We’ve all seen products that say, “Try for free. No credit card required.” Great products act as a lead generation machine, where the free signup option widens and accelerates your top of funnel.
Modern SaaS buyers want to do their own exploration of your product and verify that what they see from marketing is what they get in the product. Free product experiences lower that initial barrier to entry. Free plans also attract non-paying users for upselling/cross-selling into paid products. That’s the heart of product-led sales.
When becoming product-led, there are a variety of ways to open up your product to free users. In this blog we discuss:
- Why offer a free plan?
- Types of free plans
- Increasing free-to-paid conversion
By the end, you’ll have an idea of which free plan and sales motion is right for you.
Why Offer a Free Plan?
There are quite a few benefits to offer a free signup option for your product.
🚀 Increase Sales Momentum = $$$
When leads experience quick time-to-value, they are likely to convert earlier in the funnel. They don’t have to imagine using a product by viewing slide decks or demo videos. Instead, users can log in and explore for themselves. Free plans end the struggle to communicate value – as long as your product is intuitive.
When there is enough widespread bottoms-up usage and product adoption, product usage data becomes a reliable buying intent signal. Salespeople no longer need to do hard selling. Instead they can double-down on the excitement of users who are already convinced.
🔁 Create Viral Loops = Lower CAC
Free products are also famously known for lead generation. Whether it’s network effects (inviting collaborators), social referrals (sharing embedded links), or simply word of mouth, product virality greatly decreases customer acquisition cost (CAC).
In recent years, traditional growth channels such as advertising have become oversaturated and more expensive. Meanwhile, software development has become more available with low-code tools and talented developers. A delightful free plan can go a long way in generating top of the funnel growth.
📚 Promote User Education = High Retention
With early user acquisition, leads can self-educate before talking to sales. A strong emphasis on product content and education nurtures can lead to power users. High fit power users (known as PQLs) are not only sales-ready and most likely to upgrade, but they have higher retention down the line.
With power users present, executive buyers are less concerned about buying a tool that won’t get used (or becoming a churned customer). After all, the product is already being used.
Ready to kickstart a product-led lead volume that has early conversion, high retention, and low cost? Let’s explore what free plan options exist.
Types of Free Plans
There are four primary limitations built into free plans to make it different from paid plans. Free plans can be bound by time, usage, features, or support level. The constraint you choose to put on a free plan depends on your product. Below we’ll go over real examples and pros/cons for each plan.
⏰ Time-Based Free Plan
This option is the well-known free trial. It’s time-bounded as 7-day, 14-days, 30-day, etc. Once the trial period ends, users must upgrade to continue using–otherwise they generally lose access to the product.
For example, Sprout Social offers a 30-day trial for any of the paid tiers. If you are interested in features from another paid tier, they’ll let you switch to a different plan for free during your trial.
Pro: Time-based can create a sense of urgency that boosts initial engagement with your product and ultimately conversions. People have limited time to use the product, and therefore may be more proactive in exploring it.
Con: On the flip side, placing pressure on time can create a poor experience if customers have shifting priorities and don't get time to poke around in the product. Products take time to unlock value and become a habit. Focusing on that value, rather than time since signup, is often more user-centric.
This route is a good way to monetize quickly, but may not be the right long-term solution. Free trials force users to convert or lose access. As we’ll see in the next few plans below, freemium has slower conversions, but it’s a healthy long-game approach for retaining users.
📈 Usage-Based Free Plan
Usage-based freemium plans give core functionality for free. Free users increase adoption of core features overtime, and the plan monetizes a specific usage limit.
For example, Zoom allows anyone to host a meeting (use the core feature), but only paid users can go beyond a 40-min meeting time (hit the usage limit).
Pro: Many features are free, so the barrier to entry is low. In turn, the value realized can be high. Users are able to take their time and grow to the usage threshold. They pay according to the value they receive.
Con: Usage is hard to predict. Even as a paid user, it may rise and fall. Revenue forecasting must become more sophisticated than traditional licenses with annual commitments.
