Free Trial vs. Money Back Guarantee: Who Wins the Battle of Lead Generation?

What’s the one thing that all successful businesses have in common?

That’s right; they generate income.

The problem with generating income, however, is that you need to attract your target audience first and use the right strategies to convert them into leads and buyers. That’s the reason most small business owners pay such close attention to things like enticing copy, great pricing strategies, A/B testing, and email marketing.

But, there’s the twist. No matter how well you nurture a prospect, at the end of the day, it all boils down to one thing: avoiding regret. Simply put, your prospects don’t want to make a purchase that they’ll regret. So they need a guarantee that they will enjoy your product or service.

So, how do you do that? How do you prove to prospects that your products are worth it?

You offer them a free trial or money back guarantee deal to silence their fears and encourage conversions.

The Money Back Guarantee

Money back guarantee is one of the most popular guarantees in the world. In fact, this practice has become so common that most consumers see it as a right, not a benefit. This strategy allows you to collect the money up front, but you will have to work extra hard to keep the customer happy. However, the problem with this method is that it’s so overused that unless your product/service is extremely valuable, it will be really hard to convince prospects that they will get something out of the purchase.

The Free Trial

In a world that promotes and builds a desire for instant gratification, the free trial strategy has become a benefit most customers expect. A lot of startups are offering a free trial service to convert a fraction of free users into paying customers.

If you are a small business, offering a free trial may be your best strategy for lead generation. However, you need to understand that you won’t be collecting cash unless your prospects are satisfied with the products/service and turn into paying users.

So, we’ve explained how these two models work. But, the question now is, which one of these strategies wins the lead generation war? In other words, which method can help you convert more prospects into customers?

Money Back Guarantee Builds Trust

Content marketing guru Neil Patel created an experiment for one of his services to determine which model converts the most prospects. Patel set up different offers, such as 30-day money back guarantee, 7-day free trials, no free trials, and so on.

Before beginning the experiment, Patel didn’t offer any of these benefits. If people were interested in his course, they had to pay $197 and find out later if they are satisfied with the product. Patel was ready to refund unhappy customers, but this benefit wasn’t stated anywhere on the landing page.

After he had added the 30-day money back guarantee benefit, Patel noticed a 21% increase in sales. Out of the people who purchased the course, 12% of them asked for their money back.

At the end of the experiment, Patel noticed that the money-back guarantee model brought him a 6.4% increase in revenue.

The main takeaway: by offering prospects the guarantee that they will get their investment back if they are not happy with the product, they gain more confidence in your small business. The risks they are taking by buying a product they don’t have a way of testing decreasing, encouraging them to take the plunge and make the purchase.

Free Trials Generate More Sign Ups

Patel found that the difference between money back guarantee and free trials was pretty impressive. The number of signups doubled after he introduced the 7-day free trial as compared to 30-days money back guarantee. For instance, if money back guarantee generated 50 purchases, the free trial method generated up to 100 purchases.

However, there was a twist: the back-end conversion numbers didn’t look as great at the front-end one. If just 12% of the money back guarantee purchases asked for a refund, up to 33% of free trial purchases would cancel their order after the trial expired. That means that out of 100 buyers, only 67 people would remain.

Another important lesson small business owners can learn from Patel’s experiment is that you won’t get as many final buyers as expected. Patel found that out of remaining members, only 78% of them had a valid credit card. That means that out of the 67 acquired customers, 22 credit cards were declined when trying to charge the product’s price at the end of the trial.

Money Back Guarantee vs. Free Trials: Which Converts Better?

It’s easy to see that both methods have their strengths and weaknesses. Money back guarantee, for instance, is such a common practice that it’s not powerful enough anymore to convince people it worth the trouble. Free trials, on the other hand, can lead to less conversion than expected. That’s because some people take advantage of these offers to test a product knowing that they won’t be charged since their credit cards aren’t valid.

However, free trials generated a 15% increase in revenue over the money back guarantee technique, proving to be more valuable in converting leads into customers. The experiment showed that people don’t care about guarantees if you offer them a free trial.

If you want to convert free trial users into buying customers, don’t give them everything they need in the free trial. The purpose of this strategy is to give them enough to convince them that your products/service can solve their problems, but not the whole solution. For instance, if you are a small business selling SaaS software, give them access to some options during the trial and full access once the trial is over and they have signed up.

Have you used any of these methods before? Which one worked best for your business?