Top 10 Learnings about Free Trials with Tomasz Tunguz

Name: Top 10 Learnings about Free Trials with Tomasz Tunguz
Uploaded: 2019-06-18T20:56:48+00:00
Duration: 1 min 13 s
Channel: Jason M. Lemkin
Description: In this segment, Jason M. Lemkin presents survey data visualized as a heat‑map that cross‑references four contract types (usage‑based, month‑to‑month…

18 Jun 2019 · 1 min

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1:13

In this segment, Jason M. Lemkin presents survey data visualized as a heat‑map that cross‑references four contract types (usage‑based, month‑to‑month, annual, multi‑year) with annual contract value (ACV) bands ranging from $0 to $150K. The key observations are: • In the $15K‑$50K ACV range, 80% of respondents use annual contracts. • Mid‑market companies overwhelmingly favor annual contracts. • Small‑to‑medium businesses (SMBs) predominantly choose month‑to‑month contracts (about two‑thirds). • Enterprise customers mainly opt for multi‑year contracts (about two‑thirds). Lemkin interprets these patterns to recommend that most companies, regardless of size, should pair a free trial with an annual contract, because a statistical analysis shows no significant difference in free‑trial conversion rates across contract types. Even for SMBs where month‑to‑month is common, an annual contract does not hurt conversion performance.

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[Speaker:JASON M. LEMKIN] If we look at the distribution by respondents, here on the y-axis, we broke it down by 4 different categories. Usage-based, how many API calls. In other words, you can use as many different API calls as you want. A multi-year contract, a month-to-month contract, an annual contract. And on the x-axis, we broke it out by ACV, from $0 to $5, all the way to $150K. What we see is the way to read this chart is 80% of respondents in the $15K to $50K ACV use an annual contract. And what you'll notice is that looking at the heat map, what we've got is in the mid-market, the vast majority of, of respondents actually use an annual contract. In the SMB, two-thirds use month to month, and in the enterprise you've got two-thirds using multi-year. What does this mean? It means that for most companies, an annual contract tied to a free trial is the best way of going about it. And it turns out if you run the correlation of the conversion rate by free trial, there's actually no statistical difference. So even if you're the SMB, and even if the month-to-month contract is the most popular, you really should be using an annual contract because the conversion rate from your free trial won't change.