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What do you think about free plans?

I used to think that free plans were unnecessary, but as I felt the power of word-of-mouth, I started leaning more towards giving away software for free. We launched a free plan with low limits at HockeyStack Analytics even though we targeted larger SaaS businesses. We later expanded the free plan to higher limits. Now we are thinking of starting a very generous startup program and even giving away 1-year free subscriptions to some of the larger businesses we are targeting.

Do you think this is a viable approach or am I missing something here? It seems like a relatively low-cost way of getting traction, but similar companies in our space are going the "contact sales"-only approach.

  1. 2

    Hello Bugra.

    Due to the lack of info shared, I will be basing my comment on assumptions, which of course could be wrong. I have checked out your site briefly, noted the 3000 users post May 2021, June 2021 hit $800 MRR.

    The decision to offer a free plan is not something that is made out of context, ie ignoring other parameters, criteria, market expectations, pricing strategy, competition, sales model, CAC, churn rate, burn rate, usage data, self-funded or externally funded, acquisition strategy, etc.

    So, ask yourself some questions, then after 6 months ask some if not all of them again:

    1. What is the pricing strategy; market penetration, increase ARPU, increase profit per user, etc? Do you want customers or users? Which is more important to you? If users are more important, and you are optimizing for market penetration, then the overall response to questions here would be yes free startup program, and yes 1-year free for larger businesses.

    2. What is the competition offering? Free tiers, generous startup program, 1 year for larger businesses? Can't really look at this in a blended way. Look at them separately.

    Free tiers? More than likely for one-person and small businesses, but in this day and age, market maturity, etc. Needed.

    Slight tangent: But you are not a charity. Something has to be obtained back from them unless the tier has been designed with tripwires that get triggered at the point where decent value is obtained, but not so much that they never contemplate moving onto a paid account.

    What about those who stay for a very long time on free, not just cos they are satisfied on the free but primarily because there is a segment who just won't pay. Free-loaders, tyre-kickers, personally I don't have too much of a problem with it, cos one-way or another something will be coming back. Are you a charity to them? Doesn't need to be money you get back, could be a backlink, could be a testimonial, a review or rating on any number of sites. They could be evangelists / cheerleaders on social media, etc. End tangent.

    Startups: is the competition offering generous startup programs? Maybe, not checked.

    Large businesses: is the competition offering them a 1 year free plan? Maybe, not checked.

    1. What are market expectations? Do startups expect a generous startup program. Some of the self-entitled solving Earth's greatest problems, bestowing divine innovations onto us mere mortals, disrupting paradigms and epochs? Yeah probably, some of them do expect it. Is it a good move? Hmm, depends what you get in return. So, what will you get, when according to some reports 9 out of 10 startups fail, or 6 out of 10 fail, and 3 are zombies, not dead nor alive, just bobbing along like lame ducks, and only 1 succeeds?

    Will they go to a competitor? Does it matter? They want free, most of them fail, no guarantee they will become paying customers. And free users, pain in the arse some of them, support tickets taking you away from your paying users. But is is bare-able when you see them slowing reaching the thresholds of the free plan, and they end up being customers. That's good, acceptable, as it should be. But to intentionally go after a segment known for failing, at your stage, I do have to question.

    Do large businesses expect a 1 year free plan? No, they don't. Yes some might offer it, someone mentioned Amplitude, so ...

    1. Burn rate. Amplitude on HN AMA. They've been funded over $300m. You can't compare yourself to them, nor can you use their acquisition strategy. Or maybe you can, are you externally funded? Got your own funds to see you through 1 year of larger businesses not paying? Any guarantees after the 1 year they become paying customers?

    Can you afford this strategy? You asked this question: It seems like a relatively low-cost way of getting traction. You haven't covered the traction part in your post, as in where and how you are going to acquire them. Where are you going to get these larger businesses from? Channel? CAC? Payback Period, CLTV, etc, usual metrics.

    3000 users in May. $800 MRR in June. Your lowest tier is $99 a month. There are conclusions that can be drawn that would suggest If you were a externally-funded startup, where you have to hit the home-run, for your investors sake as well as your own, where you need to get sizable market penetration, valuation based not on profit but on market share and the great unknown of some distant future when the startup will supposedly generate a profit and stand on it's own feet, then I'd say go for it.

    1. Sales model, you charge for Accelerate: $99 a month. That has to be a no-touch self-service model. So, a free tier is needed. Your next plan, Boost $249 a month. That is barely into a light-touch sales model, and I mean absolute bottom end of it. However these prices are per domain, and not per user. I think you have chosen a good value metric to base your pricing on, good move.

    You have multiple growth strategies going on, and multiple funnel types, this is normal, but it appears that you don't fully comprehend it. I'll also say that yes you are certainly missing something.

    PLG = Product Led Growth
    MLG = Marketing Led Growth
    SLG = Sales Led Growth
    MQL = Marketing Qualified Lead
    SQL, PQL, same as above where S and Q have already been defined.

