Behind the question of whether a billing system can help your SaaS business grow is the question of what it means for a SaaS business to grow. This guide tackles both — it creates a model you can use to approach SaaS growth and a 360-degree view of how your billing system fits into it. Read More >
We’ve got an updated and more detailed post on this topic here.
The decision of whether or not to require trial users to share their credit card information during the sign-up process is among the most challenging decisions facing SaaS business owners. Prevailing thought indicates that requiring a credit card number to engage in a free trial will drastically reduce your sign-up rates, though requiring a number will significantly improve the quality of your leads.
Many users who don’t really need the service or simply can’t afford the cost are naturally filtered out by the risk of being billed at the end of the 30 days. Unfortunately, there are a myriad of pros and cons that make the decision much more complex than it seems at the surface:
Requiring a Credit Card Improves Lead Quality
Research by SaaS Customer Engagement Platform firm Totango indicates that companies who require a credit card at the time of sign-up experience extremely high conversion rates, with a reported average of 50% trial to paid customer conversions.
Softletter research has indicated that subscription businesses (with industry average of 25% conversions) asking for financial information upfront is an effective way to ensure leads entering your sales funnel are more qualified to become clients.
Easy Sign-Ups Boost Conversion Rates
While companies who require a credit card upfront have an average visit-to-lead conversion rate of 2%, trials with no credit card can increase conversions. Totango reported trials with no credit card had an average visit-to-lead conversion of around 10%, though the lead-to-customer conversion was only around 15%.
Do Credit Cards Affect Retention?
One of the most fascinating aspects of Totango’s recent research on SaaS conversions in 2012 was the fact that trials with no credit card had a positive correlation to customer retention after 90 days. While credit card trials had an average of 60% retention, no credit card trials were at 80%, meaning the overall end-to-end conversion rate of no credit card trials was 100% higher (1.2% versus 0.6%).
While it’s important to note that the research sample size was limited at 100 vendors, it’s fascinating to consider whether companies who offer no credit card trials experience higher retention over time because they prioritize engaging with their leads.
Free Trials Can Be a Competitive Advantage
Subscription business blogger Lincoln Murphy recommends subscription businesses consider a free trial as a competitive advantage, particularly if their niche includes companies that are large or have a strong reputation.
He asserts that offering a no-risk trial period allows professionals to test products against legacy vendors. Through engagement, free trials provide a distinct possibility of “displacing the legacy player…even for a small, bootstrapped vendor.”
Engagement is Still King
Murphy advocates against a one-size-fits all approach for designing a subscription business process. He writes that engagement is more effective at driving conversions for any SaaS company than a one-size-fits all approach to the trial process: “a really effective [approach]…moves the prospect from where they perceive value to where they realize value.” It’s about engaging with your most engaged prospects to help them realize conversion into a paid customer is a natural choice.
Our Choice is simple.
- Do a trial WITHOUT requiring Credit Card.
- Use customer engagement and usage tools and focus on trial users who WILL convert.
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