How Startups Can Maximize Conversions With Free-Tier Pricing

Done right, free tiers can act like quicksand to keep customers with you.

Written by Joe Procopio
Published on Mar. 22, 2023
How Startups Can Maximize Conversions With Free-Tier Pricing
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Don’t put a free tier or free trial on your website arbitrarily. You’ll lose a ton of money.

I’ve seen and even built too many of these money-wasting free-tier offerings, and they can come from first-time founders and multi-million-dollar companies alike. These free tiers and trials fail the company for a lot of different reasons, but mostly because they never bring the customer prospect closer to recognizing the value of the product. In some cases, the free tier even pushes the prospect away from conversion.

3 Types of Free Tiers

  1. LImited usage: Free for a certain number of days or users
  2. Personal: Gets one person to use the product and then champion it throughout their organization
  3. Level-up: Provides some benefits at the free tier, then much more at the paid level

It’s an easy mistake to make. Conventional wisdom tells entrepreneurs that if their product and business model is something brand new, customer prospects are going to need time and education to figure out how to make themselves successful with it. So why not open the doors and let them kick the tires?

Sure, that’s logical. But in a lot of cases, I’ve found that it’s harder to convert a prospect from free to paid than it is to convert a prospect from nothing to paid.

What I’ve learned is: If you’re going to have a free tier or free trial, you have to make it work like quicksand in the customer funnel. That is, keep customers stuck. In a good way. 

More From Joe Procopio 5 Goals Your Startups’ Free Trial Must Achieve

 

What’s a Quicksand Free Tier?

Not long ago, I wrote a post about the goals of a free tier, which takes a more mechanical look at the function, limits and purpose of that tier or trial. You don’t have to read that post if you’re up to speed on what you want to offer for free. This post is a more subjective look at how that free tier should work in order to do what it’s supposed to: Maximize conversions.

In a lot of cases, I’ve found that it’s harder to convert a prospect from free to paid than it is to convert a prospect from nothing to paid.

Not long ago, I was talking with a colleague serial founder when the conversation wandered over to free-tier offerings, both in her business and my own, and we got into a theoretical discussion about free-tier conversions. The theory we were playing with was that it’s easy to set up the front end of a free tier or free trial, but it’s much more difficult to tie the back end of that free tier to conversions. 

In other words, you need an additional strategy to prevent a glut of free user traffic or lapsed free trials, the bane of any free-tier existence. 

We landed on was the hypothesis that while there are a few different ways to implement a free tier or trial on the front end, additional thought and strategy needs to be added to make that implementation work like quicksand in the customer funnel and to keep the user stuck, engaged and involved until the product becomes a necessary tool for their success. 

When that happens, it flips a switch and the customer converts. So how do you think backwards from your free-tier implementation to get it to work like quicksand?

 

The Limited-Usage Free Tier

The most popular and in fact most arbitrary implementation of a free tier or trial is a limited-usage model. Here, the cutoff between free and paid is a line of either time (i.e. 14 days free) or volume (i.e. five users free). 

But a limited-usage free tier only works like quicksand when breaking those limits adds an undeniable value. This often forces the company to perpetually add more and more value to keep new and different prospects in the quicksand. 

Let’s take streaming, for example. If Apple Plus gives me an arbitrary 14-day free trial, that’s great, I’ll never convert. But if they give me a 14-day free trial during the current season of Ted Lasso and I get hooked, I stand a much greater chance of converting until the season ends and I’m gone. Or until I find more value to keep me hooked longer.

The quicksand needed for a limited-usage free tier is additional functionality, built into the product, that encourages future or increased usage over time. If the product doesn’t work like that, this kind of free tier will always lose money due to low lifetime customer value (LTV). 

 

The Personal Free Tier

On the B2B side, this kind of free tier is also known as a trojan horse model. The theory is to get one or more individuals to use the product for their own personal benefit, then champion the product throughout their organization. The product, of course, offers collaborative functionality within that organization at a paid level. 

This model is really effective within that niche, but often fails outside of that small niche because the need for that additional collaborative functionality is overstated. This results in a requirement for the company to constantly offer new collaborative features to make the prospect of linking individual accounts under one umbrella more attractive. 

3 Unintended Consequences of Free Tiers

  1. The customer never recognizes the value of the product.
  2. The free tier discourages conversion.
  3. It forces companies to continuously add more and more value at the free tier.

Example: Slack. Anecdotally, the usefulness of Slack as a personal tool works against its paid features, in that Slack is great for productivity until your organization decides it should be a corporate tool. Then it drains productivity by offering a ton of features your organization doesn’t need but winds up using anyway. And Slack’s corporate push strains its value as a personal tool, making room for Discord at the individual level and for organizations that are defined more loosely.

In order for your personal free tier to work like quicksand, the product must be collaborative by nature and the pay tier line should be point-to-point, not organization by organization, because the customer acquisition cost (CAC) at the organization level will automatically include a lot of bloat for larger organizations. 

More on Product PricingIs Your Product’s Price a Problem?

 

The Level-Up Free Tier

The theory behind the level-up model is that the free tier or trial makes the customer a little better off and the paid tier makes them much better off. This is a difficult free tier to implement because, simply, a lot of products don’t make their customers a lot better off at the paid tier, and when they do, the market for that added benefit is usually niche.

But when you add quicksand here, it works wonders. 

In a level-up model, the quicksand isn’t so much in how the free tier or trial is implemented on the front end, but how what is offered improves the prospect’s situation. For this to work, the company needs to know a lot about the prospect’s problem, how to solve it and how long it takes to solve it. 

To quicksand a level-up free tier, the product also needs to replace another customer method, usually a manual method, to complete a task or series of tasks the prospect is already doing. It also must provide added benefit to doing it their way, like reporting or even forecasting

There are a lot of ways to implement a free tier or trial, and there are a lot of ways for those free offerings to bring new prospects into the product. But like a horse to water, you have to make those prospects drink. Look at your product’s free tier, its adoption rates, its conversion rates, the CAC and the LTV. If you’re not seeing numbers you love, it might not be your marketing. It might be a lack of quicksand.

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