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5 types of free in SaaS

11 months ago 9 mins read
Adam Schoenfeld
Adam Schoenfeld

The tech world loves freemium, but it‘s not a seamless fit for all SaaS businesses.

And for others, it’s not enough.

The best PLG companies tend to blend free-forever plans with other free offers to bolster their funnel.

Because freemium alone is table stakes today.

Your competitors are doing it, too.

The right mix of free offers makes for a more efficient go-to-market strategy.

In our latest research, we explore five free pricing models in today’s B2B environment and share multiple examples of each.

You can read the whole article here.

I summarized the big challenges in today’s LinkedIn post.

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In our PLG Pricing Analysis released earlier this year, we found that just 38% of PLGs offer freemium plans.

The classic free trial remains the most popular free offer by a wide margin.

Let's dive into the pros, cons, and examples of both, along with three other forms of free.

The five types of free in SaaS (+ examples)

There are five main types of free offers for SaaS users:

1.

Freemium

2.

Free Trial

3.

Reverse Trial

4.

Free Tools

5.

Open-Source Resources

I'll start with freemium.

1) Freemium

Fun fact: Freemium = free + premium

Freemium plans offer a limited version of a product for free to attract new users and incentivize paid upgrades.

The freemium model was made popular by software companies like Mailchimp, Databox, and Slack in the 2000s.

But today’s emerging PLG companies push freemium further to drive more revenue, not just signups.

Notable example:

#### Cloudflare

Cloudflare converts about 3% of its total users into paying customers.

That may sound inefficient, but they’ve been plenty successful with those funnel metrics, scaling to over $500 million in ARR within their first decade, showing that freemium works just fine when you close large customers at high price points.

In other words, develop an effective sales-assisted approach to PLG that monetizes the big fish.

#### When Freemium Fails

Freemium doesn’t work this well for all businesses, either because of the “window-shopping phenomenon,” PLG sabotaging paid plans when the correct value metrics aren’t gated, or because of poor packaging – uncapping usage on free plans despite poor unit economics.

Baremetrics, for example, scrapped freemium altogether after it started cannibalizing its paid plan.

As their founder Josh Pigford pointed it, “Our free plan was causing our business to slowly implode.”

Why?

Free users began to outnumber paid ones and the company couldn’t grapple with increasing server and performance issues.

The “downtime, delayed data, and inaccurate metrics” caused dissatisfied customers to churn because of increased resource drains.

It’s a stark reminder that there’s nothing ever free — someone has to pay a cost.

When it comes to freemium, inherent infrastructural costs to the business need to be accounted for to secure growth opportunities.

2. Free Trial

An older concept than the freemium model, free trials are SaaS's most commonly used free offer.

Free trials typically range from seven to 30 days.

Most of the sites we browsed in our SaaS Page Gallery advertised 14-day plans.

That seems to be the default across B2B SaaS.

Notable example:

#### Moz

Freemium is not always feasible for analytic tools that require costly processing power.

They can’t afford to give away too much for free due to unit economics.

Perhaps that’s why SEO tools like Moz and Ahrefs went the trial route instead.

The 30-day free trial offering is the primary CTA across Moz’s site.

While they don’t offer a free plan, they do offer several free tools such as their Link and Keyword Explorers.

The case against free trials

In contrast, Ahrefs, a Moz competitor decided to remove trials altogether.

In a podcast, Ahrefs CMO Tim Soulo mentioned Ahrefs once experimented with free trials but found they attracted hobbyists with low buying intent.

By requiring just $1 a day for a 7-day free trial, they were able to weed out more bad fits and reduce data center costs.

After capturing a large portion of the market through how-to videos, courses, events, blogs, and more, they eventually scrapped their trial option for good.

Like streaming services, the free trials ate too much overhead and were too easy to manipulate.

Some marketers would complete keyword research for multiple clients in a day only to sign up for a new $7 trial months later with a new email.

