MBA1745 Q&A Wednesday: Do I Need To Offer a Free Trial?

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Hey O. Welcome to the Hundred Dollar MBA Show. Because business is a challenge and we want to make it just a little bit easier for you every single day with our daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my partner back in 2014 and today's episode is a Q and a Wednesday episode where we answer a question from one of you, one of our listeners. If you have a question you want to ask, just email me over at Omar MBA Net and I'll make sure to answer right here on Q and A Wednesday. Today's question is from Bruce. Bruce says, hey, I am just about to launch a new SaaS business. It's a low cost software product between 10 and 30 dollars a month. My question is do I need to give a free trial? There are some costs involved in me offering a free trial so I'm a little bit apprehensive. Any advice would be super helpful. Loved watching your journey build. Webinar Ninja. Thanks Bruce. Great question Bruce. Because freemium is becoming the standard in not only in software but in every market and Bruce is starting a software company that's particularly low cost. 10 to $30 a month for software is pretty, pretty low. So his margins are going to be probably pretty thin as it is. Plus, if you offer your product, your software for free through a free trial, there will be costs of course, because they're using it. So in today's lesson, I'm going to go through the pros and cons of having a free trial or even a free plan and how to evaluate if it's a good idea for you. I'll also share some alternatives to a free trial if you don't go down that route. So let's get into it. Let's get down to business.

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So Bruce is asking should he offer a free trial? He has a low cost software between 10 to $30 a month. And I want to start by saying that when it comes to self service, self service software, that is you really need to allow the customer to experience your product in some way with very low risk. So you could do that with a free plan, a free trial and some other ways that I'll share with you today. But not offering a way for them to test drive your product before they buy is not a good idea, especially with a low cost product that is all self service. When I say self service, I mean the customer is just going to go to your website, evaluate if they want to use this product and then go ahead and sign up. There's no salesman involved, there's no customer success involved or a customer success agent. Those types of SaaS businesses will have that kind of manpower and they're willing to invest in having a sales team because hey, signing up one customer might equal 5,000, 10,000, $20,000 in annual revenue. So if you have a low cost product then you really need to go with what's called product led growth where your product basically takes care of all the selling for you. Your website does all the selling for you because frankly you just cannot afford because the price point of your product to hire salespeople to sell it for you. That's Salesforce for example, which is a SaaS business will sign up their customers through a sales acquisition cycle, meaning that you'll probably talk to somebody before you sign up. If you've ever gone to one of those larger enterprise software websites, you'll see that it says contact us and there's really no prices on the site because they want to close the sale and they want to cater to the customer's needs and bundle up a product that will work for them. But they can do that because, hey, they can afford it because the price point's so high you can't. Bruce. Okay, so anybody who has a low price product, it's just not a cycle you can go through. You're gonna have to have everything self serve. Now the first thing I want to mention is that you gotta know your numbers. You gotta know as soon as possible what is your ltv, Your lifetime value of a customer. So for example, if the average customer spends $20 a month and on average they stay for 10 months, you know, the lifetime value of each customer on average is $200. That means you can't spend more than $200 to acquire this customer. This includes the cost it will entail for you to offer a free trial, let alone advertising costs and everything that it will take for you to bring that person through the door. So know your ltv. That's going to be a little bit difficult in the beginning because you don't have any sales yet to kind of see the trend. But if you have to ballpark it, like I said, average sale is X. How many months do you think they're going to stay? Go with that and then you can get the real hard numbers as you grow and start selling. My advice is that you should have some form of freemium, a way for them to test out your product before they buy. Because I'm a big believer that freemium will be the standard in the next five years. Every software company will have a freemium model in some way, whether it's a free trial or a free plan or something. What you need to do is find out how much on average will it cost you to run that trial. And you can constrain the trial to make sure it doesn't go over certain costs. So you might want to do a 14 day trial or even a seven day trial. Just something for them to try it out, some window of opportunity for them to feel like a user. You can limit the features and limit what actually costs you money in that free trial. There are some software companies that actually do a free plan with that in mind. Hey, knock yourself out. Go ahead and use our product as much as you want. But there's certain things that you're not gonna be able to do on the free trial that cost us a lot of money, whether it's streaming costs, server costs, something like that, storage, but all the other features that you can use. Because it doesn't really cost us much money, they allow you to have a free plan indefinitely. So find out how much is the cost of that free trial. Make sure it's well, well, well below your LTV. I would say 5% of the cost of your LTV is a safe number because you're gon other costs involved. Anything lower than 5% is gravy and go with that. Now, if it's still too expensive, you're still not able to offer your product for free because of the cost. There are some alternatives. One other alternative that some companies do in your position is offer an interactive demo. What is that? Well, it's actually like a page on their website where they can go in and use the app as a sandbox and just play around with it. It's not an account, it's not a plan. But it gives them a chance to see what it's like to use the main feature or features of your products, not the full product, but it's kind of like a clickable demo. Another option is a video demo of your product. I'll walk through if you want to see an example. We have tons of demos on our site, webinar ninja.com they're on every page of the type of webinars, like live webinars, automated webinars. We also have a dedicated page to demos. Now, this is not a replacement to the customer actually getting their hands on your product and using it for their needs. But it's an approximation. It's close. At least they see what it's like to be a customer. A little bit more of an interactive option to a video demo is a webinar, is to run a live webinar. And you can scale this to as many people as you like. A thousand people. If you want on your webinar to watch an interactive demo, you can ask questions and find out what people's needs are and show people how you can use your product or service or your, I would say in this case, in real time, live on the demo. If all of these ideas are either not an option for you or something you're not really feeling 100%. There is one more thing that I recommend is a money bag guarantee. This kind of lowers the risk. It's not a demo, it's not a free trial, but you at least grab the cash first and you can give them a certain window. Now you have a low price product, 10 to $30 a month. I would actually offer this product annually, so the $10 product would be, you know, $120 a year, which is not that hard of an ask to get somebody to pay for something for a year subscription. And then you can have a 30 day money back guarantee where if for any reason they don't like it or doesn't work for them, they can refund it. Refunds and returns are a lot less common than canceling a trial. People commit when they pay and they're more likely to stick with that commitment than to go back on that commitment. So a money back guarantee might be a good option for you, but I would recommend going annual so that way it makes sense. I mean a 30 day money back guarantee on a monthly plan doesn't really make much sense because they're going monthly anyway. So go annual and then give that 30 day money back guarantee. And 30 days is just something I just, I'm using as an example. But you can make it 14 days, you can make it 21 days. Whatever you feel comfortable with and what works for your business.

