Freemium vs Free: why we got rid of a free subscription
Having quit beta, in our startup Trak.io we made an unpopular decision: we removed the free subscription and replaced it with a $ 9 / month subscription.
I want to explain the reasons why this was done and why we think that this is the best solution for both the company and the customers.
I hope other founders of SaaS companies will find something useful for themselves and think twice before starting work on the Freemium system. If you do not think it through well, you will simply distribute your product for free.
Reason 1: “Free” is not a competitive advantage
At the dawn of development, we told everyone what our service would have a wonderful and generous free plan. Such that the average startup will not be able to surpass it. Tons of users will fall on us, who will spread from other services to us, because we will be free. Like an air.
We thought startups choose SaaS at their cost - be it $ 0 or $ 499. And we were wrong. Free is not a competitive advantage because your competitor can do the same instantly. This is not a proprietary algorithm, not an attractive interface. They simply add a free plan and allocate part of the money to cover lost profits.
If your competitors can copy you instantly, then you have no advantage.
Reason 2: Free users help to develop a cool product, paid - valuable
Having introduced a plan for priority access to the service for $ 29, we immediately saw changes in working with users. Those functions that we emphasized earlier, because they are "cool", were no longer mentioned in the conversations. Instead, we began to throw more mundane ideas, which at the same time were more valuable from a business point of view. People asked about such useful things that we simply did not think about - data export, integration, and so on. Free beta testers asked for more icons or the ability to add user photos.
Not to say that free beta testers are useless. Or that paid users are best suited for creativity and innovation. But if you need to build a resource that people want to pay for, you need to pay more attention to what paid users want.
Reason 3: most support is required by free users
If a user cannot give us $ 29 from his business, he is unlikely to hire a freelancer or developer who integrates Trak.io support in his application.
Of course, we do not refuse to help people with this and write some specialized code for them. But it takes a lot of time. And usually, it’s the free users most often who have to handle the first time they start using the service.
On the contrary, reviews from paid users were “installation was very easy” or “show us the documentation and our CTO will figure it out”.
Paid users simply have more resources to get the most out of our service with a minimum of ours in this participation. A developer who would provide qualified technical support would cost $ 100- $ 200 per hour. Since our service costs from $ 9 to $ 299 per month, we need to make sure that we can support all users without investing a lot of money in support.
Now (April 2014) 1460 users are registered in Trak.io. Many of them are still free beta testers. Our team of three people simply will not be able to qualifiedly serve them all.
But if there were hundreds of users, and all of them would be paid, we could hire qualified technical support for them.
Reason 4: we do not see viral benefits from thousands of free users, which lead to us another thousand free users
If hundreds of people discuss your product, this is great. But not in the case when they discuss it just because it is free. It is unlikely that someone who was recommended a free product will become its paid subscriber.
10,000 free users who are not going to pay are not freemium. This is just a free product.
We do not want the glory of a free product. We need users to recommend us because their business benefits from working with us much more than the couple of dollars that they spend on paying for the service.
Reason 5: Their data is not valuable to us.
We do not sell collections of data collected from millions of people. We just provide a platform. The data belongs to those users who store it with us.
Some other services provide free access in exchange for their access to your data, with the ability to use and resell them. They sell this data usually to marketing agencies or ad networks.
We think this is wrong.
Since we do not have such sales, we will not be able to monetize the data that free users bring to us.
Reason 6: We want to build a profitable business on a product that people like so much that they are willing to pay for it
Much has been said about the successes achieved on freemium models. But no one tells how this model led to the bankruptcy of the company. Or to unsuccessful attempts to monetize what used to be free. People cite the success of the Mailchimp model as an example: “they cost a billion and they have excellent free access!”
They miss that since launching in 2001, Mailchimp spent 7 years building a huge product, acquiring 85,000 paid users before presenting a free plan in 2008. They even began to provide free test access a few years after launch.
If you have a product that you want to pay for, you have income. If you are sure that viral marketing will bring an increase in income, then you need to think about the freemium model.
If you are engaged in B2B, you need to focus on building a reliable business based on a product that people like.
Reason 7: we miscalculated in our calculations and service prices
During the beta, we said that our price chain would be something like this:
Free, $ 29, $ 49, $ 149
After launch, it looks like this:
$ 9, $ 49, $ 149, $ 299
At first we wanted to offer data storage for 6 months, so the cost of storing them was low. In fact, it turned out that the business wants to store their data much longer. Therefore, suddenly our costs for server capacities increased.
We also wanted to charge depending on the number of visitors to the site or users of the application. But then we realized that this had nothing to do with the profit or success of the product, so such a policy would not make sense.
And again, we had to store more data for the average account than we planned.
Also, evaluating the number of events that the application will track, we also first wanted to charge a fee depending on the number of data points that it stores with us. But then they realized that this is not connected with the value of the business, moreover, our customers began to worry about what events they can track, so as not to exceed the limits.
In fact, I need our users to be able to track everything that is possible, so that after the fact they do not reproach themselves for not tracking something very important.
I do not want to say that B2B SaaS class applications should not at all consider the Freemium model. There are examples of when this works. I also understand that we upset a lot of beta testers by canceling the free plan.
But I believe that you need to seriously think about the reasons for choosing a freemium plan, and make sure that you really do not choose a free plan. Free is just a hole in the budget. Freemium is an opportunity to attract users.
We think that the emergence of the $ 9 Solo plan will allow us to separate free users who are not going to pay from early birds. And the results of this decision already suit us!