The BEST Sales Funnel For Your SaaS (new data changed my advice)

0:00Most SaaS founders don't realize that a few small tweaks to their trial funnel can mean the difference between stalled growth and doubling your revenue. In this video, I'll break down the specific trial strategies I've seen move the needle, not just from my 224 investments, but also from nearly 700 startups we surveyed for the State of Independent SaaS Report. The results were so surprising they actually changed the advice I've been giving founders for years. And here's the key, the right

0:26trial strategy depends on your stage. So, whether you're just launching or already converting at double digits, you'll want to see which approach fits your SaaS right now. But before we get into the tactics, let's clarify, what exactly is a free trial and how is it different from freemium? The main difference is that a free trial ends at some point. It might be an amount of time, like a 7-day free trial, or it might be usage-based, like you can send 100 emails through your account before your trial ends. But with freemium, or as I sometimes call it forever free, it

0:57doesn't end. It automatically renews. So, maybe instead of sending 100 emails and having a trial end, you get to send 100 emails every month, forever, without paying. But only when you go over that 100 emails in a given month, do you need to start paying? So, it it renews, it doesn't expire based on time or usage. And so, comparing a free trial to a freemium plan, you can see that with freemium, there's much less motivation to convert to paid. That's one of the reasons why it's actually quite difficult to make work. Let's take a quick look at a page from the 2024 State of Independent SaaS Survey, and you can

1:32see that about 29% of bootstrapped and mostly bootstrapped SaaS companies have some kind of freemium offering versus 51% who offer a free trial. So, not quite twice as many, but it's significantly more. If you're wondering, well, when should I try freemium? Because my default advice is freemium's probably not going to work for you. I'd say 90, 95% of the time it doesn't work. But what are Ruben's rules of thumb for when freemium might work? Ruben is the founder of SignWell and he's one of the most knowledgeable people about SaaS

2:03freemium that I know exist in the world. And he has five requirements for when freemium might work. So even if you have these requirements, you still might not get it to work. But the first one is that you are self-serve and you have simple onboarding. Second one is it's quick for customers to get to value. They don't need to onboard for weeks in order to see value from the product. You

2:22have almost zero cost for each new user. Some element of virality and you're in a very large market, so not a small niche. And again, even if you have all five of those, there's no guarantee it's going to work, but those are the five minimum criteria that I would look at if I were to even consider launching a freemium plan. There is a reason that free trials are so much more prevalent than freemium. And what's interesting with those numbers of 29% and 51% is I bet a lot of those freemium offerings are not actually working. So now let's talk about your trial and whether you should

2:54ask for a credit card up front before someone gets to try your product. Big question you have to ask is is the person who's signing up for your product likely to have a company credit card? For example, a software engineer at a very large company might not have a company credit card. And so if they are the person who's going to be signing up or they are your end user, well, maybe you don't require credit card on this one. But if you're selling to engineering managers, they are very likely to have a credit card. In fact, at my last startup Drip, we ran an experiment where we asked for your email

3:26address and your password on one screen and then on the next screen we asked for a credit card. And if the person bailed before entering the credit card, we emailed them like it was 12 hours or a day later and we offered to let them in to the trial without a credit card. And somewhere around 0% of those we let in were a good long-term fit for the

3:47product. Now, I say approximately zero. There were certainly a trickle of people, but the quality of the leads of folks who wouldn't enter their credit card up front, who we then let in without a credit card, was significantly, and I mean 10 to 20 times worse than when we had the credit card up front. So, it might sound like I'm totally pro credit card up front. But, here's the thing, if you're just starting out and you have no brand and you have a trickle of people coming to the website, but they're not signing up for trials and you do want to I get some type of feedback, it might not be the

4:15worst idea to remove that credit card early on to get people in and, you know, they're going to be less qualified, but if you don't have enough users coming in and you don't have any support going on, then having folks come in and try the product and to at least try to have conversations with them, it can be worth it. Just know that you're going to get a lot of unqualified people if you do that. When I bootstrapped my last SaaS, we did ask for credit card up front because I had a big launch list, 3,400 people who were interested in trying out the product. And so, I put a credit card

4:48gate up front because I didn't want a bunch of unqualified people coming in and swamping us. So, if you're in that position, I'd probably ask for credit card up front early. And then, once you're rolling and you know that your funnel is working and let's say you're doing hundreds of thousands a year, let's say 500k or a million or 2 million, it probably makes sense if you're asking for credit card up front to experiment with removing it to see what impact it has, as long as you can roll it back. Because at this point, you'll have historical numbers, you'll have really good knowledge of your business and you'll be able to see how

