7 ms·

SaaS Pricing: Our Big Free Plan Mistake

57 points by AliCollins 11y ago

adibchoudhury 11y ago
Thanks for the insight. We're looking at pricing options for our new SaaS tool, and we have come to similar conclusions. It's important to have a free version (and not just a trial) so you establish a solid user base, but to make sure that there's enough premium content/features worth paying for down the line. Another focus could be enterprise-sales, where free accounts generate some attention but focus on enterprise-sales generate the revenue.
eterm 11y ago
It's always good to read data about this stuff. One thing that stood out was "Free users eat up support". I would have thought the first thing to offer to paid users but not free users would be support! By all means provide a forum for community-lead free support, but talking to an actual person should come at a cost.
- JoshTriplett 11y ago
  Or, at least, such support needs to be best-effort and only insofar as it benefits the product. If a free user reports a bug, by all means put it in the queue to fix, prioritized appropriately for its impact to all users and not just the user who reported it.
- gabemart 11y ago
  >I would have thought the first thing to offer to paid users but not free users would be support! Unfortunately, this makes the free plan less viable as a demo for the paid plan. People who sign up for a free plan to test out the service before getting a free plan may not convert if they don't get support.
  - jdmichal 11y ago
    Got tiered pricing? Get tiered support too. Not a difficult problem to solve, by any means. Support can go all the way from prioritized ticket systems (cheaper -> lower) to having the cell phone number of the guy in charge of your account.
simonswords82 11y ago
Pretty sure that back in the day 37 Signals said that one of the mistakes they made was giving away a free plan for their apps, and that if they could undo that they would have. Pricing is HARD - properly hard. It's so easy to get an imbalance between value offered and amount paid. It's equally as easy to get distracted by competitors undercutting you. Solution to this? Never compete on price, it's much better (and more sustainable) to offer value that sets you apart. At least this is what we've done with my SaaS B2B app http://www.staffsquared.com http://www.staffsquared.com and so far so good :)
encoderer 11y ago
We regularly debate whether to continue offering a free tier. Usually one of us will read a blog post like this and we re-start the conversation where it left off last time. In our case, the free plan has survived because, with real analysis, they cost us almost nothing, ask for almost no support, and help us create mindshare of a service that many of our potential customers haven’t discovered yet. I’m not certain we’re correct to keep it, but so far we’ve not found anything that convinced us to stop offering it.
- tracker1 11y ago
  I think it really does come to a case by case basis... it depends on your costs, turnover and conversion rates.
btbuildem 11y ago
So, the "Will remain free forever" line was a lie, huh? I wonder if some litigious user can try to hold you to it..
- Judson 11y ago
  I imagine that current holders of the plan would be grandfathered.
- notwhereyouare 11y ago
  the impression I got was that they are just no longer offering the free plan. If you signed up when it was free, you are good. Otherwise, you have to pay now
  - jaredbrown 11y ago
    Correct
- jakejake 11y ago
  If anybody wanted to bother they probably could hold them to it. They didn't really mention whether the existing accounts were grandfathered in. If not then it was rather dishonest of them to promote "free forever." They could have just said "free" instead.
  - brianwawok 11y ago
    I plan to sue them after the universe ends, as that is before "forever".
rokhayakebe 11y ago
If your software targets businesses, just charge. Many assume businesses won't pay because their initial target audience are tech savvy individuals who are used to freemium. I work for a small business. They are willing to pay.
extc 11y ago
One thing not discussed is the difference between $0 and $24. It's likely that some users that actually valued the service looked else where because they didn't offer a $10 or $15 option, not because they just wanted a free service. Of course, this is just speculation.
- dnevogt12 11y ago
  Yeah, we now have a 15$ option. You are correct, this is something we realized after getting started. The 15$ plan is in fact now our most popular plan.
m_fayer 11y ago
One lesson I've learned, and that's hidden in this post, is to never use language like "free forever." It feels awesome and badass to write something like that, but I think for most of us it's hubris, we can't actually know that "forever" will work out. Later, when the choice is between "iterate on your pricing model" or "go out of business", I also think most of us would iterate. But the feeling of making that "free forever" box disappear is much shittier than the little high you got from writing it.
nowarninglabel 11y ago
One reason Freemium works for Pandora is because, according to an employee I've talked to there, the advertising revenue from a free user can be nearly as much or even greater than the 4.95/month from a paying user. Granted, I don't have a source other than the person's word and I doubt Pandora reports on their revenue split that way.
- jdmichal 11y ago
  Pandora properly embraces the philosophy, "If you aren't paying, you're the product." If you can't monetize free users, then they are a liability, not an asset. Especially when they are eating up resources like support time. I have no idea why free users would even have access to the same support as paid users, as seems to have been the case here.
- jeffmould 11y ago
  I can believe this. I have a free Pandora account and usually listen to it for 1-2 hours almost every day. In that time period I hear between 5-10 ads on average. I am not sure how much Pandora makes on each of those ads, but that is potentially around 200+ ads I am exposed to monthly. Plus with Pandora an advertiser should have a better than average chance their ad is heard/seen since the user is forced to hear/see the ad in order to continue listening in most cases.
aantix 11y ago
Not sure why companies are still obsessed with obtaining millions of cheap/non-paying users? Fantastic, you've acquired an audience of people so cheap they refuse to buy your entry level tier product.. Sounds like an awful problem. At the very least, if you're going to offer a free tier, make it a trial and capture their credit card up front. Charge it after 30 days. Make the user get serious about whether this product is for them. And in turn, it makes your company get serious as to whether this is a viable business model or not.
