Which Payment Model to Start for a SAAS product?
I am checking into different payment models and want to start one for my SAAS business. It's not straightforward as it sounds, even though I have learned from YC Startup School that only paid customers matter. But in a world where softwares are all over the place, how many people would like to pay a software without even trying it, for free ?! Here are some models that I know a SAAS company usually does (based on researches and discussions):
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Freemium (for ever) + Paid plan with more functionalities -> This one was quite popular 5-10 years ago. But I heard a lot of founders saying that SAAS should not do freemium, especially at the beginning. Because only paid customers matter and only paid customers confirm that your product is needed - the product market fit.
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7-14 days free trial then paid plan + Credit card required -> Personally I hate companies requiring credit card for a free trial. I heard that this can result a hight churn rate as well. Benefit: It filters out non-serious trials and maximize trial->paid conversion, whilst reducing # trials.
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7-14 days free trial then paid plan + credit card not required. Need more insights about this one. It seems to be the best option so far for me.
After writing this down, I think I should just take one model, try it out, and iterate...Does it really matter the initial choice? Or any other insights?
I was struggling with this question just a while a go. Things I learned:
Don't underestimate the endowment effect: give people a chance to engage with your product, and they will be much more willing to pay for it. So I'd not do nr 2.
Having a free version (the freemium model) can be a big attractive force for potential paying customers. The hard (and beautiful) thing about this model is that there are many different ways to do it. It can be a pitfall if you give many users a product that is good enough, and don't offer enough goodies in the paid version. It will also work badly if you cripple the free version so much that you drive users away.
I eventually decided on freemium, because I found a good parameter to limit (the number of projects that a user can make). This made the free plan basically a trial, but instead of ending in a fixed time, it ends at a much more natural moment in the customers usage pattern.
Interesting! Thanks for sharing! It's the first time that I learn about "endowment effect".
Good for you if you found the good combination of freemium + parameter to limit!
The initial pricing model only matters in that it is a starting point to talk with customers and potential customers. What you want to figure out:
Many people equate SaaS with monthly/yearly subscriptions, but really SaaS is a delivery mechanism as in on-premise vs. could. If you were building a SaaS product that sends all my customers a "Happy New Year" e-mail on Jan 1st, then the expectation to be charged per-customer email on Jan 1st makes sense. It is still recurring revenue, just not subscription-based.
1/ The freemium model is simple to implement (in the sense you don't even need payment processing). It helps grow the user base. Based on engagement of users with various features, in the long the term, you can figure out where the product value is and put those features behind a paywall. That is a long game that requires solid finances for quite some time.
2 and 3/ They are a slight variation of each other. I guess you would use 2/ if a customer knows they require your services (ex: hosting) but somehow you fall short of their expectations ("money back guarantee"), and you would use 3/ for the same use cases you would do a freemium model, that is there is no way to tell beforehand if the product will be useful to a user before they try it.
Hi @smirolo @danTheFounder I'm also facing this problem. I choose the third one. There are two players on the current market with the same and high price model.
I'm a single man army. No fund, no developer, no marketer with me.
Should I change my model (the third one ) to freemium?
here's my website: https://retargetkit.com
I am usually not a big fan of freemium for indie self-founded businesses because it costs a lot of money (you got to pay those servers to service non-paying customers) and time (gathering analytics for a while in order to build your feature skews).
Your pricing model is a bucket-based quota pricing with a trial period. It looks fine to me.
How many people can really buy your product? Are your potential customers just way past 200,000 clicks/month already? (Maybe re-targeting is one of those things you only do when you pass $1M in Sales for example).
Will customers search for "retargeting pixel" and find you? Or do you have to setup some outbound Sales process?
@smirolo
That's the thing. As long as you don't have a good idea on who your potential customers are, pricing and Sales strategies don't matter.
An example: You are selling Ferrari to people that can barely pay rent every month, or you are selling Honda Civic to the richest people on the planet. What do you think will happen? Do you think your pricing/sales/business will be successful?
You have to learn who buys retargeting ads products first. Then everything else from fremium or not, how much to charge per month, and having people on the phone dialing all day (outbound Sales) or relying on SEO, will be obvious.
Solid analysis. I like it. Is there any other options you might think of?
When it comes to SaaS pricing, I think a lot of posts on Tomasz Tunguz blog are worth reading: https://tomtunguz.com/categories/pricing/.
If you have a website, or can share a bit what your product does, it will be easier to figure out solutions that might work for you.
Thanks. Love reading Tom Tunguz's blog posts as well. We are making an API Data Governance and monitoring tool for DevSecOps teams, so they can monitor 3rd party APIs for data security and performance optimization.
Really interesting! Since DjaoDjin is making APIs around user profiles and billing history, I am definitely interested to run a monitoring tool against our own API as well :).
By the way, I found the following this morning: https://www.cnil.fr/en/privacy-impact-assessment-pia . This might be of interest to you as well.
Thanks for the info and words. Really appreciate! Would like to know more about DijaoDjin. Let me know if you want to test our tool.
I signed up at inpooling so you have my contact information. Please shoot me an e-mail so we can see what we can do together. Thank you.
I'm also having problem trying to decide what's the best model I should go for my upcoming chrome extension.
I would need your help guys.
Here the details of the software:
Landing: https://chatsilo.com
Pricing: https://chatsilo.com/pricing
It's giving me a lot of headache
I checked out your product. It's cool. It looks like you are targeting sales people. Your pricing model looks fine, for me. Would like to know how it goes for you. On another note, a sales friend used to tell me that sales people hate CRM tools (like salesforce) as it takes them a lot time to fill info in the tool and it's only good for managers to micro-manage them. It may be a little bit too extreme what my friend said. But if you can also add this type of integration with CRM tools and automate status updates in CRM, the sales people will be happy.
I really think it depends on a lot of factors. I know that sounds like a non-committal non-answer, but I still think it’s true.
Who is your audience? How much capital do they have to spare? How much time do they have to spare? Is your audience status-seeking trust fund babies? Time-crunched, results-driven executives? Work-from-home parents on a limited budget? The general population?
What is your product (rhetorically)? Can it provide value in a freemium environment? Or are you simply using “freemium” in place of a demo? Would a video and a demo account provide the necessary “hands-on” experience of a freemium model?
How necessary is your product to your audience? If it’s just a nice-to-have, then you might find value spending some time romancing the customer with a freemium experience. If it’s a must-have, then make ‘em pay for the value from the outset.
I don’t think there’s one answer to this question. You gotta find the business model that’s right for your business, and right for your customers.