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How to Convert a Free User to a Premium User

206 points by cuu508 8y ago

mrhappyunhappy 8y ago
Easy, limit their backpack space.
dagoat 8y ago
If you're in a niche where there are no freemium models/plans, is it still a good idea to offer one? It seems to me that many of the examples provided are of businesses in highly competitve spaces, where free alternatives likely already existed/were being offered by competitors already.
- chdaniel 8y ago
  Depends on how able are you to offer that, without more background info it's harder to say. But then it also boils down to intent, just like I said in the article. You might have created a blue ocean for yourself and say "I don't need to offer freemium". But exactly what I'm trying to reach in the written piece is this idea around the equality of opportunity — "If your intent is to create a win-win environment and give equality of opportunity so that eventually the next Leonardo da Vinci will come from under your rooftop (and he won’t forget that), this is a way to solve the freemium-to-premium user conversion problem."
lubujackson 8y ago
A few days ago there was a Medium post from the founder of GumRoad where he talked about companies create value but only ever capture a small portion of it. Combined with this post, I think there is an argument for always doing whatever creates the most overall value between the company and its users. Worry about capturing it later (as long as you can survive) but if a choice increases the company's overall value creation, it is probably the right choice. It makes a simple decision out of many complicated scenarios.
- chdaniel 8y ago
  thx for the comment. yep, it's exactly about worrying about how to capture the value later. but through equality of opportunity, more often than not it will make its way to you (this captured value) as I mentioned in the article, it might be hard to grasp for someone who didn't experience it
amyxyou 8y ago
Great post! Thanks for sharing
forgotmypw2 8y ago
flagged for being an empty page with a spinner.
- chdaniel 8y ago
  my website might be slower now because of the influx of users but it definitely loads!
  - yorwba 8y ago
    I believe they were referring to the fact that JavaScript needs to be enabled to read anything on the site, despite all the content actually being there. It's just hidden by some annoying <div class="mauer-narrator-preloader"><div class="mauer-narrator-spinner"></div></div>. Maybe you think the spinner is a better experience than getting a glimpse of the partially-loaded page, but I feel like the browser successively displaying content is a much better progress indicator than some dummy image spinning in a circle.
    - forgotmypw2 8y ago
      Thank you.
    - chdaniel 8y ago
      It's a humble Wordpress theme but thank you for pointing it out — I'll check with my developer, see what can be done. Maybe switch to lazy loading
cuu508 8y ago
This article really resonates with me: it puts into words how I've been feeling about handling SaaS pricing and product features. My main takeaway is: don't squeeze money out of your customers by severely limiting the free plan. Focus on delivering as much value to your users as possible. Help them grow so you can grow together. You will get happy customers who will be happy to recommend you, and happy to pay for your service. Cloudflare, one of the examples mentioned in the article, is also a hero of mine, in terms of how much value they offer for free.
- chdaniel 8y ago
  you mentioning Cloudflare out of all the given examples is the proof that they're giving out a lot — hence why I said I love them despite never using their service "You will get happy customers who will be happy to recommend you, and happy to pay for your service." — and some of them will become friends. we're talking long-lasting friendships because you helped them get off the ground thx for the comment!
- michaelt 8y ago
  My main takeaway is: don't squeeze money out of your customers by severely limiting the free plan. Seems to me how well offering a free tier will work depends heavily on what your product is - and whether it provides a logical place to separate the tiers so users are motivated to pay without losing the goodwill the free tier aims to generate. For example, if you're a SaaS version control system, it's easy: Charge per-user-per-month for private repos and corporate-single-sign-on-system integration. Boom, no hassle or difficult sign-up for free tier users, practically every company with more than a handful of developers has to pay, companies with 100x as many employees pay 100x more, no need to annoy free-tier users to push them onto the paid tier, no semi-permeable paywall where users can clear cookies or open multiple accounts. But if you're a social network, or a tool for debugging regular expressions, or a chat app, or a newspaper, or a streaming music service? Much harder to draw such a tidy line.
  - chdaniel 8y ago
    But wait, isn't the biggest social network the perfect example? Made it free for everyone, gathered so much attention But when you want to advertise, you'll have to compete with so many others, hence the bidding. One could argue the "you're the product when the product is free", true but the equality of opportunity is there. And the cost of entry is 0.
chdaniel 8y ago
hi guys, I'm very humbled to have my content shared here. I'm very open to any kind of discussion around this topic. Feel free to reach me at daniel@chagency.co.uk
- applecrazy 8y ago
  Your description of Mailchimp’s freemium plan is missing, or it doesn’t load in.
  - gnicholas 8y ago
    Didn’t load for me either, and frankly I find their offering to be maddening, not joy-inducing. Under 2k recipients: free. Over 2k: $780/yr (at least when I was looking at it). This is way too big a jump from free.
    - chdaniel 8y ago
      Thanks for letting me know. I was just mentioning MailChimp as the targeted audience (tech CEOs) most probably know about the freemium plan, so I didn’t feel like expanding on that. After I noticed it caused confusion, I added some extra comments in there as well. I see it this way: I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea. So the company offering the product (MailChimp in this example) took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium. Which MailChimp does. I know, $780/yr is a lot — but since they might help you start from 0, literally from ground level, I think it's reasonable for them to charge a lot. I don't know their niche so whether 780/yr is fair or not is up to them But let me put it another way: if your mailing list is over 2000 people, aren't there more than $65/mo to be made, more than 8 cases out of 10?
      - gnicholas 8y ago
