Freemium vs Free Trial vs Hybrid Customer Acquisition Model in SaaS:

An effective customer acquisition strategy will: 

• Boost product growth
• Reduce Customer Acquisition Costs (CAC). CAC can be a silent killer of SaaS companies.
• Shorten the sales cycle
• Force a focus on the initial interaction

Incorporating freemium or free trials in your customer acquisition strategy can help your company sell more effectively. Psychological reasons are:

• The Endowment Effect. People attribute more value to things merely because they own them.
• Behaviours Drive Attitudes. Studies suggest that prior knowledge of the brand makes a person slightly more favourable towards it.
• Loss Aversion. We fear loss more than we value gain. That is why we favour a free trial.
• Effort vs Impact. How much effort will your prospects spend to try your product vs the kind of impact (benefit) they will get.

Freemium is a customer acquisition model that gives free access to part of a software product without a time limit.

Free trial is a customer acquisition model that gives a partial or complete product to prospects free of charge for a limited time.

Companies often structure freemiums using a few parameters to limit the usage, for example:

• Feature-limited 
• Capacity-limited 
• Seat-limited 
• Customer class limited 
• Effort limited 
• Support limited 
• Time or bandwidth limited 
• Storage and space limited 

Freemium considerations:

Freemium is suitable when your organization has: 

• A large addressable market 
• Low costs to serve free users 
• Low barriers/commitment for users to start with your product 

Free trial considerations:

• How long does it take for prospects to recognise initial value on average? How long should the trial last?
• What features can our team limit or remove from the free trial process?
• How do we nurture a free-trial user?

• Giving away too much of the product. The goal of the freemium is to get customers to increase product usage and finally convert to a paid subscription.
• Don’t deliver enough value. 
• Don’t create a sense of urgency. 
• Don’t nurture and engage continuously with prospects, resulting in a lower free-to-paid conversion rate.
• Don’t track and analyze insights on how and why customers convert
• Don’t provide appropriate onboarding experience
• Don’t evaluate the cost of supporting free customers.

Offering a full-featured free trial to select users can be an effective way to get the best of both options. Freemium can drive higher signups associated with the freemium model and create a sense of urgency due to a precise expiration date. 

Drive higher signups: Offer a fully working free trial of your product for a specific duration. At the end of the trial, part of the product is gated, and the prospect can use a freemium version as long as they desire.