SaaS Builders: Beware The Free Trial
derickbailey.com
derickbailey.com
Regardless of how long your trial runs, people really need to bake in resource limits. I assume most SaaS companies have offered (or will offer) tiered rate plans based partially on consumption, so if you are starting as a free-only beta, why not bake in some sane resource limits from the start? Some ideas for this might be:
* maximum podcast size/duration (10 min or 3MB free?)
* 4 free uploads, then you pay
* Retention period - free accounts only store data for 30 days from upload
Sure, you are still technically paying for the free folks, but you greatly limit the cost damage while providing reasonable motivation for people to move to a paid tier when they are ready.
30 uses trial - every time you use it you can use it for the entire day. If you don't use, it doesn't detract from the trial.
I'm sure if Heroku, for instance, was a paid product without free trial,it would potentially cost less to paid customers. This and services like mongohq,mongolab,... clearly subsidize free accounts with paid ones.
I think the amazon free tier model is a better model.You have one year to mess around but you still have to pay if you abuse resources.
Of course in the podcast hosting space,things are different since there is a lot of competition. Not that much in the paas market,where good services are rare. Most paas suck,we all know which are the good and the bad ones.
The trick isn't removing free trials, or changing unlimited to limited. Instead, the trick is to find the sweet spot between costing as little as possible while offering enough functionality that someone can actually figure out if it might be worthwhile for their use without giving them too much that they never pay. It strikes me that the OP was too far to one end of the spectrum--knowing their demographic as they were hoping to, they offered a trial that was bigger than the average podcaster would ever use. Where is the incentive to convert if you can get what you need for free?
While I would never presume to know the OPs business like they do, from a strictly personal standpoint, I find great utility in the unlimited-time aspect if budgeted appropriately.
Also, if the podcasts are failing they can't be using much bandwidth? I think this is cognitive dissonance, you're complaining about free users costing you a lot of money in bandwidth yet apparently they are all failing (very few listeners?)
i have a customer that averages 20,000 downloads per episode, and a bunch of others with close to 1,000 downloads per episode. it adds up fast.
The Pro account should be $9 or $10. You should move to dedicated server hosting, or to perhaps Linode, and drastically reduce your cost basis and dramatically improve your value proposition. 250mb of storage is nothing for $19 / month. The numbers just seem out of whack. Shouldn't customers easily be able to store a huge number of podcasts, given how cheap storage is? Store and forget. You want their content on your servers, all of it. For $99 / month I better get a terabyte of storage these days.
Slash your costs to the ground. Boost your value proposition to the sky. Dramatically increase how many podcasts customers can store on your service. You want them to stream your brains out, and you want it all to happen with bandwidth rates around $0.01 or $0.02 / gb.
With scale, and lots of usage, expand what services you offer to customers. Storage & streaming are commodities, so treat them accordingly, and instead focus on building a customer base with modest margins on the core, with an eye on what you can do with all those customers over time.
By going with the easy AWS solution, you're pinning yourself into a very tight corner on costs.
Again, all just an opinion.
Also, while I 100% agree on lowering costs, I think the idea of lowering pricing is foolish. I don't think cutting price in half is going to more than double sales. In fact, with as small as his sales likely are, it's very likely that he could stand to double the lower end plans. Something more like $25/$50/$100 might be more appropriate.
Podcast hosting is a very small niche. It's not wordpress hosting where there are millions of potential sites. You're talking about potentially thousands of customers total in the marketplace. Now, even at 10% of 1,000 potential customers you're talking about 100 potential customers. At $9 a month that's $900 a month, which is not a lot frankly. At $25 a month you're at $2,500 a month which still isn't great but it's somewhat interesting and something you can at least reinvest in customer acquisition.
At even the top end plan $100/month is going to need 100 customers to get to $10,000 which is probably salary replacement level after taxes for one developer, depending on where they live. Realistically, if the average customer pays $20, that means you need 500 customers to get to the same outcome.
If the company gets 10 sales a month and has 0 churn it is going to take approximately 4+ years to get to 500 customers. Figuring on a reasonable churn rate, it's more like 5 or more years at $20/month to get to $10,000 a month.
Now, if you are starting a podcast hosting company on the side, do you want it to take you 5 years to get to income replacement? I wouldn't.
As a comparison, it took the fairly successful time tracking app freckle 5 years to get to approximately $38,000 MRR with much better pricing. I estimate they have around 500 customers based on their $79/mo. plan. http://unicornfree.com/2013/5-years-of-saas-growth-every-mon...
So, unless this guy becomes a lot better at running his app than other SAAS operators have historically been, it could take 5 years to get to 500 customers paying $20/month. And the outcome would be about 1/4 of the revenue of freckle.
The math behind lowering your price rarely works out in terms of getting you enough extra customers to cover the revenue/profit difference.
25 meg downloads don't last very long, so the very worst is that your gigabit pipe gets caught for a bit - hell even a company like Linode does 2GB out for $160/m :).
S3 is very expensive for what you are doing, saying you don't need to own/run servers for things like a podcast is just pissing money into the wind.
linode's $160/mo plan would cover me for a while. i'm transfering around 4TB a month right now, and that would cover 16TB.
thanks for the feedback and suggestions! this is something i'll need to keep in mind in the near future.
Anyone could try it out with a small or starting podcast, but would have to pay out once it became popular.