- Karunamon 11y ago
  make it a trial and capture their credit card up front. Charge it after 30 days. FWIW, I personally refuse to do business with companies that utilize this kind of flow - it feels like a scummy dark pattern, where they're banking on people to forget they've signed up and they can get at least one month's worth of charge out of it. That goes double when you can sign up online but it requires calling in (and talking to "retention" people) to cancel. "But we don't want to interrupt your service.." goes the salesman.. yeah right. If you're going the free trial route, fine, but it should require affirmative action after the trial to begin billing. You don't need my credit card until I've actually bought something from you.
  - jdmichal 11y ago
    I agree. Ticking time bomb on the account is fine, and a series of triggered reminder emails should be sufficient to prevent the dead switch surprise. Asking for payment information before I even begin a free trial leads me to assume that you don't believe your product is good enough to withstand the trial period on its own merits, and you are hoping to catch me just forgetting about it. Makes me wonder what other questionable actions might be taken, especially regarding hard things like security. Does not make me feel safe at all.
  - curiously 11y ago
    FWIW, I personally refuse to do business with companies that utilize this kind of flow Well, I think you know the river runs both ways, they probably want to filter out people who share that mentality, not judging your views on morality or whatever but it does not support your argument at all. If you are not willing to provide a card up front it means you don't have money to spend right there and then, and those companies probably are more interested in talking to those who have shown they are able to pay if required.
manishsharan 11y ago
Apologies for a off-topic question : isn't HubStaff from the same guys as Hubspot, which is very well funded marketing platform? if so, isn't Hubstaff a distraction from Hubspot? Or is this the proverbial pivot ?
- dkyc 11y ago
  They are not affiliated, and are in quite different stages. Hubstaff currently nets some $40k MRR (you can see their live metrics here [0], pretty cool), whereas Hubspot has $115 million dollars in annualized revenue [1]. [0] https://hubstaff.baremetrics.com/ https://hubstaff.baremetrics.com/ [1] http://marketingland.com/hubspot-2014-earnings-report-revenue-jumped-49-customer-count-35-118090 http://marketingland.com/hubspot-2014-earnings-report-revenu...
  - manishsharan 11y ago
    My bad ! I found the logo and the name of the two to be quite similar and made incorrect assumption.
lowglow 11y ago
Why not use the model of offering the first month of a premium account for free, and then converting those users?
joeyspn 11y ago
I was contemplating to pick a freemium model for an app I'm building but after reading this (and few more) post(s) from this blog I changed completely my mind. Premium + Free Trial is actually the best choice for many SaaS projects. Read it carefully... http://sixteenventures.com/freemium-or-free-trial http://sixteenventures.com/freemium-or-free-trial
jusben1369 11y ago
A long time ago Mailchimp had a great post on the free pricing plan. One of the most important observations they made was "Wait until you have a full blown support team in place before offering a free plan" So they were basically saying wait 2 - 3 years in at least until you could layer on the additional free support for these plans before offering them.
arihant 11y ago
I once worked at a non-tech startup. It was a startup, it was less than 50 people, it catered to film industry rather than tech. What I learned was this -- giving your software away for free will probably give you bad rep with businesses. In that company, the head of the digital team "understood" tech, obviously. But it took us insane amount of work to convince management to use a free product. They thought of it as a toy, which would cost company time (and hence money) to implement and get used to, and it won't work. And because it's free, probably nobody would come fix it. They were always worried of a 2-person ramen hogging company running away with their data. I also learnt that they paid in name of support, even if we did not need the product. We bought highly expensive Ooyala licenses just to upload videos to Youtube (Ooyala offers a lot more, but we didn't care for that). Yes, I know we can directly upload them, but as Youtube was free, they didn't trust the upload system in case of crisis. With Ooyala, they had someone to call if shit hits the fan during critical and timely upload. Free plans are weird. I would rather try offering companies a demo or pilot. And offer a reasonable money back guarantee. At least with making the customer contact you first for demo, you're in conversation with them. You can gauge if they will ever buy the product. If yes, you have a shot at selling. Automation of demo is awfully lazy for a SaaS startup that's just starting out. Outreach, talk, connect. The lazy free automated trial only helps in case you have a me-too product where the customer is jumping from product to product trying to figure out which one to use. If that's the case, you either don't have a USP or don't know how to use it. Either way, you end up in a spiral to the bottom.
CodeWriter23 11y ago
I believe the simplistic division of product offerings was the problem. Pay to get more users? To easy to circumvent. Divide the product along feature set boundaries, where the user can self-select their way past pain points, or between spending their time or their money to save time, then I think you get more conversions to a paid subscription.
RangerScience 11y ago
I think it depends on what it takes to find out if your service is right for me, which is dependent on the type of product you have. For Zencoder, for instance, I wanted to know if I can interface with their API, and do so effectively and easily. So Zencoder offers a free tier, but the encoding is capped at ~5 seconds. I can't actually use their service as a product, but I can use it as a test and development bed. There were competitors I did not evaluate because I could not evaluate them as easily. So the question becomes, what does it take for your service to offer a trial, so that I can determine it's value to me?
mostafah 11y ago
It’s OT, but why is there so much “promotional” crap all over the blog? One can’t read the text without distraction.