Usage-based is strongly aligned to user value. Inspiring a new use case naturally encourages higher usage. Many companies (freemium or not) are transitioning from traditional license contracts to usage-based pricing for this reason.
🛠 Feature-Based Free Plan
Sometimes users require add-on tools to deepen usage. In this scenario, feature-based freemium plans are a good alternative. Feature-based freemium plans give core functionality for free. The plan monetizes through additional features and add-ons.
For example, Canva doesn’t have a usage limit on core designs. Instead they offer premium photos, Background Remover, Brand Kits, etc. to paid users. These tools all offer a specific benefit for advanced users.
Pro: Feature-based tends to have a Free Forever tier. Without any limits on core features, free users have low churn. They can stay a loyal free user until they’re ready to introduce the product to their organization.
Con: Out of all the free plans, this one requires the most patience to show ROI. There’s a risk of customers using a free plan in perpetuity, which cannibalizes revenue from paid tiers. (We’ll explore ways to combat this in more depth later in the blog.)
Add-ons are a great way to offer more than your core features. Knowing when and how to introduce paid features is crucial to the success of this plan. It should be easy to find and unlock value from features and tools.
🧑💼 Support-Based Free Plan
Upgrade incentives also lie outside of the product. This is where support-based freemium plans shine. This plan starts out free, and then lets users upgrade for additional support. It complements usage-based and feature-based models as a value differentiator between the free and paid tiers.
For example, Mailchimp increases the support level for paying users. Alongside the other freemium tactics mentioned above, they offer 24/7 email & chat support when users upgrade.
Pro: This plan is a good way to move products upmarket to larger customers that require white glove support. When enterprise companies first start using a product for free, they’ll naturally have complexities that require more support and then upgrade.
Con: Unlike the other free models, support-based rarely works as a standalone tactic. It is more expensive to maintain while having less of a free-to-paid differentiation than the other models.
This strategy prioritizes the time of support, sales engineering, and customer success teams for the high-value customers who need them.
✅ A Combination of Free Plans
To avoid cannibalizing revenue from paid tiers, most companies creatively combine these four constraints into a custom combination free plan. Examples include trials that have usage limits, trials that have features limits, and trials that downgrade to a free forever tier instead of truly expiring.
This last example is worth elaborating on. Recently, growth teams have found success in “trials turned freemium.” In this motion, users start with a normal trial of the paid tier. But if users don’t convert, they aren’t fully cut off from the product (unlike traditional trials) and are instead retained in a free tier. They can continue as a free user with more limited features than before the trial.
Why is this so effective? Humans naturally have strong loss aversion. Staying as a free user after the trial ends would be a downgrade event. They’re still users, but they have less than they did during the trial. Because yesterday’s luxuries become today’s necessities, they’ll likely convert to a paid user to keep the features they started with.
Lastly, you don’t have to combine the four constraints we discussed into a single plan. You can run multiple free plans alongside one another—as long as they’re in separate tiers. For example, you can run usage-based freemium for the lowest tier and trial for the highest tier. Keep iterating to find that perfect combination.
Increasing Free-to-Paid Conversion
Free product experiences get users in the door. They act as the hook before the sale. With a strong free plan, you’ll have a large user base to convert free users into paying customers.
Based on the free plan (or combination) you pick, you’ll have different action items to increase paid revenue.
There are also universal upselling strategies for free plans. These include:
- Identify the free users most likely to upgrade. Learn how to define product qualified leads (PQLs)
- Prioritize these users in your upselling motion. Reach them using in-app prompts, marketing emails, and sales conversations
- Regularly promote high-value and paid features
- Test offering free temporary upgrades
With the right tools and playbooks in place, sales teams can have a large influence on free-to-paid conversion. In a Redpoint study, sales teams increased average free-to-paid conversion rate by 3x. When users have high intent and interest in your product, salespeople can accelerate users into paying customers through timely and personalized outreach.
Free plans are able to nurture users and generate product signals for value-based sales conversations. That’s why your product-led engine and sales team are multipliers of each other.