Ask HN: Is it crazy to offer a freemium package in a "lo-fi" startup?

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19 points by paulsingh 733 days ago | comments

I've been testing out a "pay as you go" plan on SnailPad (www.snailpad.com/plans) where you get 2 free stamps each month (you get charged for stamps you use above that amount).

It's only been a few weeks but it's been working pretty well -- the majority of the initial users on that pay as you go plan have already either abandoned the service or upgraded to a monthly plan.

I've been tracking my path on a simple excel spreadsheet just to make sure I'm earning more than I give away (so far, so good). Is there anything else I should be watching out for (such as potential abuse or anything else)?

patio11 733 days ago | link

Psst: internal dashboard to track the number of stamps which non-paying users used this month won't take you five minutes to implement. It is a single SQL query, right? I know you'll have to discard a working Excel system to do it but from the moment you're done to the moment you die you will never have to update that Excel file again. Process efficiency! You can crank out as many of these little micro-things as you want and put them in a single dashboard, which will give you a quick health check at a glance, minimize time spent bookkeeping, and make you not waste too much time digging into reports when you could be working. OK, tangent over.

There is nothing wrong with giving people free things that actually cost money, as long as your COCA (cost of customer acquisition) is substantially lower than your LTV (lifetime customer value). It is no different, conceptually speaking, from doing something like paying from AdWords for a user who might convert into the trial but never into a paying user. I'll probably pay Google close to $1,000 this month for that: this is safe because I have historical data and a failsafe (discussed later).

It has also been my experience that most users go up-or-out very quickly on my service. If that continues to be true for you, you have very little to worry about.

If you speak to an accountant, who are generally conservative types, they will recommend you to do something to cap your maximum liability via this. For example, you can clarify that unused free stamps expire at the end of the month. (That might already be the policy. If so, smart.) You could also reserve the right to yank that offer at any time. I'm not a lawyer, but I think that is likely to be as simple as merely yanking the offer at any time.

I'd put a failsafe in the system to prevent you from spending over $X on free stamps in a day, for reasons similar to why Google only has authorization to charge me $X in a day: if the process goes suddenly out of control, have a human think things through before saying "Oh, sure, 1500% growth is totally normal under these circumstances. Spending approved!" It might happen because you ended up featured on the front page of the NYT. Congratulations. It also might happen because you ended up on 4Chan when some enterprising individual suggests using your service to send a million pictures of genitalia to some public figure who has made statements they do not approve of.

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paulsingh 733 days ago | link

Believe me, an internal dashboard is in the works! I intentionally forced myself to use Excel to ensure I was looking at the right stuff (and that the numbers made sense in the first place).

Now that I'm starting to get confident about things, it's just a matter of blocking off a few hours on Saturday morning and turning it into code.

And yes, all unused stamps expire at the end of each month -- it's in the TOS. :)

I love the idea of the failsafe... this is definitely going in.

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bartl 733 days ago | link

I'd like to ask, maybe in everybody's name, what you mean by "dashboard", in practical terms.

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patio11 733 days ago | link

Dashboard is a term of art in metrics-focused organizations, made by analogy to the dashboard of a car, which is the part that has the spedometer and other statistical displays that tell are designed to convey a lot of information at a glance while you're doing more important things (i.e. getting where you're going without killing any little old ladies with your car).

Anyhow, the actual implementation is just a web page (or similar) which has stats, graphs, etc for whatever metrics you want to display, designed to be quickly comprehensible.

If you give me a few hours to get back to my apartment (and Paint.NET) I'll screenshot mine, block out the private customer data, and show you.

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asmosoinio 733 days ago | link

> If you give me a few hours to get back to my apartment (and Paint.NET) I'll screenshot mine, > block out the private customer data, and show you.

I'm not the one you replied to, but: Will be interesting, thanks in advance!

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patio11 733 days ago | link

I ended up expanding this into a blog post.

See here:

http://news.ycombinator.com/item?id=1112500

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paulsingh 733 days ago | link

I'd love to see that screenshot!

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moconnor 733 days ago | link

I think it's more like a traditional trial model than freemium - the real benefit of your service is its convenience, not the ability to send letters at all. To benefit from the convenience you need to be sending more than two letters a month, so the free stamps just give people a way to try the service out before they sign up. Anyone wanting access to the real benefit then starts paying (either by default or by switching to a subscription). Nice. Do you have stats on how many people use their first stamp to send a letter to themselves?

On an unrelated note: why isn't there a nice big picture of your gorgeous-looking paper and envelopes on the site?

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paulsingh 733 days ago | link

I just did a quick dig through the DB -- looks like ~60% are using that first stamp (or two, if they live outside the US) to mail something to themselves. The remaining ~40% either don't use those stamps at all or they send a letter to someone else.

As for the picture of the paper/envelope, (this is probably going to sound dumb) but I can't figure out how to take a decent shot without making the stuff look terrible. Any tips or thoughts on how to get past that?

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Russelldb 733 days ago | link

The lack of picture is the only thing that stopped me trying it.

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paulsingh 733 days ago | link

This is awesome feedback -- would you mind reaching out to me via email? (It's on my profile.)

I'd love to get an idea of where you think that picture ought to be and any other feedback you have.

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jdietrich 733 days ago | link

Why two free stamps per month? If someone uses your free service for three months, or six, or twelve, what are the chances that they will upgrade to a paid service? Why would this be more profitable than a plain pay-as-you-go plan with no free stamps, or one or two initial trial stamps? If I choose to sign up with one of your monthly plans, will you offer me a refund of my unused credit if I decide not to use it?

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paulsingh 733 days ago | link

> Why two free stamps per month?

I figured that you need to be able to send yourself at least one sample -- it takes one stamp if you live in the US and two stamps if you're anywhere else on the planet.

> If someone uses your free service for three months, or six, or twelve, what are the chances that they will upgrade to a paid service?

Ask me again in 3, 6 and 12 months. :)

> Why would this be more profitable than a plain pay-as-you-go plan with no free stamps, or one or two initial trial stamps?

I originally had no free stamps included in the pay as you go plan. This idea of including a few free stamps started up just a few weeks ago so I don't have any long term data. The theory here is that I "hook" you buy giving you an easy way to send your first letters... then you'll (hopefully) see the value in upgrading.

> If I choose to sign up with one of your monthly plans, will you offer me a refund of my unused credit if I decide not to use it?

Technically, no (it's in the TOS, etc). (Though, I'd probably refund the money if someone asked for it. I'd rather keep some good karma going...) When you pay your phone company (or 37signals, or anyone else) for a full month and then decide to quit, I doubt any of them will easily give you a refund. :)

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learnalist 733 days ago | link

What i Think your doing is dangling a "carrot on a stick". Just the same as many mobile companies offering you free calls or sms. They/you want them comfortable with your product, used to using it. Then the barrier to going past the free quota is a little lower.

I equally like to a point how your tracking it via excel, instead of building a system for hours. Once proven it might aid growth of revenue, then i see the system being built.

Even if the above is not correct for you, it has given me food for thought and helped solidify a few liquid thoughts.

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csomar 733 days ago | link

You are using the best strategy, but you should care about people leaving. Why do they leave? May be they were not satisfied with your product, or they just don't want to pay.

There is a trick to make people pay, the same that Microsoft and other software companies are using. Give your service for free and start charging when your customers can't afford to stop using it, then they afford to pay!

Evil, but works.

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