57 points by AliCollins 11y ago

Thanks for the insight. We're looking at pricing options for our new SaaS tool, and we have come to similar conclusions. It's important to have a free version (and not just a trial) so you establish a solid user base, but to make sure that there's enough premium content/features worth paying for down the line. Another focus could be enterprise-sales, where free accounts generate some attention but focus on enterprise-sales generate the revenue.

eterm 11y ago

It's always good to read data about this stuff. One thing that stood out was "Free users eat up support". I would have thought the first thing to offer to paid users but not free users would be support! By all means provide a forum for community-lead free support, but talking to an actual person should come at a cost.

JoshTriplett 11y ago
Or, at least, such support needs to be best-effort and only insofar as it benefits the product. If a free user reports a bug, by all means put it in the queue to fix, prioritized appropriately for its impact to all users and not just the user who reported it.
gabemart 11y ago
>I would have thought the first thing to offer to paid users but not free users would be support! Unfortunately, this makes the free plan less viable as a demo for the paid plan. People who sign up for a free plan to test out the service before getting a free plan may not convert if they don't get support.
- jdmichal 11y ago
  Got tiered pricing? Get tiered support too. Not a difficult problem to solve, by any means. Support can go all the way from prioritized ticket systems (cheaper -> lower) to having the cell phone number of the guy in charge of your account.

simonswords82 11y ago

Pretty sure that back in the day 37 Signals said that one of the mistakes they made was giving away a free plan for their apps, and that if they could undo that they would have. Pricing is HARD - properly hard. It's so easy to get an imbalance between value offered and amount paid. It's equally as easy to get distracted by competitors undercutting you. Solution to this? Never compete on price, it's much better (and more sustainable) to offer value that sets you apart. At least this is what we've done with my SaaS B2B app http://www.staffsquared.com http://www.staffsquared.com and so far so good :)

encoderer 11y ago

We regularly debate whether to continue offering a free tier. Usually one of us will read a blog post like this and we re-start the conversation where it left off last time. In our case, the free plan has survived because, with real analysis, they cost us almost nothing, ask for almost no support, and help us create mindshare of a service that many of our potential customers haven’t discovered yet. I’m not certain we’re correct to keep it, but so far we’ve not found anything that convinced us to stop offering it.

tracker1 11y ago
I think it really does come to a case by case basis... it depends on your costs, turnover and conversion rates.

btbuildem 11y ago

So, the "Will remain free forever" line was a lie, huh? I wonder if some litigious user can try to hold you to it..

