January 8, 2019

5 Deadly Mistakes That’ll Kill Your SaaS Business

  1. 3

    Good points in general.

    A little more about freemium and pricing.

    These days for almost every niche there is a top Google Page: "10 Best Free Tools for ..." (put whatever you do here).

    So the freemium model is attractive because it feelds like you can get also a lot of free traffic. The argument is that a lot of users will come to get the free stuff and some of them may pay someday.

    Alex is right, the reality is, these free users are not converting at all and some of them are very demanding.

    If you have solid competitors, your free users will complain a lot about their failed expectations and they will spend their time on posting this on various sites. This may ruin your motivation entirely.

    Freemium works only in one case: when the "free users" are a part of the company resources. These free users are monetized later as a different offering, for example advertisement resources. Examples are: google, facebook, etc.

    About the prices.

    Increasing the prices works well when you have "captured the market". In other words, people know you or they now they need your solution.

    This does not work when people need to discover your product and try it first. Having a lower price works like a first attraction point for the new users to try your product. You may get a higher price later, when you are absolutely sure that you solve the problem better than your competitors.

    1. 2

      ...unless you put free users in a "marketing" basket, where instead of investing in advertising, you use freemium as a part of your marketing.

      If you will set expectations for your free users (no support for free users, support is offered in paid plans - of course, you should not say that anywhere, simply support option is removed for free customers, the only way they can contact you is through the contact form. Add "Friendly Support" or something in paid plan features and make sure to simply ignore emails from free users expecting you to do some crazy, time-consuming stuff). Then also make sure that your free plan is awesome and not stupidly limited (like you get lifetime "10" of something when regular user will use that in a month). For many startups, it is better to offer free forever plan with the basic plan without limits and upsell users on features. This will help you to virtually avoid negative reviews (people will defend you since you offer completely free packages).

      People focus on how much they want to earn from user vs how much they spend to accommodate the user.

      If it cost you $0.1 in resources to accommodate the free user, and you charge $9/pm for premium one at 3% conversion, then it cost you only $3.33 to acquire a $9 user. That's really good.

      Of course, this varies from niche to niche, but Dropbox, Trello, Skype pulled this really well, by accepting, that having free users is core to their business marketing strategy.

      1. 1

        I agree about marketing wins with freemium. For me it looks like additional cheap traffic.

        Since B2C and B2B are two different areas I have to explicitly mention it.

        About B2C software products, I have the impression that conversion number 3% is rarely seen in practice.

        The average is around 1% and I am afraid getting signups for 9$/mo from consumers will be very hard.

        B2B is a different story. You can have free plans, it makes sense to have some other kinds of feature limitations. And your B2B users are less sensitive to different pricing.

        Speaking about Dropbox, Trello, Skype.... I thought we are talking about bootstrapped projects and not about startups with a seed capital, angel investors, etc.

        These guys can plan to have free users for decades. Bootstrappers simply cannot afford it, that was the point with a danger of freemium.

        1. 3

          Speaking about Dropbox, Trello, Skype... I thought we are talking about bootstrapped projects and not about startups with seed capital, angel investors, etc

          I think this will depend on:

          -you do not have a steady income source

          -you (for some reason) need to grow ASAP (very dangerous angle imo)

          -cost of running your startup for some reason are high (licenses, hardware etc.)

          Otherwise, for many, many niches, freemium is quite good, especially for bootstrapers. After all - its a free marketing worth often quite a lot.

      2. 1

        Hi Bart,

        As mentioned in my article, building a successful freemium company isn't impossible, it's simply a tougher road because of all the support costs you will incur from taking on so many users (who contribute $0.00 of revenue).

        If you decide to build a SaaS company with a freemium model, my sincere advice would be to hire for support very early on.

        ** Also** while it's true that free plan users are a powerful marketing engine, you should be conscious of the fact that you will need a TON of users in order to have a lucrative business.

        This is why choosing a freemium model is a very poor decision when operating your SaaS product in a super-niche market (where your market size for users is tiny).

        All of the platforms you mentioned ("Dropbox, Trello, and Skype") have MASSIVE potential markets (because they're all "general products" that aren't geared towards a specific demographic). In other words, any human can gain value from these platforms.

        Ex: The potential user market size for online file storage, task management, and communication software -- is limitless.

        Bottom line: If you are building a SaaS product, using a freemium model, in a VERY niche market (where your potential userbase size is extremely limited), you are making a mistake.

        1. 1

          I agree with the aiming at small niches, that the generous trial is often better than freemium, especially if someone has not done proper research in a freemium model.

          I do not think that freemium in a very niche market is a mistake. It is all about execution. People tend to see Freemium as:

          -offer limited resources for free

          -offer some limited functionality

          I prefer to think of Freemium Cloudflare way - offer something regular completely for free, then pack all the new and differentiating features into the premium package. So just copy competitors when thinking the free plan, and add all the cool ideas into the premium. I know you can say Cloudflare have a funding and large market, I gave it only as an example. There are many small niche leaders that overtook the whole niche by going freemium.

