By Kevin Elliott on 6/28/23

Primary data source: The PLG List

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

Product-led growth (PLG) companies with some kind of free offer are among the fastest growing. In fact, two-thirds of the 2022 Cloud 100 – considered the holy grail of B2B SaaS risers – have a PLG motion.

So what are PLG companies doing differently than their traditional SaaS predecessors with pricing? More importantly, how can you use free offerings to drive revenue?

The best SaaS companies don’t copy-paste competitors’ freemium tactics, which work best for horizontal SaaS. Instead, they get creative by blending multiple free offers. In fact, many PLG companies leverage more than one free offer.

In this article, we’ll explore five free pricing models in today’s B2B environment and share multiple examples of each.

Short answer: no.

The classic freemium model is not the only effective free tactic in SaaS.

For the past few years, SaaS businesses have succeeded by focusing on acquiring users at the expense of short-term revenue gains via free plan acquisitions

Back in 2006, venture capitalist Fred Wilson wrote in an article titled “My Favorite Business Model” where he raved about freemium. “Give your service away for free” and “make sure whatever the customer gets day one for free, they are always going to get for free.”

It may seem counterintuitive, but when done right, free offers drive pipeline and revenue.

If you’re a growth-stage B2B SaaS, there’s a 71% chance you offer some type of free version of your product—even higher if you’re a Cloud 100 SaaS. Why? Removing friction increases growth potential; free is how people want to research and buy software products today.

Hence the power of freemium, which has benefited a wide range of companies, from AWS and Chargify to Snyk and Vidyard.

However, if limited free plans are your only free offer, you’re leaving money on the table. Research shows combining multiple free tactics can help avoid common tech startup mistakes of the past. Free offers prime your business for user growth by lowering the cost of entry and creating a more progressive funnel for revenue growth.

Do SaaS buyers always need to talk to sales to get started?

According to OpenView’s recent SaaS Benchmarks Report, PLG leaders are currently growing at more than twice the rate (50% year-over-year on average) of traditional SaaS companies (21%).

Despite this, the gap between those offering a free plan in a freemium model between PLG companies and all SaaS businesses isn’t particularly wide.

We discovered in our PLG Pricing Analysis that less than 40% of PLGs offer freemium plans.

PLG businesses are also tearing up pricing models by doubling down on usage-based metrics, creating a noticeable shift from traditional subscription models in SaaS.

In fact, a staggering 80% of all PLG businesses now employ usage-based tiering of some kind.

What does this all mean? Returning to OpenView’s report, PLG companies challenging existing models and shaking up product strategies lose out if they’re “too slow to adjust pricing” accordingly.

The 61% of companies that adjusted their pricing models saw an increased average impact on ARR of 27%.

In other words — and almost by design — PLG companies are diversifying beyond freemium, setting a trend for other SaaS businesses in their wake.

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

Let’s look at what the freemium business model is and how it came about, review freemium pricing examples, and then compare the free model to four alternatives, of which we’ll also unpack with examples to see what work for different SaaS businesses.

Many companies that fail with freemium pricing plans wrongly think it’s strictly a monetization strategy. Instead, the freemium model is also an acquisition strategy. As ProfitWell CEO Patrick Cambell wrote, “a freemium company can maximize its long-term value while reducing customer-acquisition costs.”

Here’s what effective freemium pricing examples look like in modern B2B SaaS:

Cloudflare is an interesting freemium example because they only convert about 3% of their total users into paying customers.

However, 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 if you can close large customers at high price points. In other words, develop an effective sales-assisted approach to PLG that monetizes the big fish.

Grammarly’s gamified freemium model creates an endorphin-fueled network effect, driving both user and revenue growth. If you’ve never used Grammarly, it’s like having a bubbly English teacher follow you around the internet – grading everything you write and offering helpful suggestions (without the condescending tone).

Users then take screenshots and share their (high) scores on social and can pay to unlock more advanced features. In turn, that feeds more new users into the freemium ecosystem. Because nearly everyone can use a tool like Grammarly, freemium is a seamless fit.