        > if your mailing list is over 2000 people, aren't there more than $65/mo to be made If the click-through rate is around 10% and the conversion rate is around 5%, then depending on the price point (and whether selling subs or one-time), then quite possibly no. And even if I can clear $100 in extra revenue/month, paying more than half of that to an email service seems like too much. Factor in the cost of my time in building the emails, and I have to clear closer to $200/mo for this to make sense at all. And I don't know the precise costs for the higher tiers, but after seeing this taste of their pricing model, I decided they weren't a good fit for me. If I ever end up as a subscriber, it will certainly be through gritted teeth, not the joy that you describe.
tomxor 8y ago
I love it, it's so much more selfless than the titles suggests... and everyone wins. In retrospect it seems obvious, I suppose good ideas do.
aelhaji 8y ago
The elephant in the room is the lack of true dynamic pricing in SaaS. Dynamic pricing optimizes value capture and at the same time unlocks more value to users who otherwise would be stuck in the free tier. Of course, dynamic pricing is not easy to implement and might result in perceived price unfairness. But done right, you can immediately increase your revenue and drastically reduce the number of free users. True dynamic pricing involves a mechanism, such as the Vickery auction, to measure a user's maximum willingness-to-pay instead of A/B testing different price points. In an ideal world, every active user pays a portion of their maximum willingness-to-pay (perceived value). Disclaimer: I'm the co-founder of Veylinx, a platform to measure maximum willingness-to-pay of users.
- baroffoos 8y ago
  I have noticed a lot of education related subscription services only offer 1 year subscriptions when I only want to try it out for a month first. I guess its because a lot of users won't continue to subscribe for the year so this way makes them more money but I end up not subscribing at all.
- chdaniel 8y ago
  Regarding the dynamic pricing, that's what I address in the next day's article, following this. I was saying that I'm hoping this way of conduting will be the standard more and more as: 1. It’s absorbed into culture as good practice. 2. It’ll be easier to accept micropayments, which I’m sure cryptocurrencies will take us to. Emphasising point #2. I got your email, I'll answer in a bit, thank your writing!
- gingerlime 8y ago
  Veylinx looks interesting, but no pricing info on your website I could find... Is it also part of extracting maximum value? ;-) In all seriousness though, I think your service is something I'd be curious to find out more about and try. But we're a very small company (B2C in higher education), so upfront pricing really helps me gauge if it's something I can realistically explore, or if it's those typical "enterprise: call us" scenarios, then it's just never going to happen.
gnicholas 8y ago
> When I pay them I do so happily as I support their cause. This surely happens, but if it were common then wouldn’t donationware be more successful than it is? I have used various pieces of freeware/donationware over the years but they all seem like they’re just scraping by.
- chdaniel 8y ago
  What I was touching is when I move from a free plan to a paid plan. When the company took the risk. I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea. So the company offering the product took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium. I didn't have in mind donation systems
  - gnicholas 8y ago
    You replied to several comment with this anecdote about "rich people who like to start lean...They have millions in the bank yet ask their cofounder to chip in £5,000 on the idea." What's the point of this illustration? Are you saying this is a jerky thing for rich people to do? Or is there some other lesson here? I'm honestly confused, and it's weird to see it repeated through so many threads. > I didn't have in mind donation systems You say to go as free as much as possible, to get people "on your side". This is precisely what happens with donationware. But people get PISSED when donationware turns paid. They don't jump for joy and open their wallets. If this is the case with donationware, why would it be different for freemium products?
    - chdaniel 8y ago
      Nono, don't get me wrong. The point with rich people (which I've reused because I thought it fit those conversations) is that even if you have millions in your bank account, you imagine businesses with their own 'pots'. I.e. even if I can invest say £100,000 into this business to jumpstart it, I'll first see if it can make some money by itself, just as if I've have had nothing. So I won't buy the £5,000 hardware (just an example) until I made £5,000 profits. That means whatever expenses the business made are paid from the same pot — the one with money the business generated. Maybe after the business reached a certain threshold (and thus proof of concept), these millionaires that I've known will properly invest. If that still didn't make sense, imagine you'll be looking for investment. You won't go and ask for it until you've got proof. In the millionaire case, it just happens to be the same person who's becoming an investor. Regarding the second bit, I'm saying this: it can also be freemium and at the same time a premium plan. Or more premium plans
blackbrokkoli 8y ago
Nice article, bad examples. Spotify restricts the amount of songs you can skip to 10 in the free version. And next they play you an ad where they stage the (premium) feature of unlimited skipping as some revolutionary game-changer for music players. This anti-feature has literally no other upside for Spotify other than annoying users into subscribing. Which is all completely fair, since it is free after all but I can't find any mechanism which is more to the point of “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” I'm on the fence about the assessment of Dropbox as well, it has a load of dark patterns like nagging or bait and switch even and especially for paying users, so I'm not sold it wants to be my friend...
- WWLink 8y ago
  Historically, some spotify ads would straight up say they were being annoying to get you to subscribe. "if you subscribe you don't have to listen to these ads anymore!"
  - Insanity 8y ago
    I believe they still do, at least the Dutch advertisements. Personally, I am more than happy paying for Spotify family.
- chdaniel 8y ago
  > “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” That was a quote from another Quora answer. The article was my answer to a Quora. I found that quote corny and far from what a startup should be. It's not what I believe in. As the article mentioned, the Spotify ads are for people who prefer paying with time. If your time that's being reaped by the ads is worth more than the $10/mo, then you're given the option to pay it. I can't see anything wrong with what they do when looked at it from this POV. I understand where you come from, the "annoy me until I subscribe" but think about 3rd world countries where $10/mo mean way more than they mean in the US. They'd very very much rather pay with time than with currency
- 8y ago
antonkm 8y ago
> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” For me, Dropbox, Spotify and GitHub all do this - naming them as examples of companies that don't is plain wrong to me. Dropbox: 2gb of storage is nothing (weird and a bit sickening, but still). Spotify: The ads experience in Spotify is probably one of the worst user experiences I know - so no real value here. GitHub: no private repos for free users (might have changed?) made me choose Bitbucket. No use without private. All in all, I don't really agree with the article: I actually do believe that a not-amazing-but-still-great experience is the way to go. See: Asana. It's OK++ for free, but I pay because it's better when I pay.
- deleted 8y ago
  [deleted]
- tdurden 8y ago
  GitHub offers private repos for free users now (as of about a month ago). It is limited to three collaborators though.
  - maceurt 8y ago
    Also, before that Github offered free pro accounts for students.
    - chdaniel 8y ago
      Love seeing that! Maybe, just maybe, they do that to enable the Da Vinci example given in the article? Students that might be creating the next Facebook-like company in their dorm? Who knows
    - x15 8y ago
      Unfortunately they denied my application when I tried to get one during my college years. I felt envy seeing some my peers (who had no existing repos, or far fewer than me) get free PRO accounts while github probably though I should just buy one. Long story short, I created a bitbucket account and later made heavy use of gitlab.
goldcd 8y ago
As an end-user - make it cheap and as frictionless as possible (and to providers, my take would to be sacrifice pretty much anything on this altar). I'm not a provider, so can only provide anecdotal advise. 1) Google Drive. I started out (along with I suspect most people on Drop Box). DB blew my mind - it was novel. Then google rocked up and did the same thing. Then I got more capacity for stuff like "doing a security checkup", "integrated with gmail" then "free uncompressed 4k off your new Pixel phone" - and now I pay them cold, hard, money each month. Drop Box just sat there doing little in the meantime apart from asking me for money. Think it all boiled down to me considering them all the same, but google kept me engaged, gave me more every so often - so when I needed it, they were what I was using day to day. 2) Plex. Liked the free version and started using it. More importantly started finding free version kept on creeping into my stack-solutions I was building. "Free really good, but would really find that 'premium version' useful" Then bit the bullet on a "discounted unlimited version for life". Know for a fact there are 4/5 people out there that did the same based on my recommendation/server, and presume it's organically growing on from there. 3) Feedly. Switched to it as a replacement for Google/RSS Reader. I love it to bits and use it daily. Never given them a cent. There is a premium version for $5 a month, which has features I don't need. Seemingly no way to give them beer-tokens, a dollar a month. THE most frustrating use-case. All I can do is recommend them to others, and hope one of them pays (and T&C change doesn't leave me moving on and regretting my recommendation. 4) Spotify. I just paid from the start. Never even tried the free version. I'm 'happy paying'. Maybe similar to Netflix. I'll hand over an extra few dollars for a family plan or a 4k one - but I'm in. Please don't screw me, as the pain of moving isn't something I'm planning for my next month. 5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for).
- chdaniel 8y ago
  Two of your examples are tightly correlated to some other articles of mine. The Google Drive example — I said this: "If you’re in a monopolistic environment and you’re successful, others will come. You can start building the experience right now in order to widen the gap between the next newcomer and you." https://chagency.co.uk/blog/experiences/what-makes-or-breaks-the-long-term-status-of-a-company/ https://chagency.co.uk/blog/experiences/what-makes-or-breaks... Dropbox was in a monopolistic environment, you called it as well saying it was novel. In the meantime, GD came and ate them. Instead of "staying there doing nothing and asking for money", they had time to widen the gap between them and others. Where are they nowadays? They're doing good but they had to remarket themselves towards artists and creatives. I'm not sure where they would have been today had it not been for Apple, Amazon and Google coming up but that's the situation. > 5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for). I've only briefly read about the controversies with them and I know Jordan Peterson is looking to create his own Patreon-like platform. Which leads to my (so far two-part) posts around "Don't hold your user hostages" https://chagency.co.uk/blog/increasing-user-retention/dont-take-your-customers-hostages-facilitate-their-exit/ https://chagency.co.uk/blog/increasing-user-retention/dont-t... In this case, Patreon holds their users hostages — just like you said, you dislike everything about them but it's the only far ———— so far. As a consequence of the controversy (i.e. we, Patreon, do this), at least one more platform will come out. And the guy has some following. Thx for the comment!
EGreg 8y ago
Go further. Give away your entire code base as open source on github. If that will attract a community they will fix the bugs for you. And you can still sell your software to others. Worried about huge corps stealing your lunch? Use AGPL and I got it straight from Mr Eben Moglen that the corps wont touch it with a 500 foot pole.
- chdaniel 8y ago
  This comment has too many American insight I don't have and sounds sarcastic, not sure — if it's not though, let me know what you meant and I'm happy to have a conversation!
jamieson-becker 8y ago
We do something similar to this at Userify / ssh key management (disclaimer: I'm the founder/CEO): We give away 20 servers for free -- no invoice, no credit card needed, nothing. Once you exceed 20 servers, we charge (it's about $70/month). You'd think that 20 servers is way too much to give away, but actually about 76% of our servers are on the paid plan and a huge percentage of our customers come from the invitation referrals when people change companies or consult for multiple companies. (Our pricing might be too low and our product might be a bit too technical and scare off a lot of people who might not even know what SSH is, but for now that acts as a filter and keeps our support costs low; it's working for us, although we'll probably lighten up a bit on the technical homepage in the near future.) Also, the SaaS product acts as a frictionless testing area for people who actually just want to deploy the on-premise version, which accounts for approximately 40% of our revenue. Our customers like the product and we have grown with many of them from free to paid. We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone. The advice in this article works. Build something that provides some useful utility to people, and give as much away as you can. Most people will not abuse it and will return the favor as they grow.
- chdaniel 8y ago