What I do know is if you price something up front you'll know right away if your sales pitch works and if your pricing is remotely reasonable.
I know the conversion rate without a free trial won't be maybe as high, but when you are looking to just validate a product and a marketing strategy, you need to know if it will turn into real sales. You don't have to have a free trial to sell a product.
Surprisingly, in the online world we think everything is different and that nobody buys things without a free trial of some kind, but over and over again I see products and services that sell without a free trial.
I think it's doing early stage products a disservice to assume you have to have a free trial to make money. When you are proving out if a product will sell, you need to know if people will pay you money for it, not if they are casually interested in trying it.
If it don't make dollars, it don't make sense.
'Free' gets you a lot of tire-kickers automatically, whereas a guarantee pre-qualifies the customers to the people who can afford to float you some cash. If they're a tire kicker, at least they're not a totally broke / budgetless tire kicker.
There are other free sweeteners that you can offer that aren't a free trial.
You don't want something completely limiting, but you need a carrot there, and if you offer "enough" to a free user they'll lack an impetus to upgrade.
I don't think there's a lot of risk in changing the freemium terms down the road if that's the case.
50% of your signups never uploaded a podcast, but once they did, 80% uploaded more than one. Your takeaway from this should be that you absolutely need to do everything you can to onboard the user and get them to upload their first podcast because once they do, they are much more likely to continue using the service. I am guessing that now that you have a money back guarantee your average customer will be more motivated than before, but you still need to work to build processes that help users get started and continue using the service, otherwise your churn is going to be horrible.
As I see it, paying $400 a month for a "bug discovery" service is not that bad if it helps to improve your product. It is your expectations that are not in line with yours actions.
It is true that "people Don’t Value Free Things", but it is equally true that you don´t value your customer´s time.
They make big generalizations (free trials are bad!) based on hindsight reasoning and very few data. For every article you find that says you should do X, you can just as easily find one that says you should NOT do X.
With that said, two good sources of information are Jason Cohen[0] and Patrick McKenzie[1].
[0] http://blog.asmartbear.com/ [1] http://www.kalzumeus.com/blog/
And if you're looking to have someone in your corner who has done this, give me a shout!
An example, eFax: a black hole of pure evil when it comes to cancelling: anyone who ever tried wants to murder kittens afterwards. Whatever you do, never ever ever signup for that thing. Seriously. (At least in the U.S. there is the chat and twitter options, but in Europe, you're basically screwed unless you cancel your credit card).
I think it depends on the market and the business tastes of the founders/owners.
I've ran a couple of businesses, and I tend to agree with Derick that I'd prefer to get my money now, rather than at some point in the future.
This can be off-putting for some potential customers, but then again this depends on the market.
If I'm creating a vertically integration Saas in a very niche market, I think it's appropriate.
If I'm doing a social app, then you basically have to give it away to increase user acquisition, and book the cost of the new user as part of the user acquisition cost equation.
Current project...trials are popular, but getting people engaged in the trials is tough. Lots of engagement diet day..then it drops sharply off,many no amount of emailing bumpsup the return rate about a percent or two.
I think it depends on the market, the product and the price point. I think for free trials to work, the person has to have a recurring use for the product, and can easily get value after a short and simple install/initiation session.
A lot of trials I see are 14 or 30 day, 10 not so much.
> "Beware The Free Trial ... SaaS builders! BEWARE!"
I don't think it's just a lack of emphasis... It's the presence of jumping to conclusions and offering that as a general lesson.
In other words, there are spaces where those costs are far more negligible, such that you could certainly afford 500+ abandoned free trials to convert 1 paid customer.
So if your conversion rate is X and you offer Y and you're losing money, you probably need to reduce what Y costs (or can cost) you.
What is he offering? Podcast hosting service? That's commodity. Of course it doesn't make sense to offer free trial if you are selling commodity-based service. How many hosting companies are there offering free trial? Hint: Not many.
However, if you are offering a service with lots of added value which has strong lock-in effect (it's difficult for customers to switch), then do free trials by all means. If you don't, you will eventually do anyway. Let me explain...
When your startup acquires first customers, you really want to be selective about who your first customers should be. Ideally you want to find "zero-maintenance" customers who just use your service, pay monthly and never really bother you so you can concentrate on growing your startup.
It's true your conversion rate will decrease when you do free trial because as a new product, your free trial will suck so much that hardly anybody will make it through (think 5% if you are lucky) but those that make it true will be the most forgiving and the easiest customers you will ever have.
If you charge up-front, many people who would normally drop off during free trial will try to make your product work by making various compromises. They have all the incentives to do so because that will avoid them hassle of trying to cancel their subscription and get refund.
But I'm afraid this will also kill your little startup. Now you will get needy customers who are not completely in love with your product, made certain compromises and basically hate you for tricking them into using your service and they will make you work hard for a few dollars they are paying you. Not to mention, your churn rate won't be anything to write home about.
You need to work hard to acquire new customers, and hardly work on supporting existing ones. Your startup can't afford your existing customers to be pain in the neck when you are the most vulnerable.
By the time you have a lot of customers, your free trial on-boarding process will improve so much that you won't even think of charging up-front anymore.
If the top users under freemium no longer want to use the service if you start including them in a paid group, then you have a problem and might have to rethink pricing or the business model overall.
Soured me on trying out new platform services pretty damn hard.
Anyone has similar experience with removing free trial? I wonder if it's actually a trend or a single occurrence.