Source: Reddit

3. Reverse Trial

There are clear pros and cons to freemium and free trials.

Freemium pros & cons: Freemium generates more users and better conversion rates of visitor-to-user than free trials, without straining your sales team, but at the expense of both short-term revenue and more demands on your product’s backend.

Free trial pros & cons: By contrast, free trials create both more paid users and more turnover in the short term but can clog your sales team’s resources and lengthen the time-to-value for entry-level users.

Introducing the “reverse trial” — the best of both worlds.

Source: PeerSignal - Reverse Trial Research

In our dataset, 20% of PLG companies have both a free trial and a freemium plan.

Reverse trials connect the two – giving free, time-limited access to more premium products than a typical free trial, but with a forever-free option for users who don’t convert.

With the mandatory premium trial, a free plan is usually included on the pricing page but users are driven to a free trial of a premium plan by default.

Once the trial ends, the product automatically downgrades to the free plan.

Notable example:

#### Oneflow

Source: PeerSignal

Oneflow drops users into a premium plan automatically.

All plan options on their pricing page, including the free plan, lead to the same signup page with a single form (and no dynamic JavaScript).

They’re not expecting users to know or care about premium features without that automatic push into the unlimited trial to experience them firsthand.

With an optional premium trial, on the other hand, both paths are open to users — start with the more limited free plan or start with the premium trial and then revert to free.

4. Open-Source Resource

Free plans via open source are perhaps the most unique type of free offer.

With open source, companies provide non-proprietary offerings free for users to enjoy while producing revenue from a licensing model on premium services or fees for professional or support services.

Notable example:

#### RepVue

Repvue offers a community-driven dataset of company information for job-hunting sales professionals.

Completely free to use with one catch: sales professionals must leave a review of their company to get access to the rest of the crowd-sourced job data.

Their revenue model?

They sell company and job data to companies and recruiting agencies looking to attract, acquire, and retain sales talent.

5. Free tool

If you already have a reverse trial (freemium plan and free trial), why create more free resources in addition to your core product?

Just as freemium helps generate PQLs (product-qualified leads), you can think of someone signing up to use a simple tool as somewhere between an MQL (marketing qualified lead) and a PQL.

By creating the necessary infrastructure, you can better attract high-intent leads than someone simply downloading content but not ready for – or even interested in – your actual product yet.

This model can also help validate an idea, which can parlay into a multi-product strategy.

#### Keyplay

Sure, we’re a little biased, but our free tool, Keyplay Lists, is worth mentioning here.

As we were developing our freemium plan, we saw an opportunity to create a free tool to help users experiment with a limited version of our UI and solve a specific use case at no cost.

Essentially, users can sign up with an email and use this simple interface to set filters for their ICP.

Sign up for **Keyplay Lists** for free to try it yourself.

The tool then shares how many accounts in our database fit those criteria, allowing users to research their TAM (total addressable market) for free.

Users can go back and adjust filters accordingly until the list size is where they want it.

Once users hit save, they can preview the top 25 accounts for free and purchase full or partial lists per hundred accounts.

Sign up for **Keyplay Lists** for free to try it yourself.

Which type of “free” is best for B2B SaaS?

If we’re going off popularity, free trials.

However, reverse free trials is the best of both worlds and open source and free resource are a great way to dip your toes in – test a theory.

What they all have in common is that “free” — with a strategic end goal — can be a game changer for your business.

Free products on average reduce CAC payback length for PLG businesses by one-third.

Earning back your acquisition costs as quickly as possible is one of the major drivers of go-to-market efficiency.

So studying how SaaS companies structure and position their pricing strategies can make a huge positive difference for your company.

Yet another free tool example, our PeerSignal index of B2B SaaS companies, website page galleries, and more can help you do just that.

:)

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Have more questions or feedback?

Reply or join the conversation on LinkedIn.

I read all replies.

Best,

Adam & Camille

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