
SaaS Pricing: Our Big Free Plan Mistake - AliCollins
http://blog.hubstaff.stfi.re/saas-pricing-free-plan-mistake/
======
arihant
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.

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aantix
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
_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.

~~~
curiously
_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.

~~~
jeffmould
I understand the want to filter out people mentality, but I completely
disagree with thinking that just because a person does not want to provide a
credit card upfront that they are not a valid customer or don't have the money
to spend.

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.

~~~
mokkol
I think almost all the companies have a X days money back guaranty

~~~
Karunamon
Which as recent FDA actions can tell us, are often worth the paper they're
printed on.

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 :/

------
encoderer
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
I think it really does come to a case by case basis... it depends on your
costs, turnover and conversion rates.

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nowarninglabel
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
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.

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eterm
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.

~~~
gabemart
>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
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.

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extc
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
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.

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jusben1369
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.

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RangerScience
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?

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m_fayer
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.

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CodeWriter23
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.

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

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simonswords82
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
:)

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rokhayakebe
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.

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adibchoudhury
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.

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joeyspn
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)

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

~~~
jakejake
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
I plan to sue them after the universe ends, as that is before "forever".

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manishsharan
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
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-
revenu...](http://marketingland.com/hubspot-2014-earnings-report-revenue-
jumped-49-customer-count-35-118090)

~~~
manishsharan
My bad ! I found the logo and the name of the two to be quite similar and made
incorrect assumption.

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