  And that's the wonderful thing Jamieson, even if people would abuse it, you kicking them is a few clicks away. And given that one provides something of value, the premium plans will cover for them. So so glad to see you winning with this "strategy" — it's not a strategy IMO, it's the forward way of living and conducting business. I'll send you an email, would like to connect! > We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone. That's the ultimate level of power and freedom. I wish you well. Ch Daniel
  - jamieson-becker 8y ago
    > even if people would abuse it, you kicking them is a few clicks away We take a pretty liberal approach to this :) there are a few companies on the platform now who just create a lot of companies and keep them all below 20 servers (that's pretty easy to monitor) but so far we haven't kicked anyone yet, and there's also a legitimate reason to do that (if you're an MSP and have multiple clients). We just send an email to clarify if we think it's an issue. > I'll send you an email, would like to connect! Sure thing - it's first.last @ userify! Great to meet you Ch Daniel and thanks for your nice comment!
lucb1e 8y ago
So in summary, give users lots for free and they'll feel like you're their friend and recommend you to their friends and happily pay you?
- chdaniel 8y ago
  Yes and no. Give them free so they can start off the ground. When the 0.01% win (the Da Vinci example), they'll be more than happy to pay you. Also give them free because word of mouth is on steroids then. To cover up for the big costs, charge the premium enough. That might not be feasible for everyone so in the short-term go for the classic approach. But once you can... boy you should do it
lbacaj 8y ago
I love the idea of being generous and having that come back to you. This notion not only works with products but it works in every other part of life. You may not believe in Karma but the vast majority of the good will we put out there will eventually come back to us, at least it is this humble engineers opinion. As a little self promotion, and an example of this idea, I recently built an app that lets people listen to any article, it uses AI to convert the articles to Audio with some amazing sounding open source models. I decided to give folks up to 30 free article conversions per month and only charge after that, if they really love the product. You can try it here https://articulu.com https://articulu.com I may at some point be forced to lower that a bit because it does cost a bunch of money to run TensorFlow in the cloud, but trying my best to keep the karma goin.
- giancarlostoro 8y ago
  Random question ever think of selling your voice library as a product as well? You can put "Powered by" for free users and for paid users it can be shown in an "About" page instead.
  - lbacaj 8y ago
    That’s a great idea, but I’m thinking of giving that away for for free say up to say 1k listens. We’ll see it’s a ton to build as a side project.
    - giancarlostoro 8y ago
      > We’ll see it’s a ton to build as a side project. If you can make certain parts of the code reusable it will be for the better code wise too. But you know your situation better than me, just sharing a simple idea. Good luck, I would love to learn about ML more, but I don't have the background I perceive necessary to pursue that. Plus I've got other things I want to master (it's an ever growing list) that I need to focus on.
- chdaniel 8y ago
  I'm not religious but I love reading about the history and philosophy of religion. Piggybacking on what you said about Karma — it's the golden rule. The intersection of all religions, the bit that's in every. single. holy book. Do unto others as you would have them do unto you. Do good and it'll come back to you — you're not the one to keep the bill. As you said, it's something to be taken out generally in life. I wrote about it in another post, addressing publicly the tech CEO and how she/he should not keep the tab. Do have a read if you're interested: https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-tab/ https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-t... (Please let me know if linking your own stuff is not ok on HackerNews, I just joined the community and it seems lovely) I'd need the opposite of what Articulu is doing — transcribing my video's audio into written word. Had a look and it looks nice, will give it a try! Let's connect, how can I reach you?
dgudkov 8y ago
The article doesn't answer the most important question about the fremium model -- how to balance it? Because the best possible conversion rate is only possible when the fremium is balanced correctly. I've been experimenting with fremium models for a few years and understood that the key to balancing freemium correctly is to precisely understand the value that your product creates. Then the balancing becomes simple: if a user doesn't see much value in the product then it's free. If the product creates significant value for the user then it's premium. Giving away for free a product that creates significant value is charity. Trying to charge a user for a product that offers little value will limit your user base and market awareness. If you don't understand exactly the value your product creates then you are in trouble and not being able to balance fremium correctly is only one of the problems in this case.
- gnicholas 8y ago
  We attempt to do what you describe: charge users for whom we create lots of value (power users), and give it away for free to others (casual users). The difficulty is that if you want word to spread among communities of people that contain your power users (and would-be power users), then by charging them money, you're constraining growth in those key communities. Any thoughts on how to deal with this specific tradeoff? I'd be interested to hear more of your insights, especially about how the balance might change over time. Do you give away more for free in the early days, to raise more awareness? How do you know when it's time to stop giving it away for free?
  - chdaniel 8y ago
    what the hell, I love your beeline reader!
    - gnicholas 8y ago
      Curious to know if you've seen/used it before, or if you just saw it now. FWIW, we have a server-side widget that can be installed on blogs, in case you're interested. Helps maintain attention, and a study done by CNET found that readers were 35% more likely to finish an article when reading with BeeLine.
ada1981 8y ago
He lost me when he began talking about millionaires supporting orphans. Wealthy people tend to give less as a percent of wealth. But the general idea is solid.
blue4 8y ago
Make something useful that someone can trial and feel like they've had enough value from it to pay for it?
utdiscant 8y ago
This quote "By that I mean the freemium model should offer the client the chance to grow — equality of opportunity — and if it does happen that they grow and become profitable, the SaaS starts charging based on that. In a sense, value-based pricing, or at least as much as it could get with a scalable model." kinda implies that your client is a business ("become profitable"). We have teachers as primary users, and I don't think the general arguments apply to that category of users (although freemium is still a very popular pricing model).

