SaaS Pricing: Our Big Free Plan Mistake
blog.hubstaff.stfi.re
blog.hubstaff.stfi.re
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.
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.
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.
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.
I look at it this way. Let's say I come across Acme Corporation's website. They are selling what appears to be a really cool product. I figure I will give it a try and signup for the free trial and at the same time enter my credit card info. I give it whirl, but in the middle of testing it out I get sidetracked with a phone call or whatever and forget to finish testing. I wasn't impressed enough with the little testing I had completed to go back immediately and after a couple days I completely forget I even signed up. Now 29 days later my credit card gets whacked for a $20 monthly fee. I have two choices at this point. I can file a chargeback, which isn't fair to the company. Or I can eat the cost and cancel immediately, which isn't fair to me.
In my opinion, there is absolutely no reason to demand a credit card upfront for a trial.
*Edited to fix a typo.
Sign up now, give my credit card, and to cancel I have to call a phone number which may or may not work and talk to a person who's entire reason for employment is to make it difficult for me to cancel with no assurance that anything has actually been cancelled until the next billing cycle.
When I take over the world, it will be a law on pain of summary execution that any recurring billing which can be signed up for online must be cancellable online :/
The card requirement is a great way to filter out the less serious ones, if we miss one exception like yourself, it's no biggie, there's always someone who need the solution and willing to pay for it.
The only reason where I'd be reluctant to do a card trial is if it was difficult to cancel or they didn't offer a refund if I accidentally forget.
Plenty of shady people using fake cards to sign up for trial as well.
If someone was selling you a phone at a flea market, would you give them your CC number before you knew the phone turned on?
Our biggest mistake was getting rid of the CC on the signup. I could write a very similar blog post. Free trial period with a 60 days money back guaranty works the best for us and our users.
Are you judging a conversion as someone that's paid for at least one month off service?
- Github
- Heroku
- Cloudflare
- MS Azure
AWS perhaps being the biggest one to charge immediately, although that's so incredibly low, I wonder if it still even counts. And even they have a free tier...
I think AWS is the type of free the GP supports: limited time, credit card up front, clear upsell channels for the limited service.
Well, it worked out for GitHub because:
1) they have a great product and everyone can see how great it is, without signing up;
2) because of the nature, the word spreads exponentially. One free user can spread the word to literally tens of thousands of potential paying users.
So GitHub is in a rather unique position.
GitHub have clearly benefited from the network effects of being the de-facto platform for open source. Their free tier doesn't include any private repos, so it won't cannibalise sales of paid tiers. I think that their free tier is effectively a trial on steroids - you're free to contribute to open source projects, engage with the user community and learn the platform, but you have to start paying from day one if you intend to use GitHub for commercial projects.
Heroku's free tier is again a sort of supercharged free trial, in that the free tier is too limited to use in production. The free tier offers very little value to users who have no intention of ever upgrading to a paid tier.
AWS's free tier is just a very generous free trial - after twelve months, you have to start paying.
I think in all cases, the key factor is whether there's a concrete plan for how the free tier feeds into your business. If your product has high switching costs and requires a big investment in learning to use effectively, then it may make sense to have a free tier specifically aimed at letting people learn the platform. Network effects are the obvious case where free users have real business value. I think that the mistake comes from the presumption that there ought to be a free tier, regardless of whether there's a compelling business case for it.
As regards you contention that almost every big SAAS product offers a free tier, I think there are at least as many counterexamples - Salesforce, SAP, Citrix, Blackboard, Basecamp, Moz, Kissmetrics.
THIS. Basically, most people are just following the herd. "Oh my competitor has it I better do the same", except you might not be as big as 37signals or Salesforce to be able to support such a huge ratio of freeloaders vs paying users.
With a credit card trial, you get less number of freeloaders but they are still there.
RE: collect credit card up front... This is one of the next tests we are going to set up in our on-boarding process. Right now we don't bill the cc (or ask for it) up front.
Please, pretty please, don't do that. I am really not sure if a few extra bucks are worth having a bunch of frustrated users.
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.
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.
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?
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.
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 and so far so good :)
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/ [1] http://marketingland.com/hubspot-2014-earnings-report-revenu...