Why shouldn't software be free?

Many projects provide their users with a trial period of using the service for free. Recently, this strategy has gained immense popularity. Everyone knows the success stories of services such as MailChimp or Pandora, but they forget about many other "not fired" startups with the same model. For each aspiring entrepreneur, choosing a business model and its impact on conversion is extremely important. In this regard, we want to share the experience of the creator of software for designers Bidsketch Ruben Gamez, which shows the low efficiency of free versions for business. The article is written in the first person.

Not so long ago, manufacturers of each product necessarily offered some type of free tariff plan. This strategy worked great: get a huge amount of free users, and in the end turn them into paying customers. Everywhere you look, everything was full of stories of how entrepreneurs quickly and easily made huge sums of money using this approach.

When 37signals talked about providing something for free, as part of a special marketing strategy, it seemed reasonable to me:

“We made the Writeboard and Ta-da list applications completely free to use to attract an audience to our other products. In addition, we always offer some version of the free version for all our applications. We want people to be able to get acquainted with our product, its interface, to realize the benefits of what we have created. As soon as users are on the hook, they’re much more likely to switch to one of the paid tariff plans (which give access to more projects or pages, provide people with additional features, for example, the ability to download files and encrypt data via SSL) ".

So when I started bidsketch- SaaS-application for designers - creating a free version seemed to me an obvious necessity. Whether I needed it or not, I hardly thought, it seemed to me that this goes without saying. At first, everything went quite successfully. During the first few days after the launch of the project, the number of customers who purchased the paid version was even greater than the users of the free one.

“Damn it, the idea with a free plan really works,” I thought. You can take a look at the numbers: 54% of users paid for the product, and only 46% chose the free version.



It looked great, but I suspected that this situation would not last long, because most of the buyers were from my mailing list. A high-quality list of users for whom you do the newsletter, as a rule, will convert much more buyers compared to other traffic sources.

A week later, I was still satisfied with the result, until I decided to calculate the conversion of the total site traffic.
After 2 weeks, the ratio of users of free and paid versions: 93% versus 7%.



I understood that this would not work in the long run, because I relied on the action of a paid time-limited tariff plan. But I could not even imagine how much worse things would go:
After 6 weeks: free version - 99%, paid - 1%.



Next month, only 1% of users preferred the paid version. My user base was growing rapidly, but there was barely enough money. It became increasingly difficult to maintain the product due to the growing user base, and the thought of what would happen in six months did not give me rest.

How many users of the free version have I been able to turn into paying customers? In my case, the result was an extremely modest figure of 0.8%.

When things started to go really bad, I realized my mistake. I just selected the wrong options in the paid functionality. Or, perhaps, messages suggesting a switch to the paid version were untimely and unconvincing.

To convert users of the free version to buyers, I used many tactics:
• More reminders about updating the functionality;
• Fewer options in the free version;
• Premium version for free for 15 days;
• A larger number of letters offering to purchase a paid version, etc.

None of these tactics yielded the desired result. My income remained at the same extremely low level, despite the fact that my user base was growing rapidly.

If I continued to follow this path, then soon I would have had thousands of users of the free version of the product that I need to service.

In a desperate attempt to finally start moving in the right direction, I experimented with tariffs, destroying the free version. I did not advertise the transition to paid tariffs anywhere, but simply removed the ability to activate the free version from the page of the site where the tariff plans were indicated.

Most of all I was afraid that the number of paying customers would remain the same, but I would lose all users of the free version. Which means the loss of the list of users who can at least try to sell a paid version of the application in my mailing list. Not that it worked out well for me, but at least it was at least something.

In the end, it turned out quite different from what I expected. The change I made (which took 5 minutes from the force) led to an increase in the number of paying customers by 8 times.


We are talking about an increase in conversion not by 8%, but by 800%.

The results seemed to me more than satisfactory, and I continued to monitor the conversion rate for a month. This is amazing, but this month the number of paying users has increased 10 times.

And my situation is far from an exception.

It was not long after I got rid of the free version, and I began to notice that many people have the same problems using the free tariff plan.