206 points by cuu508 8y ago

Easy, limit their backpack space.

If you're in a niche where there are no freemium models/plans, is it still a good idea to offer one? It seems to me that many of the examples provided are of businesses in highly competitve spaces, where free alternatives likely already existed/were being offered by competitors already.

chdaniel 8y ago
Depends on how able are you to offer that, without more background info it's harder to say. But then it also boils down to intent, just like I said in the article. You might have created a blue ocean for yourself and say "I don't need to offer freemium". But exactly what I'm trying to reach in the written piece is this idea around the equality of opportunity — "If your intent is to create a win-win environment and give equality of opportunity so that eventually the next Leonardo da Vinci will come from under your rooftop (and he won’t forget that), this is a way to solve the freemium-to-premium user conversion problem."

lubujackson 8y ago

A few days ago there was a Medium post from the founder of GumRoad where he talked about companies create value but only ever capture a small portion of it. Combined with this post, I think there is an argument for always doing whatever creates the most overall value between the company and its users. Worry about capturing it later (as long as you can survive) but if a choice increases the company's overall value creation, it is probably the right choice. It makes a simple decision out of many complicated scenarios.

chdaniel 8y ago
thx for the comment. yep, it's exactly about worrying about how to capture the value later. but through equality of opportunity, more often than not it will make its way to you (this captured value) as I mentioned in the article, it might be hard to grasp for someone who didn't experience it

amyxyou 8y ago

Great post! Thanks for sharing

forgotmypw2 8y ago

flagged for being an empty page with a spinner.

chdaniel 8y ago
my website might be slower now because of the influx of users but it definitely loads!
- yorwba 8y ago
  I believe they were referring to the fact that JavaScript needs to be enabled to read anything on the site, despite all the content actually being there. It's just hidden by some annoying <div class="mauer-narrator-preloader"><div class="mauer-narrator-spinner"></div></div>. Maybe you think the spinner is a better experience than getting a glimpse of the partially-loaded page, but I feel like the browser successively displaying content is a much better progress indicator than some dummy image spinning in a circle.
  - forgotmypw2 8y ago
    Thank you.
  - chdaniel 8y ago
    It's a humble Wordpress theme but thank you for pointing it out — I'll check with my developer, see what can be done. Maybe switch to lazy loading

cuu508 8y ago

This article really resonates with me: it puts into words how I've been feeling about handling SaaS pricing and product features. My main takeaway is: don't squeeze money out of your customers by severely limiting the free plan. Focus on delivering as much value to your users as possible. Help them grow so you can grow together. You will get happy customers who will be happy to recommend you, and happy to pay for your service. Cloudflare, one of the examples mentioned in the article, is also a hero of mine, in terms of how much value they offer for free.

chdaniel 8y ago
you mentioning Cloudflare out of all the given examples is the proof that they're giving out a lot — hence why I said I love them despite never using their service "You will get happy customers who will be happy to recommend you, and happy to pay for your service." — and some of them will become friends. we're talking long-lasting friendships because you helped them get off the ground thx for the comment!
michaelt 8y ago
My main takeaway is: don't squeeze money out of your customers by severely limiting the free plan. Seems to me how well offering a free tier will work depends heavily on what your product is - and whether it provides a logical place to separate the tiers so users are motivated to pay without losing the goodwill the free tier aims to generate. For example, if you're a SaaS version control system, it's easy: Charge per-user-per-month for private repos and corporate-single-sign-on-system integration. Boom, no hassle or difficult sign-up for free tier users, practically every company with more than a handful of developers has to pay, companies with 100x as many employees pay 100x more, no need to annoy free-tier users to push them onto the paid tier, no semi-permeable paywall where users can clear cookies or open multiple accounts. But if you're a social network, or a tool for debugging regular expressions, or a chat app, or a newspaper, or a streaming music service? Much harder to draw such a tidy line.
- chdaniel 8y ago
  But wait, isn't the biggest social network the perfect example? Made it free for everyone, gathered so much attention But when you want to advertise, you'll have to compete with so many others, hence the bidding. One could argue the "you're the product when the product is free", true but the equality of opportunity is there. And the cost of entry is 0.

chdaniel 8y ago

hi guys, I'm very humbled to have my content shared here. I'm very open to any kind of discussion around this topic. Feel free to reach me at daniel@chagency.co.uk

applecrazy 8y ago
Your description of Mailchimp’s freemium plan is missing, or it doesn’t load in.
- gnicholas 8y ago
  Didn’t load for me either, and frankly I find their offering to be maddening, not joy-inducing. Under 2k recipients: free. Over 2k: $780/yr (at least when I was looking at it). This is way too big a jump from free.
  - chdaniel 8y ago
    Thanks for letting me know. I was just mentioning MailChimp as the targeted audience (tech CEOs) most probably know about the freemium plan, so I didn’t feel like expanding on that. After I noticed it caused confusion, I added some extra comments in there as well. I see it this way: I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea. So the company offering the product (MailChimp in this example) took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium. Which MailChimp does. I know, $780/yr is a lot — but since they might help you start from 0, literally from ground level, I think it's reasonable for them to charge a lot. I don't know their niche so whether 780/yr is fair or not is up to them But let me put it another way: if your mailing list is over 2000 people, aren't there more than $65/mo to be made, more than 8 cases out of 10?
    - gnicholas 8y ago
      > if your mailing list is over 2000 people, aren't there more than $65/mo to be made If the click-through rate is around 10% and the conversion rate is around 5%, then depending on the price point (and whether selling subs or one-time), then quite possibly no. And even if I can clear $100 in extra revenue/month, paying more than half of that to an email service seems like too much. Factor in the cost of my time in building the emails, and I have to clear closer to $200/mo for this to make sense at all. And I don't know the precise costs for the higher tiers, but after seeing this taste of their pricing model, I decided they weren't a good fit for me. If I ever end up as a subscriber, it will certainly be through gritted teeth, not the joy that you describe.

tomxor 8y ago

I love it, it's so much more selfless than the titles suggests... and everyone wins. In retrospect it seems obvious, I suppose good ideas do.

