MBA1241 Free Tiers Vs Free Trials

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Hey O welcome to the $100 MBA show, your business's best friend with our daily 10 minute business less for the Real World. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar mba, a complete business training and community online. And in today's lesson we're going to explore free tiers versus Free trials. If you're selling a digital product online, whether it's a software, a course, a training of some sort, you might have thought of the idea of offering a free tier or a free trial. What's the difference? Well, a free tier is giving your product for free at a certain level. Examples of this is like Canva, Zapier or even Gmail, where they offer something for free for everybody. Everybody has a free level and it's sort of the entryway to their premium level. Alternatively, you can offer a free trial which gives them full access to your software for a period of time before they'll have to pay. What are the advantages and disadvantages of both? Which one should you choose? If you're on a budget or you're starting out, which one is best for profitability and which one's best for growth? We get into all that in today's lesson. So let's get into it. Let's get down to business. Let's start today's lesson with costs. What are the costs of having a free tier versus a free trial? And for today's episode, we're going to use the example of a software product. If you choose a free tier or a free trial for your business, both of them are going to cost you money. Why? Because the user is going to be using your software, going to be on your servers, you're going to be using bandwidth and that's going to cost you money. The difference is is that with a free trial, it's time bound you know that it's going to cost you X amount of money on average because Your trial's for 14 days. For example. This model, whether it's a free tier or a free trial, helps you convert more customers. Why? Because you're lowering the barrier of entry so people can try your product before they buy, fall in love and decide to buy. Right. With a free tier, your costs are going to be more. Why? Because they're going to have access forever. It's free forever. If you look at the example of Gmail, if you have a Gmail account, you've been using their servers and using their software and even maybe reached out to their support and cost Google money to maintain your account for years. And they're going to continue to pay for all this stuff in hopes that you may convert into a paying customer of their other services. So obviously a free tier is going to be more costly. You're bearing the load of a customer that's not paying. So if you're starting out, you're bootstrapping your business and you're self funded, I highly recommend you go the free trial route. This allows you to manage your expenses a whole lot better. The only exception is if maybe you offer the free tier for a few members, a few users, I would say 50 to 100 max. And in exchange they can give you feedback to improve the product when you start selling it with a free trial. Now, does that completely discount a free tier or the free tier idea? No, I think a free tier is a great idea at a certain point in your business when you're looking to explode with growth, you're trying to reach as many people as possible. I know Sumo.com for example, has done this and does this right now. And there's a reason why Sumo's on over half a million websites. They're tools used by so many people because they have a free tier and they've adopted so many customers through that. And their job as a company is to convert those free tier users to paying users. So this is a great strategy. Once you've established yourself and you're profitable and you have the money to afford these customers on a free tier, this is a great strategy for massive growth. Another example of this is Wistia. Wistia.com they have a free option that you can check out. In fact, Wistia is actually less expensive than they are now. Usually people raise their prices, not lower them, but they went the reverse because they wanted to make sure that they were profitable at the start. Free tiers are also a Great way for viral marketing, meaning that you get users to market for you because they're using your product, they're sharing it with others, and a lot of word of mouth is happening because, hey, they're not paying and they're using it for free. The barrier of entry is super low, so you get more people using and talking about your product. Now again, this may sound super appealing, but you shouldn't do it if you can't afford it. Your job as the entrepreneur, as the leader of your company, is to be profitable, to make some money. So make sure your costs don't exceed your revenue. Now, there are companies that use free tiers and still find a way to make a profit with a free tier plan or at least break even. And this could be an option if you go with a free tier. An example is Spotify. Spotify has a free account, but there are ads that they play every few songs, right? If you don't want ads, then you pay the premium Spotify fee. But Spotify still is making money off the ads. Now this allows them to make up for the loss of having the user there for free. This is also possible even if a small website or a blog or a course where you offer a free tier that has certain number of courses, but those pages have ads on them or have sponsored links or affiliate links, allowing you to recoup the loss with those revenue streams. If ads are kind of just not your style, then I would recommend just going with the free trial. One of the advantages of a free trial is that your customers get the full experience. They get the real experience of what it's like to use your software and what it's like if they were a paying member. The challenge of a free trial is getting them adopted as fast as possible, is to get them to use your product, to love it, to like it, to start using it and get hooked on it as fast as possible. Because, hey, when that trial's up, you want them to be like, hey, I love this so much. I don't want this trial to end. I don't want my service to end. I will pay. Now here's the kicker. You can have both. You can have a free tier and also a free trial for the premium version of your actual product. A good example of this is YouTube Red. YouTube is free to use, but if you want no commercials, exclusive content and use of their YouTube music streaming, then you could pay YouTube $12 a month, I think it is, and subscribe to YouTube Red. But they have a free trial for 30 days that you can try it out for free. This is killer. Trust me, I tried it. I signed up for YouTube Red. I got a free trial for 30 days. I didn't pay anything and I spent a month watching YouTube with no commercials and it was amazing. I felt like I was saving so much time and enjoying YouTube so much more. YouTube is probably my number one video streaming source, probably more than Netflix. So for me it was so worth it. So when the trial was about to end, I was like, no, not commercials again. And I really felt the burn when I came off trial and had to, you know, go through those commercials or skip ad and all that stuff. And what a pain. And I really felt the value of the premium plan and it got me wanting to sign up. So there you go. You can have both. You can have a free tier and have a free trial for the premium plan.

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To wrap up today's lesson, know what you're getting into. If you choose to go free tier, cost it out, see how much is it going to cost you per user. Is it worth it for that viral marketing, for that word of mouth? If not, go with profitability and have a free trial. 14 days, 30 days up to you. Give them the full experience and your whole job will be to convert them off trial and to a premium member, to a paying member. And of course the option down the line is still there to go with the freemium plan or the free tier. And you can always combine free tier with a free trial for your premium product. Just like YouTube Red. Well, there you have it guys. Thank you so much for listening to the $100 MBA show. If you love what you hear, why don't you leave us an itunes rating and review? We'd love to hear from our audience what they love about the show. We read every single review. We absolutely love it. Also by leaving us a review, you enter our weekly random draw we call free ride Friday. Every Friday we give away a lifetime membership to one of our programs. This Friday we're giving away easy course. This whole month we're giving away easy course. It's our 30 day course on how to build your own online course. You can check it out at easycourse co it retails for $500 with somebody will win it for free on Friday and you have a chance to win every Friday. Just leave us an iTunes rating and review and you enter our weekly random draw. It's our way to say thanks for showing us love on itunes. All right, thank you so much for listening. Before I go, I want to leave you with this. If you're still not sure which one to go free tier or free trial? Start with the free trial. It's the lowest risk and it still allows your customers to try your product for free. It's time bound, but it's something for them to chew on. It's something for them to consider and then you can always play with the time. One week, two weeks, one month, whatever. How long you want to give them free access for. Thanks again and I'll check you in tomorrow's episode. I'll see you then. Take care. Of.

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