Your Pricing Model is Killing Your Growth!
EDIT: Hi! 2022 Kevin here. I've learned a lot since writing this post, and I no longer consider it to be solid advice. I'll keep it unchanged for history's sake, but check out this post for a solid argument against freemium.
Nowadays, having learned a ton about both idea validation as well as sales, I discourage most founders away from freemium plans, at least during the early stages of finding product/market fit!
As Indie Hackers grows as a community, our understanding of how to best structure our businesses changes. One big change I've noticed was moving away from "No Free Plan" models.
"No Free Plan" models are pricing strategies that require the user to commit to buying. Even if there is a free trial period, the user knows that they will be expected to pay if they sign up.
At its most extreme, it means no free trial whatsoever. Pay for it if you want to try it.
At its most generous, it's a 30-day free trial.
However, it's finally becoming popular to use different models. Ones that consider freemium as a legitimate strategy.
I think that there have been quite a few reasons for this change:
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The increasing popularity of static sites and easy deployments from websites like netlify.com and render.com have allowed for free front-ends, compared to the expensive rails backends of the past.
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Back-end work has decreased in cost as well, due to serverless functions and scalable backends such as firebase.
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All of the above has made scalability (at least at the magnitude an IHer expects to see) a non-issue.
For a while, it didn't make sense for a bootstrapped company to offer a freemium model. Only companies that were willing to hemorrhage money on free users could consider it. Now, for many of us, it isn't the case.
So why should you consider freemium?
Now that price isn't an issue, you should heavily consider a freemium model. The truth is, people on the internet don't trust you. They don't know who you are, and they likely don't know anyone who works with you. That's a critical disadvantage to your company.
However, by offering a free plan (not a free trial, that's a completely different mindset for the customer), you give your product a chance to prove its merit.
If your leads never try your product, they are relying on only marketing to sell them. Perhaps that makes sense for companies with a huge budgets, but not yours. So let your product do the talking.
I hope you'll take the time to consider adding a free plan to your product. I've received over triple the amount of interest in codernotes.io since I've changed its pricing structure.
What do you think? Have you switched to a freemium model? If so, how did that work out for you? If not, what is stopping you?
With your tripled interest in your product / free offering, have you had any increase in support and also, how did this affect your revenue?
While you're not wrong about the barrier of entry in terms of cost being lower, you fail to mention that at scale, freemium is extremely expensive. Infrastructure costs go up, support goes up and at the end of the day, many folks will /never/ convert, and some will go as far as to remind you that the service simply isn't free enough (it's never enough for some people).
I've done freemium in the past (different types of businesses, SaaS and DaaS) and have seen things first hand at higher scale. For me, I'd much rather rely on giving out a limited trial (especially in the DaaS realm where the data is the commodity), and offering up a 30 day money back guarantee as a way to help build trust.
That said, I'm actually building some new things this year, and will more than likely be dabbling with freemium with one of them ;)
Great insight :)
I think a money-back guarantee and a free plan are completely different in the psychology of a user who's thinking of trying software. A free trial still requires a commitment. The user thinks of it like 'first month free'. A free plan has a much lower barrier to entry, which I think is very useful.
While I think I cover infrastructure costs in my posts, you make a good point with support. Freemium is in no way a golden bullet, but I think it's upsides are better than its downsides. The support issue can be an issue, but for many IHers even getting feedback from free users would be better than the current 1-2 they have now.
I guess I could have qualified better in the post - I wanted this to be a call-to-action to IHers who built something, and hardly anyone has tried it. I think the fear of freemium is overstated for those type of people, and it is a great opportunity to open up the marketing floodgates and get some traction.
You covered infrastructure at the early stage / the initial barrier of entry, but until you drop 6-figures on AWS reserved instances for the year, you won't be able to understand that particular burden at scale, especially when you factor in 90%+ of your user base being free.
You're not wrong about early conversations with customers, but you also have to take those people with a grain of salt. Free users will consistently pull the "well if it did ____ I would pay for it" and then never do. Could lead you down a ton of paths that you shouldn't have ventured down.
Sure, I would agree that if 90% are free and it's costing you that much - and the conversion isn't worth it - switch pricing models! Certainly isn't one size fits all. The median IH revenue isn't $XXX,XXX.
I think we're just talking about vastly different stages of companies, which causes a vast disagreement in what makes sense!
I'm going to give my $0.02 here.
You made a noticeable comment:
Selling the features is never a preferred method, you should be focusing on what those features solve. As a founder of a product, you should absolutely be in contact with everyone that goes through your website and lands on your product until you can hire people to do so, this is the art of customer success.
Pricing objections is just another way your prospect lies to you. If you're selling a license @ $29.00 dollars and the client is complaining about it, change your pricing to $59.99 they are going to complain about the price anyway.
It's a well-known fact that pricing doesn't sell, value sells.
Not positive what you are getting at here, if I'm being honest. Feels like a couple thoughts put together, perhaps?
I stand by this comment. Your copy can be in the top 10% of sales copy as a new founder, but, for most people here, the sales copy isn't the problem the customer has.
The biggest hesitation the customer has is that they can't trust you to live up to your hype.
By proving quality before asking your users to buy, you end up removing that hesitation.