    When you charge $99 a month, you have a PLG growth strategy, and an MQL-PQL-SQL funnel. But this is all no-touch self-service. Depending on who you are targeting with Boost, it could be the same, or could be MLG, with a MQL-SQL-PQL funnel. If you are targeting multi-domain users, then it may even be an SLG with a larger with the same type of funnel, although SQL would be bigger, and blurry between MQL and SQL.

    The parts you are missing are, when it comes to larger business, and certainly enterprises:

    1. How you sell to a $99 account is different to how you sell to a multi-domain $249 per domain account, and certainly different to how you sell to larger businesses and enterprises.

    2. Attempting PLG on any business when the user and buyer are not the same is very difficult.

    3. Attempting a bottoms up sales approach when the user and buyer are not the same is very difficult.

    4. It's difficult because the user may not have sole discretion to use or purchase an app. In fact it can even be a complete no-go. Compliance, regulations, company policy, etc, etc, make it impossible.

    5. Large businesses don't typically care about 1 year free. They take ages to find (or get pitched to, RFP's, etc), assess, audit, integrate, test, before they purchase. There will be multiple stakeholders in the decision making process, each assessing in their own way. When you get them, good chance they are in it for the long-haul, so free 1 year plan, what do they care? Typically from the enterprise internal assessments of technologically enabled SaaS solutions I've seen, cost comes in at around 20% of the weighted criteria, so not that much at all really.

    6. Large businesses expect a certain level of personalized hand-held concierge silver-service. They are paying big bucks, they are used to that level of service, they expect it actually. They don't assess things when it comes to money like startups do, like entities on the free tier do. If you can prove your solution makes or saves, time or money, and the more exact quantifiable measurement factors of each stakeholder, then you won't need to offer 1 year free. You will need to offer an integration, trial and bedding down period.

    Few other things, but that will do. So, large businesses find out what it takes to sell to them, and standardize it, instead of just saying, yeah 1 - year free plan. You got a better chance of getting larger businesses if you understand how they normally buy, and how they are normally sold to. Find out who will be involved in the decision making on their side, and how they are assessing it. Compliance officer is not assessing like a marketer, who isn't assessing like the IT guy, who isn't assessing like the CFO, etc.

    If you don't know how to sell to them, play it consultative style. Once you get better at it, and can look at a business account, know who will be sitting on the other side of the table, what you need to say to them individually and collectively, you sell like an expert.

    One last thing, sell to smaller business, and work your way up.

    Good luck, Ace.

  2. 2

    Being a marketing advisor I would say that a free plan is vital for user acquisition.
    And the best practice is to turn your free users into your brand ambassadors so larger clients will count on and pay for bigger plans.

  3. 2

    Hi, @bgrgndzz!

    In my case, I offer a free 30-day trial or a demo version for Price2Spy. I think this is a good model because you can showcase the full (or limited, depending on what you want) functionality of your product, without allowing it to be used indefinitely without payment.

    I'm planning to do something similar for BotMeNot, where I'll let people do a certain amount of testing free of charge and if they want to keep doing it, then I'll start charging.

    Cheers!

  4. 2

    I think that if you've thought about it (which it sounds like you have), it can be a really viable approach.

    My #1 concern with free plans is they can cannabalise paid plans. In other words, if somebody can get value out of your free plan, why pay for a paid plan? The answer to that becomes "Give them a completely crippled version of the product", and your users end up so limited by the free plan's limitations it's frustrating!

    If you can manage that quandry, you'll be fine.

    Large companies do it because they have the resources to attend sales calls with prospects from Enterprise leads and can handle objections over calls more effectively on trials. If you're on IH, you probably don't plan to build a huge sales team... so I'd say play to your strengths and offer freemium, but also offer demos if you can.

  5. 1

    As an Indie Hacker, I love free plans as they allow me to start for free and pay as my business grows.
    This is why I also offer it myself.
    However, I do struggle converting free customers to paid plans so you need to think well about where to draw the line so the free tier will not canibalise the paid tiers.

  6. 1

    Hey Buğra, it looks like you've already started implementing free plans. What is your experience so far? It sounds like it's been working out for you otherwise you wouldn't be doing it.

  7. 1

    I prefer a free plan option because it helps to build the trust first.

    As a consumer, I don't have anything against paying for the tools that bring me the value. But in order to be sure it brings me the value, I need to explore it first. Free plans are perfect for that.

    That is why I decided to offer that in Localizely, having a Trial period - where new users can explore paid features for free, and having a Free plan once the Trial expires. Some users don't succeed to experience all they need during the Trial, and they could do that within the Free plan later.

  8. 1

    With you targeting large saas businesses this might be relevant to you. Spenser Skates of Amplitude had an AMA a few days ago on HN and this was his take: https://news.ycombinator.com/item?id=28700130.

    TL;DR people on the free tier can eventually become paying clients as they grow and start to fit the mould of your targeted clients. There's a few examples he gave as well where some of the clients on their free tier were acquired and introduced Amplitude to the companies that acquired them. Those companies are now paying clients.

    That whole AMA is a very interesting read.

  9. 1

    I am 100% for free , if I see a tool that does not offer a free trial I am thinking "what are they hiding" . I don't want to be sold to , give me the damn thing for free for a while and I will figure out if I will get value out of it.

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