For example, 37signals also removed their free version from the page with tariff plans.

Before:


After:


Shortly afterwards, I came across an interview with 37signals founder Jason Freed, in which he talks about their free plan:

“... The bulk of the revenue from our products comes from users who immediately pay for the use of the service for a certain period in advance. Of course, some of the users are switching from the free version to the paid ones, but most of the paying customers have chosen the advanced version from the very beginning. We can say with confidence that much more people will always use the free version, but if your goal is paying customers, then ask to pay in advance for using the service, and you will have a much better chance of making money. ”

The so-called success stories of the freemium monetization model are also characterized by a low percentage of transition from free to paid accounts. You can see statistics about Pandora, Evernote, and MailChimp that confirm this trend.

Pandora developers started with less than 1% of paying users relative to the total subscriber base. When they focused on improving the premium version of the product, that number increased to 1.7%. This figure is not at all impressive, unless your service is used by 20 million users, as is the case with Pandora. Evernote authors started with a conversion rate of 0.5% and were able to achieve an increase of just 2% per year.

While MailChimp did not publish their conversion rates, they simply shifted their negative emphasis to side effects:

“And what’s most growing when you start the free version? The number of spam increased by 354%, and legal costs associated with attempts to crack the system increased by 245%. ”

Oh my God. Where was this information when I needed it so much?

CrazyEgg decided to suspend support for the free version in January 2009 and so did not return to it.

Here's what their new tariff plans look like:



I asked CrazyEgg founder Hiten Shah why they decided to abandon this idea. “We thought that if we remove the free tariff plan, we will be able to earn more,” replies Hiten. And they were convinced of the correctness of their decision, doubling the income twice in the same month.

Co-founder of LessAccountingAllan Branch believes that for lack of information about which approach is correct for the free versions, they simply see no reason to change course. Their users get the opportunity to evaluate the merits of the paid tariff during the trial period, and if at the end they do not enter data for payment, they will be automatically switched to the free version of the product with limited capabilities. Obviously, this approach works for their service.

An example that can be equaled

Many of us are far from the level of these guys: we are not dealing with millions of users, or even hundreds of thousands. Therefore, it’s easier for us to look at some example of the Pluggio type .

Pluggio is a freemium Twitter app created by Justin Vincent. He had detailed statistics, which reflected everything: from monthly revenue to the number of users using each type of tariff.

Screenshot of the statistics page:



On average, since November last year, he earned about a thousand dollars a month. Unlike examples with more famous products, the number of paying users is 2.5% of the total number of accounts. This is damn good for any freemium application, judging by the statistics we reviewed earlier.

I talked to Justin to share his experience with freemium. It seemed to me that things were going well with Pluggio, so I was genuinely surprised when he told me about his intention to remove the free version of the application from access.

Why did he decide to do this? Revenues became relatively stable, and the number of users increased significantly over the past few months (and approached 5 thousand). This speaks of the many pitfalls that entrepreneurs with limited resources face when they start a free version.

Does it make sense to create a free version?

I do not presume to say that it is impossible to achieve success if you start with a free tariff plan. Obviously, free plans have worked great for companies like Wufoo, MailChimp and Freshbooks, thanks to them we know that this can work efficiently. But the problem is that we are not these guys.

We must stop blindly copying the tactics of large companies and start thinking about how to increase our income.

I admit that there are certain types of applications that are more likely to succeed if their users have free plans or they work according to the freemium model. But the vast majority of applications do not belong to this category, and most people do not have so many resources to make this model work.

To succeed through word of mouth effect, you need a lot more users than many of us are able to attract. Instead, we end up with a large number of users of the free version who spend our resources and give nothing in return. To top it all off, most of them will never switch to paid rates.

If we have thousands of users who do not increase product recognition and are not going to pay for it ever, then why do we continue to offer them something that destroys our business? Maybe we should just let go of this idea with the free version, and instead focus on making money.

Source: www.softwarebyrob.com/2010/08/18/why-free-plans-dont-work