The Psychological Basis of the Free Trial, and How to Do It Right

December 8, 2015

Think about how it would feel to drop your morning coffee. Just sit with that feeling for 10 seconds, and really hone in on it.

The negative feeling you're having right now is called Loss Aversion - and it explains why free trials work.

We humans are programmed to dislike and avoid any kind of loss. Whether it be monetary or physical, we simply don't like it. What a person owns right now is usually more valuable to them than perceived future benefit. This is why many people have trouble throwing away an ugly sweater, but no problem leaving a similar one on the rack at the store.

By providing a free trial, businesses hook into this human tendency. We give potential customers something for free, in the hopes that they will become attached to it, and think of it as somehow "theirs". Once this happens, businesses create an emotional reaction to potential loss by threatening to take away what they've provided. No matter the value of the product or service, our desire for that product or service will be greater once we already "have" it than when we don't have it at all. The threat of removal will be a more powerful motivator than any list of advantages could be.

Thus, for a free trial to work properly, we need to tap into this fear of loss. This means a couple of things. First, the risk of loss must be credible. The business must be willing to shut down the potential customer's access to the product or service, or the customer will see the threat of loss for the bluff that it is.

Second, the service must engender a sense of ownership and value for the individual. The user must feel the service to be valuable, and feel attached to the service on a personal level.

So, how do we apply this? Consider one perennial question for SaaS businesses - to ask for a credit card before or after trial.

If a credit card is required to start the free trial, the user only can consider the potential gain from purchasing the product. People are averse to spending money (a loss), so even the threat of being charged is a disincentive.

In the case that a credit card is NOT required to start the free trial, there is no fear of loss. Thus, the percentage of visitors who start the trial is higher. By the time the users have been asked to enter their card, they have had a chance to interact with a product, and hopefully come to think of it as "their" solution. At this point, the users are balancing two potential losses in their mind - loss of money, or loss of access to the product or service.

So, which approach is more effective? I would expect the second would be more effective, as users are balancing two losses when they decide whether or not to pay, rather than simply examining the potential upside. The reality is slightly more complex.

In 2012, Totango released a report detailing the results of a comparison they ran between these two methods. The second, requiring a credit card only after a free trial, doubled the number of customers acquired after 90 days of use. This is consistent with the interpretation presented under the theory we've derived from the idea of Loss Aversion, but the numbers tell a slightly more interesting story. Fewer people sign up for trial at the beginning in the first instance, but their conversion rate to paid was much higher than the second instance. Even though the second type of trial was more attractive to users, they upgraded to a paid plan at a much lower rate. It turns out that the threat of monetary loss is a disincentive wherever it comes in the customer acquisition flow.

The role of engagement during a trial should be obvious at this point - the more engaged the user is, the more likely they are to feel a sense of value and ownership over the product, thus increasing both retention before and after upgrade.

What other suggestions can we glean from our understanding of Loss Aversion? These are not tested, but I would suspect that a company could increase post-trial conversion rate by:

  1. Emphasizing the potential loss that comes by not upgrading rather than the potential benefits of upgrading in the upgrade notification and other language.
  2. Adding possessive pronouns to language in the product "My, Your" and similar, to promote a feeling of ownership.
  3. Allowing visual customization to drive a feeling of uniqueness, also promoting a sense of ownership.
  4. Providing a financial incentive to upgrade at the end of the trial to reduce the feeling of loss, such as X% off for the first year if they upgrade immediately.

If you'd like to learn more about Loss Aversion and some other aspects of Decision Theory, check out Jonah Lehrer's book How We Decide - it's a great introduction to the subject.