5:17it impacts your company relatively quickly. Now, maybe it takes a month or two and then you have to look at churn and there's all kinds of things, but it is a worthwhile experiment because it is a big bet and sometimes you have to take big bets to really change the trajectory of your business. I do know of a company that removed credit card up front after

5:34they were doing about a million a year. It happened to make absolutely no difference to their particular business. Now, that doesn't mean that it would be the same for your business, but it is one data point that I often think about. Let's take a look at another page from the 2024 State of independent SaaS where we looked at the rate of free trial requiring credit card over 4 years. And

5:53you can see in 2020, it was around 73%. In 2021, it ticked up. In 2022, it ticked up. And then in 2024, it ticked back down relatively significantly. What is that a like more than 10% drop. But this gives you an idea of still about three quarters of mostly bootstrapped SaaS companies are requiring credit card up front before allowing someone to start a trial. And the reason for that is that when you're bootstrapped and you're time limited, asking for credit card reduces noise and your support burden. But realize it also might turn away a small number of qualified prospects, especially if your competitors allow a trial without credit

6:33card. So that's another factor is looking around at the competitive landscape. And if all of your competitors have freemium, for example, and you don't, well, maybe it's time to think about it. It doesn't mean they're making it work, but you might need that to get customers. And if your competitors are allowing a trial without a credit card, there's definitely a pull there. You definitely absolutely should, but it's another data point in thinking about this. In our state of independent SaaS report, we had some expert analysis by Asia Orangio, the founder of Demand Maven. And one of the things she looked at were growth rates and churn based on

7:04whether you had a free plan, freemium plan, or whether you asked for credit card up front or not before your trial. So when we look at the month-over-month growth on average for these three options, free trial with a credit card required is double the growth of not requiring a credit card. And it's about what 40% more than having a freemium plan. In addition to that, churn is the lowest with credit card required. Based on this data set and this analysis, it would imply that credit card required might be the way to go for the majority of mostly bootstrapped SaaS companies. I would also point out that if you're not

7:41asking for a credit card, I think that could mean these are more early stage companies who haven't quite figured out their funnel, and that could be a reason that their month-over-month growth is low, and their churn is relatively high. And lastly, I want to bring up this very puzzling slide. I'm I'm genuinely puzzled by this. Asia looked at lifetime value of a customer for free, and then free trial with credit card, and not and free trial without a credit card offered 2.2 times the lifetime value. I genuinely don't know how to explain this, but these are the numbers from the data set. It is interesting that the

8:16lifetime value of a free plan really free plan this is why it's tough to make work. I think a lot of these folks are trying it and in the process and with the churn so high and month-over-month growth not great and the lifetime value so low, you can see why it's an uphill battle. But could this be a case for not asking for a credit card before your free trial? It might be. And what this also might indicate is like I said earlier, past say a million in ARR and you do want to do that experiment of removing the credit card, you're probably at a pretty high lifetime

8:47value. And so this could imply that this high LTV is attributed to companies that are a little bit later stage and have their funnel more figured out. In a minute, I'm going to revisit what I got wrong in the advice I used to give about trials. But first, if you've made it this far, that means you're really in the weeds of trying to optimize your pricing, which means you're my kind of people. You should consider joining us in MicroConf Connect, our vetted community of SaaS founders. It is a worldwide community that runs year-round and there are amazing conversations, monthly live events, quarterly live Q&As with me, and a lot of camaraderie. We

9:26have a full-time moderator and we charge to keep the quality of that community much, much higher than any free community you've ever been a part of on the internet. I believe MicroConf Connect is one of the best, if not the best, paid communities for bootstrapped and mostly bootstrapped SaaS founders. To apply, head over to

9:44microconfconnect.com. So, my default recommendation used to be that all founders should ask for credit card up front, but these days I can see a case, especially in the early days, to remove it if you're not getting enough feedback on your product. And I can also see a case to remove it once you're further along and you know your business well, you have revenue coming in, and you want to run it as an experiment to widen your funnel. At the start of this video, I talked about how freemium and free trials are different. Freemium can be a great marketing strategy if your SaaS checks a few critical boxes, which

10:13I lay out in this next video. Generally, most founders should avoid freemium, but as with all things, there's nuance. Check it out and see if it's right for you. Thanks for watching, and I'll see you next time.