What is Trial Conversion Rate?
The Trial Conversion Rate is a SaaS KPI that measures the percentage of free users that convert to paid users over a predefined period. In practice, the trial conversion rate – or free user to paid user conversion ratio – is a critical key performance indicator (KPI) to measure performance for SaaS companies.
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How to Calculate Trial Conversion Rate
The trial conversion rate metric is of particular importance to companies with a “freemium” business model, most notably SaaS companies.
Conceptually, the trial conversion rate measures the percentage of users that converted into paying customers after testing out the product in the free trial period.
Under the freemium business model, a company’s go-to-market (GTM), customer acquisition strategy is to offer potential customers the opportunity to first use their product at no cost.
While there are several variations of the freemium pricing model, the two most common strategies are offering free trials and/or a free product with limited features.
- Premium Free Trial → For a temporary period, the customer can access the product to test its features. But one minor drawback is that the company might require customers to enter their payment information as part of the free trial, often with an automated charge processed on the date the free trial ends.
- Basic Product → A company can also offer a free, basic version of its core product with limited features. If the product’s capabilities suit the customer’s needs, the customer is likely to desire additional features (and thus eventually convert to a paid customer).
The rationale for companies offering their product (or a basic version) for free – either on a temporary or perpetual basis – is to establish a foundation for ultimately upselling the potential customer.
Since the customer already used the product and has become familiar with some of its features, the product can either “sell itself” or a sales team member can more easily convince the customer to upgrade.
Furthermore, the freemium strategy enables companies to build their user base without the need to spend substantial sums of money on marketing campaigns and sales initiatives.
Even if a customer does not convert, the company can still collect insights from the feedback of the customers that decided not to purchase the product.
From a long-term perspective, the insights obtained from customers that did not convert can often be more beneficial to the company’s longevity by improving its understanding of the target end market (and customer spending patterns).
Why? In a sense, both the customer and the company educate each other – because the customer provides valuable insights in exchange for the free usage of the product).
Trial Conversion Rate Formula
The formula for calculating the trial conversion rate is the ratio between free-to-paid converted users and the total number of free users.
Where:
- Free-to-Paid Converted Users → The number of users that converted into paying customers at the end of the free trial period (i.e. post-trial conversions).
- Total Number of Free Users → The total number of users that signed-up for a free trial (i.e. demo access).
