Deciding to offer a free trial or freemium model is one of the first decisions that a business can make when building its SaaS product. And it's an important one!

In our experience, free trials have the potential to convert better than freemium, but they also have a higher cost. And while freemium has a lower cost, it doesn't mean that you will get more conversions. So how do you decide which model is right for your business?

Let's take a look at four tips for choosing between these two models:

Know what you’re looking for

Choosing a software monetization model can be difficult - and it has to be done early in the monetization process. The decision between freemium and free trial models is often the first question you’ll have to answer since it will inform much of the rest of your monetization strategy.

Know what you’re looking for in your pricing models. Before choosing between the two main pricing models, it’s important to understand why you might choose one over the other. Freemium offers a way for users to try out the software without paying so that they can decide whether or not it meets their needs before committing - and as a bonus, freemium drives high adoption by increasing user acquisition. However, free trials work better for customers with well-defined software use cases.

When deciding between free trial or freemium, it's important to first determine your goals. Do you want more customers? More revenue? More users? A combination of these things? Once you know what you want from your new business model, choosing which one is best for you will be much easier.

Know what your product is. Consider how functionality affects conversion rates when choosing between a freemium or free trial model. Freemium works best when functionality is well defined within a single product offering; on the other hand, free trials work better with businesses that offer multiple products in different tiers because users can upgrade after trying out lower offerings (i.e., those with fewer features).

Know what your competition looks like. Before deciding which pricing model will work best for you and your business goals, take some time to evaluate competitors in your market space and understand their strengths and weaknesses - especially if they already use one of these two monetization models. The most successful companies strengthen existing techniques rather than blindly copying them from competitors without considering immediate goals or value propositions.*

Don’t overcomplicate it.

Don’t overcomplicate it. The amount of coinage and conversation spent on the freemium versus free-trial debate is completely disproportionate to what’s actually at stake.

Remember: These are not black-and-white choices; they are tools, and any tool can be used well or poorly. If you have a product that works well as a free trial, go with a free trial; if it works better as freemium, opt for the freemium model. There’s no rule that says you can only choose one or the other for your SaaS company. In fact, many B2B SaaS companies use both models successfully, offering users a limited selection of services for free in order to entice them to sign up for paid products later down the road.

As long as you keep in mind that it comes down to simplicity and transparency (that is, clarity in what your customers will be getting from your product), you won’t go wrong with either strategy.

If you’re not sure, just ask.

In order to figure out what model is right for you, ask yourself the following questions:

Do I want to get as many customers as possible? If so, a freemium model might be best for you.
Do I want to get customers who are willing to pay as much as possible? A free-trial model might be best for you.
Do I want customers who are willing to pay me as frequently as possible? A freemium model might be best for you.

Listen to your current customers.

You should listen to your customers, regardless of which of the two options you choose. Customers will always be the best source of feedback about how well your product is working. If you're using a freemium model, listening to customers will help you determine what features are most important to them and how they navigate the product. You can then use this information to improve their experience, as well as your conversion rate. Listening is just as important when implementing a free-trial model because it will help you better assess customer interest in your product and figure out why some people might not be converting into paying customers.

Freemium and free trials are marketing principles that work well for different types of companies.

The freemium and free-trial models are marketing principles that work well for different types of companies. They're not mutually exclusive, so it's possible to use both strategies at the same time. You could also choose to incorporate other pricing models into your business plan.