Lastly, Webflow’s freemium strategy is a stroke of genius.

On their pricing page, they have “Site Plans” — a typical pricing-package breakdown — but also corresponding freemium plans for “Workspaces” to drive value.

The Workspaces are effectively team dashboards, essential in website builders. As Chargebee explains, a solo freelance web designer could leverage the free version of Webflow to scale up operations. Once the freelancer grows to become a small agency, then they’re hooked into paid plans.

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

However, a lot of those issues stem from a lack of customer research and product-market fit.

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

As their founder Josh Pigford put 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 somewhere. When it comes to freemium, inherent infrastructural costs to the business need to be accounted for to secure growth opportunities.

An older concept than the freemium model, free trials are SaaS’s most commonly used free tactic. Free trials typically range from seven to 30 days.

Freemium plans start users on a scaled-back version of the product but without an expiration date. Free trials let users experience the full functionality of the product for a limited time.

Free trials can benefit businesses in two main ways compared to freemium:

Does this benefit over the freemium model hold up? Given the overwhelming adoption of trials over freemium in B2B, it seems so. But free trials are not without tradeoffs.

In a previous report, OpenView analyzed that when it comes to freemium vs. free trial, freemium generates both more TOFU (top of funnel) leads and more paid customers who don’t require a sales touchpoint, whereas free trials produce more paid customers overall – at double the conversion rate, from 7% to 14%.

Of course, there’s no such thing as free in business. There’s always a cost.

The price businesses pay for more overall customers from free trials? A shift of resource drains from technical infrastructure to sales teams.

Let’s take a look at some notable examples of SaaS companies that offer free trials and check for trends:

Then there’s Unbounce. They have no free plan but provide 14-day free trials.

What’s interesting here is Unbounce’s use of free trials reflects the differentiated approach to pricing models.

Unlike the dominant approach employed by large market leaders that can afford the sacrifice of freemium because of their wide-scoped and fully scaled products, companies with a differentiated approach execute their core offering better than Goliath competitors to justify higher prices.

Kajabi

Any software that’s highly customizable, expensive, or difficult to show value in a limited version will be hard to fit the freemium model. Learning management systems (LMS) are no exception.

Both Kajabi and its competitor Kartra offer a suite of tools to help creators monetize courses and community. Both offer free trials, but no free forever plans.

It’s a hard product to miniaturize in a free offering as the primary value proposition is in the breadth of tools. However, it’s not impossible. Another competitor, Podia, offers a free plan with a high transaction fee and limits to one coaching product and download, among other things.

By limiting the freemium plan by usage, it effectively acts as both a free trial and freemium plan – you can experience nearly every feature for free, but only once.

Freemium is not always feasible for analytic tools that require costly processing power. They can’t afford to giveaway 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’ site. While they don’t offer a free plan, they do offer several free tools such as Link Explorer and Keyword Explorer.

Another analytics tool, Baremetrics advertises a free trial on its product page, but not a free plan. In fact, all plans are usage-based. Again, because of the database costs of running such a tool, it makes sense to charge on usage and not offer endless data pulls.

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 hobbyist 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 datacenter cost.

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. Then signup for a new $7 trial months later with a new email.

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

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.

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.

As you often hear in cheesy Shark Tank pitches, “There has to be a better way!”

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

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

Reverse trials give 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.

It’s oversimplistic though to say that a reverse trial is just a free trial coupled with freemium.

As Airtable’s Head of Growth Lauryn Isford explains, “We offer advanced functionality like integrations in our free plan and provide [users] time and space to explore that functionality.” Users enjoy a “top-tier self-serve offering” and then default to the free plan if they don’t upgrade. “This reverse trial is more generous than a free trial and more nuanced than freemium alone.”

In PeerSignal’s dedicated analysis of reverse trials in PLG, we uncovered two types of reverse trials: the mandatory premium trial and the optional premium trial. Let’s dig into both.

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, users revert to the free plan.

An example of a SaaS company with a mandatory premium trial is Oneflow.

Oneflow thrusts users to 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 either).

