Free Trial vs Freemium
Freemium brings more people. Whether it brings more money is a different question.
Replaces: Growth consulting and pricing workshops
How to use it
Both models are priced on monthly contribution: gross profit from new paying customers, less the cost of serving everyone who does not pay. The difference between them is almost entirely about what happens to the people who never convert.
Where the number comes from
- Contribution per paying customer is price multiplied by gross margin.
- Trial users cost you once, for the length of the trial, then either convert or disappear.
- Free users do not disappear. Each month’s intake adds a cohort that stays for its expected lifetime, so the number you carry is monthly sign-ups times non-conversion times lifetime.
- Freemium sign-ups are trial sign-ups multiplied by whatever uplift removing the paywall produces.
- The break-even conversion is the rate at which freemium’s contribution would equal the trial model’s, given the same sign-up uplift.
What goes wrong
The part most calculators leave out.
- The sign-up multiplier is a guess that drives the whole comparison. Removing a paywall might triple sign-ups or might barely move them, and the answer changes completely between those cases.
- Free user lifetime is usually underestimated. Free accounts rarely close themselves — they sit dormant for years, and dormant accounts still cost storage, email and support.
- Cost to serve a free user is not constant. Products with usage-based infrastructure costs see it rise as free users engage, which is exactly the behaviour that precedes conversion.
- Freemium changes who your paying customers are, not just how many. Converting from free tends to select smaller customers than a trial does, so blended price often falls after the switch.
- Support load from non-paying users is real and rarely modelled. Free users file tickets.
- The strategic case for freemium — distribution, network effects, bottom-up adoption inside large accounts — is deliberately outside this arithmetic, and for some products it is the only case that matters.
The tail you keep forever
A product at 39 a month with 82% margin gets 900 trial sign-ups converting at 14% — 126 customers, costing 1,080 to run the trials. Freemium brings 3.5 times the sign-ups but converts at 3.2%: 3,150 sign-ups producing 101 customers. Fewer customers from far more traffic, which is the familiar trade. The part that decides it is the 3,049 monthly non-converters who do not leave. At 14 months each, that is nearly 43,000 free accounts being carried at any moment, and at 90 cents apiece they cost about 38,400 a month — more than the entire gross profit freemium generates, which is what pushes its contribution negative. Freemium can still be right, but on distribution grounds rather than on this arithmetic.
Questions
- What conversion rate should freemium achieve?
- Commonly cited figures sit in the low single digits, against double digits for trials. The right comparison is not the rate but the absolute number of customers and what carrying the rest costs.
- Why does free user lifetime matter so much?
- Because free users accumulate. A trial user costs you once; a free user costs you every month they stay, and each month adds a fresh cohort on top of every previous one.
- Can I run both?
- Many products do — a free tier for individuals and a trial for teams. It doubles the surface to maintain, and the comparison here is the right way to size whether the free tier earns its place.
- Does anything I type get sent anywhere?
- No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.
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