only sure way of answering this question is to run a split-testing (aka A/B testing) and see for yourself. I don't believe there is a universal answer here - it depends on the product and the target audience (some customers actually prefer to pay up front, others don't want to pay at all, ever).

That being said, if I had to guess, I'd say the difference between the two methods is not that big - the reduction in conversion from free trial to paid is probably more or less compensated by the increased number of sign-ups, relative to money-back policy. The main difference, I believe, is that a free trial generates more users to begin with. This is both an advantage (your sign-up numbers look more impressive) and a disadvantage (you margin decreases because the operational costs go up). So it may depend on your priorities more than on the actual revenue gain. Which is more important to you: total number of users or profit margin?