This post is by Tomasz Tunguz from Tomasz Tunguz
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At Saastr yesterday, I presented the top 10 learnings from the Redpoint Free Trial Survey that we distributed in October. The data confirmed many rules of thumb but also raised some interesting new questions about the best way to use trials.
When we distributed the survey, we never would have expected the response. About 600 companies submitted data. They span single digit ARR businesses to publicly traded SaaS companies. These businesses sell at every price point and sell to every operational buyer. From product to sales, from legal to marketing.
We processed the data with 1000+ lines of R code to parse the insights from the data and test for statistical significance.
In sharing the results, we have two goals
- Share benchmarks to calibrate your startup’s free trials
- Spark conversations about new free trial tests to run for your startup.
Let’s jump into the list.
Annual Contracts Dominate. Between 60-80% respondents tie annual contracts to free trials. Annual contracts dominate in the mid-market. In the SMB, month to month is more common. In the enterprise, multi-year contracts emerge. As we dug into the data, we couldn’t find any meaningful difference in free trial conversion based on contract length. So, stick to annual contracts unless you have a good reason to diverge.
Aim for 90%+ Logo Retention. More than one-third of respondents retain 90% or more of their customers by count one year after acquiring them. Higher rates of customer retention are more common in the mid-market and enterprise.
Target 100-140% Net Dollar Retention. The top quartile of respondents observe net dollar retention of 120%+. The top decile grow at 140%. Startups targeting enterprises typically see better NDR than those targeting smaller accounts.
Time and Usage Based Free Trials Convert Better. There are four ways to limit trial. Usage: 500 of API calls, then upgrade. Seats: first two seats free. Time: 30 day trial. Feature: upgrade for better security. Time and Usage based trials have at least 2x the conversion rates.
Conversion Rates Aren’t Impacted by Trial Length. Shorten Trial Length. Most companies employ 14 day trial. But all time-bound free trials convert at the same rate.
Salespeople Increase Conversion by 3.5x+. 75% of respondents employ salespeople to call upon prospects. This is true across every price point.
Target 4%+ Unassisted Conversion. The 50th percentile of respondents convert 4% of leads to paying customers, when the conversion is unassisted (doesn’t involve a salesperson).
Target 15%+ Assisted Conversion. The 50th percentile convert 15.5% of free trial leads to paying customers when assisted by a salesperson.
Scoring Leads by Activity May Lead to False Conclusions. Many companies use activity data to score leads. How frequently someone uses the product, how many people were invited etc. The data suggests activity scoring may be disqualifying good leads because bigger buyers exhibit different usage patterns before buying.
Requiring payment Increases Conversion Rate by 2.5x. Only 12% of respondents require payment to start trial. The others bet that by filling the top of the funnel with more leads and getting data on prospective leads is a better trade. The data suggests it’s worth testing payment requirement for mid-market and SMB price points.
Thank you to everyone who participated in the survey, and in particular to my colleague Patrick Chase. If you have questions or observations about this data, please email me or send me a tweet.