          I have worked with many companies that had freemium models and they managed to basically dominate the whole niche with it (usually their competitors were reluctant to offer anything for

          Also, as long as you do not have a live chat, you do not need to offer support to free users (besides maybe email). Especially in a small niche. You should offer personalized support as a premium. Everyone else can be sent to the knowledgebase.

    2. 1

      Hey Notecola!

      I agree, when you're just starting out, it may be hard to acquire users at a high price point.

      My professional suggestion would be to start at the $15 price point.

      You can always raise your price and grandfather-in all of your $15 customers (meaning, everyone who started paying $15 mo/ will always pay $15 mo/, despite future price increases).

      Once you eventually raise prices, these grandfathed customers will be less likely to churn (because they know they got the "early-bird pricing").

      1. 2

        I would try to avoid setting a fixed number here, because there are simply so many people creating so many different things, you cannot just

        find a magic figure which works for all.

        But in general, if you are a builder, taking a look at your competitors pricing will give you some hints.

        At the end, users have the same information and will compare your pricing with other offerings.

  2. 2

    I stopped reading after point one:

    "Regardless of your industry, your SaaS product should be priced at a minimum of $15 — $25 a month."

    So netflix, dropbox, adobe, github and countless others who charge $10 or less are all wrong then?

    1. 3

      Hey Mick!

      Dropbox Business starts at $15 mo/ - https://cl.ly/65952fc09fac

      Photoshop starts at $239.88 yearly ($19.99 monthly) - https://cl.ly/7d014f01d1ff

      In the context of building B2B SaaS products, you can usually charge much more because you are solving big problems.

      1. 2

        I pay for the photography package from adobe which is lightroom CC and Photoshop CC and it's £8.32 per month. my Dropbox plan is $9.99 per month.

        Also you didn't pick up on netflix and github which are significantly cheaper than the level you've stated will kill your business.

        I'm sorry man I know you're just a blogger doing your thing but I really can't stand the "5 rules you must follow" guru bullshit.

        This post and all the others like it should be titled:

        "Here are 5 opinions that I have"

        1. 2

          There'll always be exceptions to the rule. Of course brand-name anomaly companies are the most famous, but what you don't see are the countless failed SaaS companies that fail because they underprice themselves out of business.

          Wishing you the best of luck with your SaaS, please report back with the results in a blog post one day! 👍

          1. 1

            lol I feel the burn.

            Thanks mate.

      2. 1

        Saying "startups should charge $XX" without knowing context, history, niche, market situation is a huge stretch and imo invalid advice. What about Trello? Robin Hood? Evernote? All of them are multimillion businesses.

        1. 2

          Hey Bart,

          Look, I'm not "anti-freemium". 😂

          I'm only anti-freemium in the context of building SaaS products in super-niche markets where your potential userbase size is extremely limited.

          (Reason being, it takes a massive number of free plan users in order to successfully build a lucrative business).

          "Trello, RobinHood, Evernote." all of these companies have massive potential userbases.

          I've seen many first-time SaaS founders make this mistake (building freemium products in niche markets). In these situations, it's usually best to ditch the freemium model altogether and simply offer a free 14-day or 30-day trial.

          Also, my advice would be to do lots of research on your market to ensure you have enough potential users to support the size of the business you're looking to build.

          (Hopefully, you don't view my writing as combative, haha. I write these blogs to help other SaaS founders 😜)

  3. 2

    Great article, thanks for sharing.

    Just wanted to point out that if you're operating in California, it's required by law to have self-cancelation. https://techcrunch.com/2018/07/04/californias-new-online-cancellation-law-benefits-many-disgruntled-subscribers-in-other-places-too/

    1. 4

      I believe the EU also has consumer protections around this issue.

      I agreed with the article right up to this point. I can tell you now that a Company that makes it awkward for me to leave them won't get my repeat business in the future.

      I know you mean well. But it's a shifty tactic.

    2. 1

      Thanks! And good to know. Thanks for the insight!

  4. 1

    Nice article. Good read, and probably some advice I need to take seriously :-P

    Side note, I read a marketing hack that said to keep trial periods short. When it's 2-4 weeks, users will sign up and forget after thinking "Cool, I have time to try this later." Giving them a week (even if you allow an extension) lights a fire to really test the product.

    1. 2

      Hey Andrew! Thanks! Glad you enjoyed the article. Instead of shortening your trial period, I would use some clever email lifecycles to try to re-engage your users if inactivity is detected.

  5. 1

    Thanks @AEdsonCEO for a great article!

    One other piece of advice we often received was "you can't raise your price" - well we listened to that for far too long... guess what... you can! To put that in context, it was in the days of downloadable PC software around the early 2000's, but I'd say it still holds true. i.e. you can always raise your price.

    1. 1

      Hey Mike, thanks! And indeed.

      There's always room to raise prices. Increase your value over-time, increase your price over-time.

  6. 1

    Thanks for the article @AEdsonCEO .

    Apart from FB retargeting pixel, what other marketing strategies would you say have worked well for MailTag?

    1. 1

      Hey Nakkeeran! Thanks for reading.

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