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When I interviewed Squarespace CEO Dane Atkinson, I asked why Squarespace chose to adopt a free trial model and not a freemium model.

Although the freemium model, in which a company mixes free services with paid upgrades, is increasingly popular because of the economy, for some online businesses, free trials are well worth a look and could even be a better fit.

When considering both models, here are some pros and cons to keep in mind.

Freemiums

Pros:

  • It's easier to get people to use your product. Putting a price on your service has a cost: the size of your potential market shrinks dramatically. When you offer something for free, consumers have far less justification to pass you up.
  • There's time to build a relationship. If your free service is successful at keeping users around, you have time to build a trusted relationship that can eventually lead to a sale.
  • Advertising is a viable revenue stream. While most online publishers will admit that ad revenue is no panacea, it can still be quite lucrative. For users who aren't paying you directly, attention for services (read: advertising) is a popular and generally acceptable form of payment.

Cons:

  • There's no such thing as a free lunch. To varying degrees, most freemium services rely on paying users to subsidize free users. If something happens to the subsidy (e.g. revenues from paid users aren't enough to provide a full subsidy), the sustainability of your business could be put in jeopardy. This is especially problematic when a service's free userbase experiences viral growth but growth in paying users doesn't keep pace.
  • Staying focused can be challenging. It can be tough to provide a great free service while at the same time taking care of paying users. And it's real easy to alienate one group or the other as you grow and adjust to the needs of your business.
  • It's easy to make mistakes. What do you offer for free and what do you charge for? You had better get it right the first time since it can be difficult to take something that was free and make it paid.

Trials

Pros:

  • Expectations are set up front. When a user signs up for a free trial, he knows he's taking your service for a test drive and at some point soon, will have to make a purchasing decision.
  • Scaling is easier. If you know what each customer requires in terms of infrastructure, customer service, etc., predicting your scaling needs and executing a scale up (or scale down) is fairly straightforward.
  • Your customers get what they pay for. Without having to worry about maintaining a quality experience for (and supporting) users that aren't paying you a dime directly, you can focus on providing a high level of service to your customers.

Cons:

  • You reduce the size of your potential market. The minute you charge a single cent for your service, there will be a significant number of consumers who won't give your service the time of day.
  • Your pitch must be immediately compelling. Since you have a limited time in which to convince a trial user that your service is worth paying for, you had better be good at converting.
  • Quality is expected. A relationship with a paying customer can be a beautiful one but it comes with responsibilities. Customers expect quality service and support. Companies that aren't really prepared to provide it will quickly learn this the hard way.
Patricio Robles

Published 24 September, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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