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So two books I highly recommend you read on this topic. Number one is Product Led Growth by West Bush. I read this book on one Flight, one trip. It was a really good read, really well written and some really good examples of how to sell your product through your product through things like freemium. The second book I recommend is the Freemium Manifesto by the people at ProfitWell. If you go to profitwell.com and search Freemium Manifesto or you can even Google it, you can download their free PDF copy. I actually printed out this book and read it because it was so, so good. I actually read it twice and it's the A to Z of freemium. Those two will give you enough information along with today's episode to make a decision. Thanks Bruce for the question and all of you for listening to today's episode. If you have a question you want to ask here on Q and A Wednesday, just go ahead and email me at Omar Mbu and I'll answer it right here on the show. If you love this podcast, the best way to pay it forward is to share it on social Go ahead and tell your friends and family why you love the 100 NBA Show. Share your favorite episode. Heck, even share today's episode if you like. Before I go, I want to leave you with this when it comes to free trials, freemium, these are all customer acquisition models and it's all under the umbrella of pricing, really, and gaining a customer. You always need to experiment when it comes to these things. Don't think that it's one of those things you set and forget and you just don't worry about it anymore. And that's what you do for the rest of your life. Now you're going to have to study it. You have to track it. You got to make sure that you're tweaking things so you can improve upon your conversions. Not everything will work on every business, okay? You need to see what works for your business, your customers, your audience. So experiment, experiment, experiment. Thanks so much for listening and I'll check you in tomorrow's episode. I'll see you then. Take care.

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