aelhaji 8y ago

The elephant in the room is the lack of true dynamic pricing in SaaS. Dynamic pricing optimizes value capture and at the same time unlocks more value to users who otherwise would be stuck in the free tier. Of course, dynamic pricing is not easy to implement and might result in perceived price unfairness. But done right, you can immediately increase your revenue and drastically reduce the number of free users. True dynamic pricing involves a mechanism, such as the Vickery auction, to measure a user's maximum willingness-to-pay instead of A/B testing different price points. In an ideal world, every active user pays a portion of their maximum willingness-to-pay (perceived value). Disclaimer: I'm the co-founder of Veylinx, a platform to measure maximum willingness-to-pay of users.

baroffoos 8y ago
I have noticed a lot of education related subscription services only offer 1 year subscriptions when I only want to try it out for a month first. I guess its because a lot of users won't continue to subscribe for the year so this way makes them more money but I end up not subscribing at all.
chdaniel 8y ago
Regarding the dynamic pricing, that's what I address in the next day's article, following this. I was saying that I'm hoping this way of conduting will be the standard more and more as: 1. It’s absorbed into culture as good practice. 2. It’ll be easier to accept micropayments, which I’m sure cryptocurrencies will take us to. Emphasising point #2. I got your email, I'll answer in a bit, thank your writing!
gingerlime 8y ago
Veylinx looks interesting, but no pricing info on your website I could find... Is it also part of extracting maximum value? ;-) In all seriousness though, I think your service is something I'd be curious to find out more about and try. But we're a very small company (B2C in higher education), so upfront pricing really helps me gauge if it's something I can realistically explore, or if it's those typical "enterprise: call us" scenarios, then it's just never going to happen.

gnicholas 8y ago

> When I pay them I do so happily as I support their cause. This surely happens, but if it were common then wouldn’t donationware be more successful than it is? I have used various pieces of freeware/donationware over the years but they all seem like they’re just scraping by.

chdaniel 8y ago
What I was touching is when I move from a free plan to a paid plan. When the company took the risk. I know a lot of rich people who like to start lean simply for the sake of seeing proof of concept. They have millions in their bank yet they ask their cofounder to chip in £5,000 on the idea. So the company offering the product took the risk (and the cost associated) of seeing if the idea works. But then, what I say is that they should charge enough on the premium to cover for all the freemium. I didn't have in mind donation systems
- gnicholas 8y ago
  You replied to several comment with this anecdote about "rich people who like to start lean...They have millions in the bank yet ask their cofounder to chip in £5,000 on the idea." What's the point of this illustration? Are you saying this is a jerky thing for rich people to do? Or is there some other lesson here? I'm honestly confused, and it's weird to see it repeated through so many threads. > I didn't have in mind donation systems You say to go as free as much as possible, to get people "on your side". This is precisely what happens with donationware. But people get PISSED when donationware turns paid. They don't jump for joy and open their wallets. If this is the case with donationware, why would it be different for freemium products?
  - chdaniel 8y ago
    Nono, don't get me wrong. The point with rich people (which I've reused because I thought it fit those conversations) is that even if you have millions in your bank account, you imagine businesses with their own 'pots'. I.e. even if I can invest say £100,000 into this business to jumpstart it, I'll first see if it can make some money by itself, just as if I've have had nothing. So I won't buy the £5,000 hardware (just an example) until I made £5,000 profits. That means whatever expenses the business made are paid from the same pot — the one with money the business generated. Maybe after the business reached a certain threshold (and thus proof of concept), these millionaires that I've known will properly invest. If that still didn't make sense, imagine you'll be looking for investment. You won't go and ask for it until you've got proof. In the millionaire case, it just happens to be the same person who's becoming an investor. Regarding the second bit, I'm saying this: it can also be freemium and at the same time a premium plan. Or more premium plans

blackbrokkoli 8y ago

Nice article, bad examples. Spotify restricts the amount of songs you can skip to 10 in the free version. And next they play you an ad where they stage the (premium) feature of unlimited skipping as some revolutionary game-changer for music players. This anti-feature has literally no other upside for Spotify other than annoying users into subscribing. Which is all completely fair, since it is free after all but I can't find any mechanism which is more to the point of “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” I'm on the fence about the assessment of Dropbox as well, it has a load of dark patterns like nagging or bait and switch even and especially for paying users, so I'm not sold it wants to be my friend...

WWLink 8y ago
Historically, some spotify ads would straight up say they were being annoying to get you to subscribe. "if you subscribe you don't have to listen to these ads anymore!"
- Insanity 8y ago
  I believe they still do, at least the Dutch advertisements. Personally, I am more than happy paying for Spotify family.
chdaniel 8y ago
> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” That was a quote from another Quora answer. The article was my answer to a Quora. I found that quote corny and far from what a startup should be. It's not what I believe in. As the article mentioned, the Spotify ads are for people who prefer paying with time. If your time that's being reaped by the ads is worth more than the $10/mo, then you're given the option to pay it. I can't see anything wrong with what they do when looked at it from this POV. I understand where you come from, the "annoy me until I subscribe" but think about 3rd world countries where $10/mo mean way more than they mean in the US. They'd very very much rather pay with time than with currency
8y ago

antonkm 8y ago

> “Provide incentive for prospects to sign up for freemium but do not provide too much value so that free version of the product is enough.” For me, Dropbox, Spotify and GitHub all do this - naming them as examples of companies that don't is plain wrong to me. Dropbox: 2gb of storage is nothing (weird and a bit sickening, but still). Spotify: The ads experience in Spotify is probably one of the worst user experiences I know - so no real value here. GitHub: no private repos for free users (might have changed?) made me choose Bitbucket. No use without private. All in all, I don't really agree with the article: I actually do believe that a not-amazing-but-still-great experience is the way to go. See: Asana. It's OK++ for free, but I pay because it's better when I pay.

