Ask HN: Free trial vs money back guarantee
28 comments
Hi Abi, this is Monica from Braintree.
The cautiousness around trial periods, discounted offers, and continuity programs by credit card processing providers is due to recent crack down from Visa and MasterCard. The guidelines and rules passed down by them are a little vague so the card association banks have mostly erred on the conservative side.
The premise behind the concern is that these types of offers and billing methods increase chargeback risk and financial loss. This is especially true for new merchants or higher risk products or services.
We've been hearing from some of the banks we work with that they're considering loosening up their rules or applying them differently to certain types of merchants.
Regarding your dilemma, option #1 should have fewer chargebacks, which can be costly to your business.
Hope that helps!
Monica
The cautiousness around trial periods, discounted offers, and continuity programs by credit card processing providers is due to recent crack down from Visa and MasterCard. The guidelines and rules passed down by them are a little vague so the card association banks have mostly erred on the conservative side.
The premise behind the concern is that these types of offers and billing methods increase chargeback risk and financial loss. This is especially true for new merchants or higher risk products or services.
We've been hearing from some of the banks we work with that they're considering loosening up their rules or applying them differently to certain types of merchants.
Regarding your dilemma, option #1 should have fewer chargebacks, which can be costly to your business.
Hope that helps!
Monica
Is there anything wrong with doing both?
Interesting :) Offering a money back guarantee regardless of whether or not the customer is charged initially seems smart.
the best solution is to split test both options
I'm asking HN because I'm hoping someone HAS split-tested or can share from experience.
We tried both ways, and the free trial was a clear winner. I think this could depend on your service, however.
Something else to consider: even though we had more people sign up and pay, we also had far more people sign up and try without paying. Several of those users also gave us free, insightful feedback. Especially if you are starting a new service, this is worth more than the paying customers who give no feedback.
Something else to consider: even though we had more people sign up and pay, we also had far more people sign up and try without paying. Several of those users also gave us free, insightful feedback. Especially if you are starting a new service, this is worth more than the paying customers who give no feedback.
Cost of provisioning and supporting was already mentioned - that's big .
Another key point to consider is the amount of effort required from the user in order to derive value from your product. If the product can be used easily and passively (e.g. Pandora) than a free signup makes the most sense.
If your product requires higher user engagement to be useful - i.e. they need to dedicate an hour or two to working with it, or need to integrate with something, than a refund or out may make more sense - many people treat free trials as worth what they paid for them - nothing. If someone has to pull out a CC, they have more likely overcome the hurdles necessary to engage with your service.
Another key point to consider is the amount of effort required from the user in order to derive value from your product. If the product can be used easily and passively (e.g. Pandora) than a free signup makes the most sense.
If your product requires higher user engagement to be useful - i.e. they need to dedicate an hour or two to working with it, or need to integrate with something, than a refund or out may make more sense - many people treat free trials as worth what they paid for them - nothing. If someone has to pull out a CC, they have more likely overcome the hurdles necessary to engage with your service.
Even if someone has split-tested, the specifics of how much the product costs, what it provides, how much time it saves the user, and its perceived value all make a huge difference on where the split-testing ends up. Apples and oranges.
I would always go with 14 day trial. Sometimes I just want to check the app without providing Credit card number, and I almost never try apps that require Credit card upfront.
Also there are situations when you are only a employee of a company, and you want to try some app before you recommend it to management. In that case your app won't even have a chance to be recommended because I can't try app without credit card.
IMHO trial is the best option.
Also there are situations when you are only a employee of a company, and you want to try some app before you recommend it to management. In that case your app won't even have a chance to be recommended because I can't try app without credit card.
IMHO trial is the best option.
Definitely option 1. You want to make it as easy as possible for someone to start using your service.
Free trial.
If I'm interested and there's a free trial, I'll always sign up.
If I'm interested and I have to give a credit card to try it, even if there's a money back guarantee, I usually look at other options.
If I'm interested and there's a free trial, I'll always sign up.
If I'm interested and I have to give a credit card to try it, even if there's a money back guarantee, I usually look at other options.
They use 'trial periods' as selling point number two on their list of features:
http://www.braintreepaymentsolutions.com/services/recurring-...
Does what they claim to offer and what they actually offer differ massively then?
http://www.braintreepaymentsolutions.com/services/recurring-...
Does what they claim to offer and what they actually offer differ massively then?
[deleted]
I think it's good to do a free trial if you have a polished product, and do the money back guarantee if you are still in the minimum viable product phase.
If you do option 2, you will have to eat the transaction costs with most credit card processors.
Another option to consider is what the music site rdio.com does. They offer a three-day free trial and then ask for a credit card (which they won't charge) to extend the trial for a longer period. This way you get more people to start using your site and have a way to quickly get a credit card number.
Out of curiosity, why 14 days for option (2) and not 30? I often don't get enough time to fully kick the tires on a product in 14 days, let alone build emotional attachment or get hooked on the utility.
I think it largely depends on how much it costs you to provide a customer account. If this cost is low, I agree with others that #1 is the best option.