Judson 11y ago
I imagine that current holders of the plan would be grandfathered.
notwhereyouare 11y ago
the impression I got was that they are just no longer offering the free plan. If you signed up when it was free, you are good. Otherwise, you have to pay now
- jaredbrown 11y ago
  Correct
jakejake 11y ago
If anybody wanted to bother they probably could hold them to it. They didn't really mention whether the existing accounts were grandfathered in. If not then it was rather dishonest of them to promote "free forever." They could have just said "free" instead.
- brianwawok 11y ago
  I plan to sue them after the universe ends, as that is before "forever".

rokhayakebe 11y ago

If your software targets businesses, just charge. Many assume businesses won't pay because their initial target audience are tech savvy individuals who are used to freemium. I work for a small business. They are willing to pay.

extc 11y ago

One thing not discussed is the difference between $0 and $24. It's likely that some users that actually valued the service looked else where because they didn't offer a $10 or $15 option, not because they just wanted a free service. Of course, this is just speculation.

dnevogt12 11y ago
Yeah, we now have a 15$ option. You are correct, this is something we realized after getting started. The 15$ plan is in fact now our most popular plan.

m_fayer 11y ago

One lesson I've learned, and that's hidden in this post, is to never use language like "free forever." It feels awesome and badass to write something like that, but I think for most of us it's hubris, we can't actually know that "forever" will work out. Later, when the choice is between "iterate on your pricing model" or "go out of business", I also think most of us would iterate. But the feeling of making that "free forever" box disappear is much shittier than the little high you got from writing it.

nowarninglabel 11y ago

One reason Freemium works for Pandora is because, according to an employee I've talked to there, the advertising revenue from a free user can be nearly as much or even greater than the 4.95/month from a paying user. Granted, I don't have a source other than the person's word and I doubt Pandora reports on their revenue split that way.

jdmichal 11y ago
Pandora properly embraces the philosophy, "If you aren't paying, you're the product." If you can't monetize free users, then they are a liability, not an asset. Especially when they are eating up resources like support time. I have no idea why free users would even have access to the same support as paid users, as seems to have been the case here.
jeffmould 11y ago
I can believe this. I have a free Pandora account and usually listen to it for 1-2 hours almost every day. In that time period I hear between 5-10 ads on average. I am not sure how much Pandora makes on each of those ads, but that is potentially around 200+ ads I am exposed to monthly. Plus with Pandora an advertiser should have a better than average chance their ad is heard/seen since the user is forced to hear/see the ad in order to continue listening in most cases.

aantix 11y ago

Not sure why companies are still obsessed with obtaining millions of cheap/non-paying users? Fantastic, you've acquired an audience of people so cheap they refuse to buy your entry level tier product.. Sounds like an awful problem. At the very least, if you're going to offer a free tier, make it a trial and capture their credit card up front. Charge it after 30 days. Make the user get serious about whether this product is for them. And in turn, it makes your company get serious as to whether this is a viable business model or not.

Karunamon 11y ago
make it a trial and capture their credit card up front. Charge it after 30 days. FWIW, I personally refuse to do business with companies that utilize this kind of flow - it feels like a scummy dark pattern, where they're banking on people to forget they've signed up and they can get at least one month's worth of charge out of it. That goes double when you can sign up online but it requires calling in (and talking to "retention" people) to cancel. "But we don't want to interrupt your service.." goes the salesman.. yeah right. If you're going the free trial route, fine, but it should require affirmative action after the trial to begin billing. You don't need my credit card until I've actually bought something from you.
- jdmichal 11y ago
  I agree. Ticking time bomb on the account is fine, and a series of triggered reminder emails should be sufficient to prevent the dead switch surprise. Asking for payment information before I even begin a free trial leads me to assume that you don't believe your product is good enough to withstand the trial period on its own merits, and you are hoping to catch me just forgetting about it. Makes me wonder what other questionable actions might be taken, especially regarding hard things like security. Does not make me feel safe at all.
- curiously 11y ago
  FWIW, I personally refuse to do business with companies that utilize this kind of flow Well, I think you know the river runs both ways, they probably want to filter out people who share that mentality, not judging your views on morality or whatever but it does not support your argument at all. If you are not willing to provide a card up front it means you don't have money to spend right there and then, and those companies probably are more interested in talking to those who have shown they are able to pay if required.

