Is offering a money-back guarantee (say, 30-day refund) on paid plans a good idea to reduce perceived risk, and how does that compare to or complement having a free trial period?

Based on the guidance in our book Price to Scale, both a free trial and a money-back guarantee are tools to reduce customer risk, though they work at different stages of the customer journey.

• Direct Experience vs. Post-Purchase Assurance

A free trial lets potential customers explore your software without any commitment. This hands-on experience often helps them quickly see the value, which can lead to a smoother conversion process.
A money-back guarantee, on the other hand, acts as an assurance after purchase. It minimizes the worry of buyer's remorse by letting early adopters try the full product with the safety net of a refund if it doesn’t meet their expectations.

• Complementary Roles

While our pricing strategy book emphasizes lowering risk as a key driver for driving adoption and long-term revenue growth (for example, see our discussion on reducing perceived risk and addressing customer concerns in Price to Scale), it also suggests that how you reduce this risk may depend on your target customer and sales cycle.
Offering a free trial is generally more effective for SaaS companies that rely on letting users experience the value upfront. However, for customers who may be reluctant to commit even after a trial period, a money-back guarantee can offer that extra reassurance. In some cases, if your product is complex or the purchase decision is high stakes, combining both strategies can be effective.

• Practical Application

You may start with a free trial to drive initial adoption and then reinforce customer confidence at the point of conversion with a money-back guarantee. This two-pronged approach signals that you believe in the value of your product and are willing to stand behind it, which can build trust and reduce overall perceived risk.

In summary, our book Price to Scale suggests that while free trials often serve as the more direct method for reducing risk by letting users experience the software immediately, a money-back guarantee can complement this by alleviating concerns that may linger post-purchase. Choosing to offer one or both should align with your customer profile and overall pricing strategy.