See, I tried option #1, and my product, well, it costs me quite a lot. I found that very few of my first month free trials converted to paying customers, they all used bandwidth like crazy, and looking, I believe that the majority of signups used fake names. At the end of this trial period I was left with a rather hefty bandwidth bill and a whole lot of now empty servers. it was pretty miserable. I don't think my actual paying customer signup rate was any different than it was the month before.
so for my business, #2 is the only way to go.
On the other hand, if the cost to you of hosting these free customers is almost nothing, and you are okay with the fact that your conversion rate will probably not be as great as you think it will be and that many of your customers will likely sign up with fake names just to try it out, option #1 might be just fine for you.
See, I tried option #1, and my product, well, it costs me quite a lot. I found that very few of my first month free trials converted to paying customers, they all used bandwidth like crazy, and looking, I believe that the majority of signups used fake names. At the end of this trial period I was left with a rather hefty bandwidth bill and a whole lot of now empty servers. it was pretty miserable. I don't think my actual paying customer signup rate was any different than it was the month before.
so for my business, #2 is the only way to go.
On the other hand, if the cost to you of hosting these free customers is almost nothing, and you are okay with the fact that your conversion rate will probably not be as great as you think it will be and that many of your customers will likely sign up with fake names just to try it out, option #1 might be just fine for you.
I'd recommend having trial periods of at least a month and if the user doesn't add a credit card on the trial's end, the account gets demoted to a free severely limited account. I hate getting locked out of a system and can seriously impact my wanting to stay with the company. Demoting the account gives me an incentive without telling me "hey cheap bastard give me your money or leave!"
I do #2 mostly since customers signing up for my paid SaaS product often need some handholding during the first few days to get started. If I offered free trials, the users wouldn't have that investment they just made mentally pushing them to take the bit of time it takes to ramp up and start seeing the benefits of the product.
I would try option (2) first, but I would not default to a 'money back guarantee', I would just say they get a 10 day trial at a slightly higher rate than the normal subscription.
That way you get a much lower initial price point (the main hurdle), and you rule out a bunch of jackasses that sign up, use the trial, cancel then sign up again.
Refunds should be reserved for customers with complaints otherwise what are you going to give them ?
Also, customer complaints are a great way to help you develop your product so you want to have that personal contact.
That way you get a much lower initial price point (the main hurdle), and you rule out a bunch of jackasses that sign up, use the trial, cancel then sign up again.
Refunds should be reserved for customers with complaints otherwise what are you going to give them ?
Also, customer complaints are a great way to help you develop your product so you want to have that personal contact.
1) This setup works for a free plan, not for a free trial.
2) It's legally ok to call this a "risk free trial", which many users read as a "free trial". I prefer a free trial myself.
3) Just get another payment system and offer a 30 day free trial.
2) It's legally ok to call this a "risk free trial", which many users read as a "free trial". I prefer a free trial myself.
3) Just get another payment system and offer a 30 day free trial.
Option 1
Purely anecdotal, but I won't hand over my credit card to anyone unless I'm actually sure I want their product.
If your service is compelling and your cost per customer is low enough, then I'd go with #1. If you can't convert the users to paying customers then you probably need to revisit your business model.
Assuming your service is useful--and the visitor decides they need/want it--you need to factor in their switching cost. If they have some time invested in configuring and using their account, they will be less likely to move to a competitor. If your service is prone to throwaway accounts, this clearly isn't a factor.
Recently signed up for a 30 day trial with Pingdom and converted to a paying account ($49/month or so). Not sure what their incremental cost per customer would be (middle of the road I'd say) but they provide a useful service and once I got all my servers set up and had a significant history established, I didn't want to bother evaluating/switching to a competitor.
Assuming your service is useful--and the visitor decides they need/want it--you need to factor in their switching cost. If they have some time invested in configuring and using their account, they will be less likely to move to a competitor. If your service is prone to throwaway accounts, this clearly isn't a factor.
Recently signed up for a 30 day trial with Pingdom and converted to a paying account ($49/month or so). Not sure what their incremental cost per customer would be (middle of the road I'd say) but they provide a useful service and once I got all my servers set up and had a significant history established, I didn't want to bother evaluating/switching to a competitor.
For those of you who don't know, Braintree's (payment gateway) sponsoring bank no longer allows new companies to offer a traditional "30-day free trial", take credit card information during sign up, and then charge customers at the end of the free trial (like 37signals).
So, I am trying to decide between the following two options:
1) No credit card required at sign up. 14 day free trial on all new accounts. At the end of the 14 day trial, if the customer has not "activated" their account (that is, provided credit card information and been charged), the account is locked/closed until they.
What I like about this method is that it should convert the most users who land on the site to sign up to use the application. My concern is that the additional step (having to provide credit card info after sign up) could lead to fewer paid users... Keep in mind, though, that I am not offering a free plan, only a free trial period.
2) 30-day money back guarantee. Credit card is required at sign up and the customer is charged immediately. But, for 30-days, the user can cancel the account and receive a full refund.
I like this method because it means 100% users are paying customers and actually get billed. My concern is that a "30-day money back guarantee" + credit card required at sign up + immediate charge will lead to a much lower sign up conversion rate on the website, ultimately leading to less customers then method #1.
- Abi