deleted 8y ago
[deleted]
tdurden 8y ago
GitHub offers private repos for free users now (as of about a month ago). It is limited to three collaborators though.
- maceurt 8y ago
  Also, before that Github offered free pro accounts for students.
  - chdaniel 8y ago
    Love seeing that! Maybe, just maybe, they do that to enable the Da Vinci example given in the article? Students that might be creating the next Facebook-like company in their dorm? Who knows
  - x15 8y ago
    Unfortunately they denied my application when I tried to get one during my college years. I felt envy seeing some my peers (who had no existing repos, or far fewer than me) get free PRO accounts while github probably though I should just buy one. Long story short, I created a bitbucket account and later made heavy use of gitlab.

goldcd 8y ago

As an end-user - make it cheap and as frictionless as possible (and to providers, my take would to be sacrifice pretty much anything on this altar). I'm not a provider, so can only provide anecdotal advise. 1) Google Drive. I started out (along with I suspect most people on Drop Box). DB blew my mind - it was novel. Then google rocked up and did the same thing. Then I got more capacity for stuff like "doing a security checkup", "integrated with gmail" then "free uncompressed 4k off your new Pixel phone" - and now I pay them cold, hard, money each month. Drop Box just sat there doing little in the meantime apart from asking me for money. Think it all boiled down to me considering them all the same, but google kept me engaged, gave me more every so often - so when I needed it, they were what I was using day to day. 2) Plex. Liked the free version and started using it. More importantly started finding free version kept on creeping into my stack-solutions I was building. "Free really good, but would really find that 'premium version' useful" Then bit the bullet on a "discounted unlimited version for life". Know for a fact there are 4/5 people out there that did the same based on my recommendation/server, and presume it's organically growing on from there. 3) Feedly. Switched to it as a replacement for Google/RSS Reader. I love it to bits and use it daily. Never given them a cent. There is a premium version for $5 a month, which has features I don't need. Seemingly no way to give them beer-tokens, a dollar a month. THE most frustrating use-case. All I can do is recommend them to others, and hope one of them pays (and T&C change doesn't leave me moving on and regretting my recommendation. 4) Spotify. I just paid from the start. Never even tried the free version. I'm 'happy paying'. Maybe similar to Netflix. I'll hand over an extra few dollars for a family plan or a 4k one - but I'm in. Please don't screw me, as the pain of moving isn't something I'm planning for my next month. 5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for).

chdaniel 8y ago
Two of your examples are tightly correlated to some other articles of mine. The Google Drive example — I said this: "If you’re in a monopolistic environment and you’re successful, others will come. You can start building the experience right now in order to widen the gap between the next newcomer and you." https://chagency.co.uk/blog/experiences/what-makes-or-breaks-the-long-term-status-of-a-company/ https://chagency.co.uk/blog/experiences/what-makes-or-breaks... Dropbox was in a monopolistic environment, you called it as well saying it was novel. In the meantime, GD came and ate them. Instead of "staying there doing nothing and asking for money", they had time to widen the gap between them and others. Where are they nowadays? They're doing good but they had to remarket themselves towards artists and creatives. I'm not sure where they would have been today had it not been for Apple, Amazon and Google coming up but that's the situation. > 5) Patreon. I'm pretty sure I dislike everything about them - but they do provide a very easy/universal way to send a single dollar a month to somebody I admire. I pretty much loathe the politics associated (I'm a defend free-speech even though I detest it) sort of a person. BUT no better option yet (wanky youtube $5 a month for an icon in chat, is not what I'm looking for). I've only briefly read about the controversies with them and I know Jordan Peterson is looking to create his own Patreon-like platform. Which leads to my (so far two-part) posts around "Don't hold your user hostages" https://chagency.co.uk/blog/increasing-user-retention/dont-take-your-customers-hostages-facilitate-their-exit/ https://chagency.co.uk/blog/increasing-user-retention/dont-t... In this case, Patreon holds their users hostages — just like you said, you dislike everything about them but it's the only far ———— so far. As a consequence of the controversy (i.e. we, Patreon, do this), at least one more platform will come out. And the guy has some following. Thx for the comment!

EGreg 8y ago

Go further. Give away your entire code base as open source on github. If that will attract a community they will fix the bugs for you. And you can still sell your software to others. Worried about huge corps stealing your lunch? Use AGPL and I got it straight from Mr Eben Moglen that the corps wont touch it with a 500 foot pole.

chdaniel 8y ago
This comment has too many American insight I don't have and sounds sarcastic, not sure — if it's not though, let me know what you meant and I'm happy to have a conversation!

jamieson-becker 8y ago

We do something similar to this at Userify / ssh key management (disclaimer: I'm the founder/CEO): We give away 20 servers for free -- no invoice, no credit card needed, nothing. Once you exceed 20 servers, we charge (it's about $70/month). You'd think that 20 servers is way too much to give away, but actually about 76% of our servers are on the paid plan and a huge percentage of our customers come from the invitation referrals when people change companies or consult for multiple companies. (Our pricing might be too low and our product might be a bit too technical and scare off a lot of people who might not even know what SSH is, but for now that acts as a filter and keeps our support costs low; it's working for us, although we'll probably lighten up a bit on the technical homepage in the near future.) Also, the SaaS product acts as a frictionless testing area for people who actually just want to deploy the on-premise version, which accounts for approximately 40% of our revenue. Our customers like the product and we have grown with many of them from free to paid. We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone. The advice in this article works. Build something that provides some useful utility to people, and give as much away as you can. Most people will not abuse it and will return the favor as they grow.