manishsharan 11y ago

Apologies for a off-topic question : isn't HubStaff from the same guys as Hubspot, which is very well funded marketing platform? if so, isn't Hubstaff a distraction from Hubspot? Or is this the proverbial pivot ?

dkyc 11y ago
They are not affiliated, and are in quite different stages. Hubstaff currently nets some $40k MRR (you can see their live metrics here [0], pretty cool), whereas Hubspot has $115 million dollars in annualized revenue [1]. [0] https://hubstaff.baremetrics.com/ https://hubstaff.baremetrics.com/ [1] http://marketingland.com/hubspot-2014-earnings-report-revenue-jumped-49-customer-count-35-118090 http://marketingland.com/hubspot-2014-earnings-report-revenu...
- manishsharan 11y ago
  My bad ! I found the logo and the name of the two to be quite similar and made incorrect assumption.

lowglow 11y ago

Why not use the model of offering the first month of a premium account for free, and then converting those users?

joeyspn 11y ago

I was contemplating to pick a freemium model for an app I'm building but after reading this (and few more) post(s) from this blog I changed completely my mind. Premium + Free Trial is actually the best choice for many SaaS projects. Read it carefully... http://sixteenventures.com/freemium-or-free-trial http://sixteenventures.com/freemium-or-free-trial

jusben1369 11y ago

A long time ago Mailchimp had a great post on the free pricing plan. One of the most important observations they made was "Wait until you have a full blown support team in place before offering a free plan" So they were basically saying wait 2 - 3 years in at least until you could layer on the additional free support for these plans before offering them.

arihant 11y ago

I once worked at a non-tech startup. It was a startup, it was less than 50 people, it catered to film industry rather than tech. What I learned was this -- giving your software away for free will probably give you bad rep with businesses. In that company, the head of the digital team "understood" tech, obviously. But it took us insane amount of work to convince management to use a free product. They thought of it as a toy, which would cost company time (and hence money) to implement and get used to, and it won't work. And because it's free, probably nobody would come fix it. They were always worried of a 2-person ramen hogging company running away with their data. I also learnt that they paid in name of support, even if we did not need the product. We bought highly expensive Ooyala licenses just to upload videos to Youtube (Ooyala offers a lot more, but we didn't care for that). Yes, I know we can directly upload them, but as Youtube was free, they didn't trust the upload system in case of crisis. With Ooyala, they had someone to call if shit hits the fan during critical and timely upload. Free plans are weird. I would rather try offering companies a demo or pilot. And offer a reasonable money back guarantee. At least with making the customer contact you first for demo, you're in conversation with them. You can gauge if they will ever buy the product. If yes, you have a shot at selling. Automation of demo is awfully lazy for a SaaS startup that's just starting out. Outreach, talk, connect. The lazy free automated trial only helps in case you have a me-too product where the customer is jumping from product to product trying to figure out which one to use. If that's the case, you either don't have a USP or don't know how to use it. Either way, you end up in a spiral to the bottom.

CodeWriter23 11y ago

I believe the simplistic division of product offerings was the problem. Pay to get more users? To easy to circumvent. Divide the product along feature set boundaries, where the user can self-select their way past pain points, or between spending their time or their money to save time, then I think you get more conversions to a paid subscription.

RangerScience 11y ago

I think it depends on what it takes to find out if your service is right for me, which is dependent on the type of product you have. For Zencoder, for instance, I wanted to know if I can interface with their API, and do so effectively and easily. So Zencoder offers a free tier, but the encoding is capped at ~5 seconds. I can't actually use their service as a product, but I can use it as a test and development bed. There were competitors I did not evaluate because I could not evaluate them as easily. So the question becomes, what does it take for your service to offer a trial, so that I can determine it's value to me?

mostafah 11y ago

It’s OT, but why is there so much “promotional” crap all over the blog? One can’t read the text without distraction.