This is exactly what I'm arguing for. Prove value before asking for money.
You make some very good points in the post, but I'm assuming the traffic is mostly organic and requires little to no customer interaction.
I read a post a while back that made some extremely good points that raise the question of how effective is the free model.
The ego-stroke of having a few hundred free users on a new SaaS product is fantastic but it really breaks down into three questions:
I didn't want to come across as a jerk, and I apologize if I did.
No worries, I didn't mean to make it sound like I thought you were :) Just wasn't sure what you meant.
I think these are the three important things to consider when having a free plan. I think the best way to handle these (in my own opinion) is as below:
Solution: Setup a free plan that your target customer would not stay on for long. For example, codernotes.io allows free users to post three code snippets/day, no private snippets, and can't be part of a team.
Ex: The market I'm selling to - teams of software engineers - would never stay on the free plan. It's too limited. But it's a great trial for them before they go and ask their boss for a credit card.
Solution: Have a strong grasp of segmentation around your product. For me, I measure years of programming experience and team size, which helps me understand the context the feedback is coming from.
As you point out, feedback from free users can be a sort of reverse survivorship bias. You'd be far more interested in the people who switched from the free plan to the paid. What convinced them to make the jump?
This is something I didn't get to in my post, but this is where it depends on your business. For me, having a group of free users who are increasing the value of the global search actually improves the product for paid members.
Thanks for your follow-up comment, I think it's very insightful!
Freemium only makes sense if those customers will eventually convert to paid. In my experience across multiple products and industries, freemium to paid conversions hardly ever happen, but attracts the worst kinds of users — support heavy, vocally critical of changes/restrictions, always wanting more for free.
Customers will give your product the value you assign it. Freemium => no or low value.
I’m a hard pass on this for bootstrapped products.
This is also my experience. Customers on the free plan were the most rude and feeling the most entitled.
In my case, I officially converted the free plan into a trial and now if any free user sends me a rude email, I just close their account as trial expired.
Well, it has definitely worked in my case. Made a very limited free plan, with visible “premium” features and “Try for free” buttons in the app.
It is not my intention to have a free to use plan, I use it 100% to nudge people into my free trial, as a consequence there is a hard usage limit where the user has to either upgrade or unsubscribe. Like a pre-trial trial. And it has definitely worked. Seen a 5x in number of trials.
Yes, I think this is very much the way to go. My free plan is limited on the main value-add, which means that only people who don't find it very valuable would stay on the free plan. That way, I know to focus on gathering feedback more from those who switch from free to paid.
Free is so very bad, the wise words of @joshtronic included.
It is bad enough that a startup doing file sharing has just been blacklisted by a lot of major EU companies who share cybersecurity data a few weeks ago.
Reason? Cybercriminals used their free offering to attack these PLCs, the free startup had poor verification and when I contacted them on behalf of said multi mega billion-pound group, they shrugged, so their entire website/domain has now been blocked via DNS forever.
They will never sell to those enterprise customers and their paid offering is for high-security file sharing for enterprises, they just killed themselves in Europe.
Totally forgot about the sketchy implications of letting people use something for free. I remember reading about code snippet site that had to deal with a ton of that type of nonsense. I run a free (ad-based) social network and yeah... legal stuff comes up way more regularly than it does on the things I charge for (such is the nature of UGC).
That leads right into the fact that in many scenarios where the freemium offering is limited in some capacity, people will go out of their way to get around said limitations. I had ~1,000 accounts created on one of my services to get around the API limits that I had imposed on the free tier.
Something else that I forgot about is the concept of a paid trial, at a lower price to allow people the opportunity to use a service without the heavy monetary burden as a way to get people through the door to build trust with them.
Great post Kev, I agree.
You would be surprised at how efficient you can be with 2 or 3 machines in GCP, and kubernetes can help tremendously. 2x g1.small pre-emptible instances is $10/mo and a load balancer is $18/mo but it is not required at least in early stages to get 99% uptime.
Yep, scale has become noticeably easier in not only front-end, but database and back-end as well.
I think freemium is great for some products/services, but definitely not all. As someone offering telecommunications services through Shuffle, every message or phone call has a cost associated with it. And when I see how janky in-app ads can be even in the best apps, the user experience is something I'm simply not willing to mess with in order to offer a free service (with the hope they upgrade to premium) to people who aren't willing to plunk down a small amount of money for a high quality product.
We are in the fortunate position that we can do transactional pricing, taking a small cut of total payments which allows us to have a "free" plan meaning no monthly fee or credit card required. We also had other monthly plans but nearly everyone opted for the transactional plans, so we have just removed the monthly ones altogether and list an enterprise offering with a contact us option.
It’s still early days but I think not requiring card up front allows a much easier onboarding process and removes a lot of barriers to entry. We can then manually see people putting through a lot of payments and offer them a more affordable fixed monthly price when they are at a larger volume of payments.
In a previous startup we had big issues with a completely free beta offering and then switched to paid. During the free period customer feedback was all these wishful ideas and once requiring paid plans the feedback was much different and more to the point.
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True. But on the other hand you'd get 100% of the people who would have only ever bought it if they were able to try it first. If that were not even an option, the people with that mindset would have never tried, and never buy-ed (bought)..