chdaniel 8y ago
And that's the wonderful thing Jamieson, even if people would abuse it, you kicking them is a few clicks away. And given that one provides something of value, the premium plans will cover for them. So so glad to see you winning with this "strategy" — it's not a strategy IMO, it's the forward way of living and conducting business. I'll send you an email, would like to connect! > We're growing a startup for the long haul and don't have to demonstrate any particular growth rate to anyone. That's the ultimate level of power and freedom. I wish you well. Ch Daniel
- jamieson-becker 8y ago
  > even if people would abuse it, you kicking them is a few clicks away We take a pretty liberal approach to this :) there are a few companies on the platform now who just create a lot of companies and keep them all below 20 servers (that's pretty easy to monitor) but so far we haven't kicked anyone yet, and there's also a legitimate reason to do that (if you're an MSP and have multiple clients). We just send an email to clarify if we think it's an issue. > I'll send you an email, would like to connect! Sure thing - it's first.last @ userify! Great to meet you Ch Daniel and thanks for your nice comment!

lucb1e 8y ago

So in summary, give users lots for free and they'll feel like you're their friend and recommend you to their friends and happily pay you?

chdaniel 8y ago
Yes and no. Give them free so they can start off the ground. When the 0.01% win (the Da Vinci example), they'll be more than happy to pay you. Also give them free because word of mouth is on steroids then. To cover up for the big costs, charge the premium enough. That might not be feasible for everyone so in the short-term go for the classic approach. But once you can... boy you should do it

lbacaj 8y ago

I love the idea of being generous and having that come back to you. This notion not only works with products but it works in every other part of life. You may not believe in Karma but the vast majority of the good will we put out there will eventually come back to us, at least it is this humble engineers opinion. As a little self promotion, and an example of this idea, I recently built an app that lets people listen to any article, it uses AI to convert the articles to Audio with some amazing sounding open source models. I decided to give folks up to 30 free article conversions per month and only charge after that, if they really love the product. You can try it here https://articulu.com https://articulu.com I may at some point be forced to lower that a bit because it does cost a bunch of money to run TensorFlow in the cloud, but trying my best to keep the karma goin.

giancarlostoro 8y ago
Random question ever think of selling your voice library as a product as well? You can put "Powered by" for free users and for paid users it can be shown in an "About" page instead.
- lbacaj 8y ago
  That’s a great idea, but I’m thinking of giving that away for for free say up to say 1k listens. We’ll see it’s a ton to build as a side project.
  - giancarlostoro 8y ago
    > We’ll see it’s a ton to build as a side project. If you can make certain parts of the code reusable it will be for the better code wise too. But you know your situation better than me, just sharing a simple idea. Good luck, I would love to learn about ML more, but I don't have the background I perceive necessary to pursue that. Plus I've got other things I want to master (it's an ever growing list) that I need to focus on.
chdaniel 8y ago
I'm not religious but I love reading about the history and philosophy of religion. Piggybacking on what you said about Karma — it's the golden rule. The intersection of all religions, the bit that's in every. single. holy book. Do unto others as you would have them do unto you. Do good and it'll come back to you — you're not the one to keep the bill. As you said, it's something to be taken out generally in life. I wrote about it in another post, addressing publicly the tech CEO and how she/he should not keep the tab. Do have a read if you're interested: https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-tab/ https://chagency.co.uk/blog/general/dear-ceo-dont-keep-the-t... (Please let me know if linking your own stuff is not ok on HackerNews, I just joined the community and it seems lovely) I'd need the opposite of what Articulu is doing — transcribing my video's audio into written word. Had a look and it looks nice, will give it a try! Let's connect, how can I reach you?

dgudkov 8y ago

The article doesn't answer the most important question about the fremium model -- how to balance it? Because the best possible conversion rate is only possible when the fremium is balanced correctly. I've been experimenting with fremium models for a few years and understood that the key to balancing freemium correctly is to precisely understand the value that your product creates. Then the balancing becomes simple: if a user doesn't see much value in the product then it's free. If the product creates significant value for the user then it's premium. Giving away for free a product that creates significant value is charity. Trying to charge a user for a product that offers little value will limit your user base and market awareness. If you don't understand exactly the value your product creates then you are in trouble and not being able to balance fremium correctly is only one of the problems in this case.

gnicholas 8y ago
We attempt to do what you describe: charge users for whom we create lots of value (power users), and give it away for free to others (casual users). The difficulty is that if you want word to spread among communities of people that contain your power users (and would-be power users), then by charging them money, you're constraining growth in those key communities. Any thoughts on how to deal with this specific tradeoff? I'd be interested to hear more of your insights, especially about how the balance might change over time. Do you give away more for free in the early days, to raise more awareness? How do you know when it's time to stop giving it away for free?
- chdaniel 8y ago
  what the hell, I love your beeline reader!
  - gnicholas 8y ago
    Curious to know if you've seen/used it before, or if you just saw it now. FWIW, we have a server-side widget that can be installed on blogs, in case you're interested. Helps maintain attention, and a study done by CNET found that readers were 35% more likely to finish an article when reading with BeeLine.

ada1981 8y ago

He lost me when he began talking about millionaires supporting orphans. Wealthy people tend to give less as a percent of wealth. But the general idea is solid.

blue4 8y ago

Make something useful that someone can trial and feel like they've had enough value from it to pay for it?

utdiscant 8y ago

This quote "By that I mean the freemium model should offer the client the chance to grow — equality of opportunity — and if it does happen that they grow and become profitable, the SaaS starts charging based on that. In a sense, value-based pricing, or at least as much as it could get with a scalable model." kinda implies that your client is a business ("become profitable"). We have teachers as primary users, and I don't think the general arguments apply to that category of users (although freemium is still a very popular pricing model).