This makes sense because users wouldn’t know about premium features without that automatic push into a 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.

If you were to visit their pricing page, you might ask yourself, “What free trial? All I see are freemium plans!”

Here’s the kicker: Hotjar’s product requires users to add tracking scripts to their websites. That provides Hotjar with data to prompt trial offers beyond the pricing page.

Here’s how founder & now-former CEO David Darmanin once put it: “With Hotjar, the moment you install the script, we can see how much traffic you're getting. At that point, we can say, ‘Oh wow, you have amazing traffic, here's the right plan for you. By the way, you can try this for free for 30 days.’”

Even without the script, Hotjar now offers free trials to users at checkout for paid plans once they install the script.

Datadog actually combines free trial with freemium. But effectively, almost all users start with a free trial of a premium plan over the forever-free plan because, at least for 14 days, they have nothing to lose and everything to gain. FOMO will nudge them toward the free trial.

This enables Datadog to showcase its product to a wider range of users and gives them a strong starting-off point for tackling potentially large accounts.

The results? Datadog flipped the proportion of revenue generated from such high-paying customers from a 20/80 split to 80/20.

Free plans via open source are perhaps the most unique type of free—and also ripe with diversity.

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.

What does this look like? Let’s review some examples.

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 then sell access to the dataset to companies for insights to better attract, acquire and retain top talent.

Then there’s GitGuardian. They offer code-monitoring services for dev-ops and network-security teams.

They split their services between internal monitoring and public monitoring, the latter via the open-source repository GitHub.

Internal monitoring has both freemium and free-trial options, similar to the reverse-trial model, while the public-monitoring services are priced by in-house employees active on public repositories.

Finally, there’s Databricks, which is probably the best example here of a B2B-SaaS company that offers a truly open-source solution.

Databricks provides a cloud-based platform for unifying data and analytics, with pay-as-you-go usage-based pricing plus a free trial.

But the platform is based on the open-source repository developed by the company’s own founders. Databricks also offers a community-based, forever-free plan for users who only want to explore the repository itself (with limited proprietary functionality).

“Lead magnets” are a classic lead-gen tactic. Every time you see a popup on a SaaS company’s homepage offering a free ebook in exchange for your email address — that’s a lead magnet.

But as a pricing or revenue model for PLG businesses and savvy non-PLG SaaS brands, free resources go beyond content. In this case, we’re not talking about individual pieces of collateral but oftentimes small-scoped functionalities or software that solve specific problems.

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

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

Moz has deployed a simple example of the free-resource model for some time now, setting the benchmark for other SaaS businesses.

Their main lead magnet isn’t a piece of content but a fully functional piece of software that creates an SEO audit on a website of your choosing, kind of like the functionality on a forever-free plan except you don’t have to sign up for a plan.

Anything more systemic from a PLG perspective? HubSpot changed the game here, almost inventing the concept of the PQL (just as they created Inbound Marketing).

Former HubSpot CPO Christopher O'Donnell explains how HubSpot effectively converted their freemium product into a pipeline-building free resource by treating free users as PQLs.

Unlike pure freemium which doesn’t usually involve sales touchpoints, HubSpot built their free product to nurture users on product knowledge & value and to easily monitor behavioral signals to identify high-intent users. That’s when sales or customer support steps in to make an easy upsell.

Sure, we’re a little biased, but our free tool, Keyplay Lists, is worth mentioning. As we were developing our freemium plan we saw an opportunity to create a stepping-stone 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 Mad Libs-esque SAM to set filters for their ICP.

The tool then shares how many accounts in our database fit that criteria, allowing users to research their TAM (total addressable market). Users can go back and adjust filters accordingly until the list size is where they want it. Once you hit save, you get to preview the top 25 accounts for free and purchase full or partial lists per hundred accounts.

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.

PLG revolutionized the landscape in business models by diversifying beyond freemium, setting up some fairly daunting expectations for other SaaS companies

All options on the table have their place though, including freemium itself, which remains effective at user acquisition.

What they all have in common is that “free” — in any capacity — 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.