{"id":9220,"date":"2017-07-14T13:01:15","date_gmt":"2017-07-14T11:01:15","guid":{"rendered":"https:\/\/chartmogul.com\/blog\/?p=9220"},"modified":"2022-06-22T14:34:38","modified_gmt":"2022-06-22T12:34:38","slug":"saas-pricing-two-sides-freemium","status":"publish","type":"post","link":"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/","title":{"rendered":"SaaS Pricing: The two sides of Freemium"},"content":{"rendered":"<blockquote>\n<p class=\"p3\">\u201cFreemium killed our business.\u201d<\/p>\n<p class=\"p3\">\u201cFreemium nearly killed our business.\u201d<\/p>\n<p class=\"p3\">\u201cWhy Freemium will kill your business\u201d<\/p>\n<\/blockquote>\n<p class=\"p3\">Judging by the headlines, you\u2019d think that the Freemium model in SaaS is at best a bad choice, and at worst, a suicidal move for your business.<\/p>\n<h1 class=\"p4\"><b>Commonly cited Freemium problems<\/b><\/h1>\n<p class=\"p3\"><b>Overwhelming support costs<\/b>: Free customers are going to be much more carefree about signing up for your product, and just as carefree when it comes to raising support tickets. In fact, the tendency to freely sign up without thinking too much about the fit or compatibility of the product could lead to a vast increase in support requests.<\/p>\n<p class=\"p3\"><b>Technical scalability: <\/b>Many of the horror stories related to the introduction of a freemium model cite technical scalability as the aspect that \u201ckilled\u201d them. In other words, Freemium leads to a big influx of new accounts, which leads to performance problems, impacting the whole platform (a great way to anger your loyal paying customers!)<\/p>\n<p class=\"p3\">The thing is, all of the above problems can be mitigated, with some careful planning and expectation setting.<\/p>\n<h2 class=\"p3\"><b>Support<\/b><\/h2>\n<p class=\"p3\">Set expectations for the level of support offered on your free plan. You don\u2019t have to give the same level of priority to free customers as you do to paid accounts. But to avoid frustration, you need to be clear about what customers can expect before they sign up.<\/p>\n<p class=\"p3\">Secondly, documentation is an incredibly cost-effective way to provide good, scalable support. It requires some upfront investment but the cost of scaling documentation to thousands (or even millions) of customers is <b>zero<\/b>!<\/p>\n<h2 class=\"p3\"><b>Technical<\/b><\/h2>\n<p class=\"p3\">I quizzed ChartMogul\u2019s CTO on this, as he\u2019s far more qualified on the topic than myself. His advice:<\/p>\n<ul class=\"ul1\">\n<li class=\"li3\">It really depends on the type and characteristics of the product.<\/li>\n<li class=\"li3\">Know your incremental cost to add customers, and the current headroom for your platform.<\/li>\n<li class=\"li3\">It shouldn\u2019t really be a technical issue, but rather an economic issue. If you can\u2019t technically add more customers to your platform (regardless of whether they\u2019re paid or free) then you have some problems to solve.<\/li>\n<li class=\"li3\">Run the numbers ahead of time. You should be able to model these changes and give at least a rough estimate of the impact.<\/li>\n<\/ul>\n<h1 class=\"p4\"><b>The two types of Freemium<\/b><\/h1>\n<p class=\"p3\">Despite the problems above, there\u2019s a far more important distinction in Freemium plans: <i>How<\/i><b> <\/b>you plan to move customers from the free plan to a paid one. This is the single most important aspect when designing a Freemium strategy that could make the difference between life and death further down the road.<\/p>\n<p class=\"p3\">For this, there are two main branches:<\/p>\n<ol class=\"ol1\">\n<li class=\"li3\">Freemium with <b>soft<\/b> limits<\/li>\n<li class=\"li3\">Freemium with <b>hard<\/b> limits<\/li>\n<\/ol>\n<h2 class=\"p4\"><b>Freemium with soft limits<\/b><\/h2>\n<p class=\"p3\">A soft-limited Freemium plan means that the customer can continue using the plan, usually for as long as they like. The plan is usually differentiated on features, so customers may only be using a \u2018lite\u2019 version of your full product, but it at least provides enough value to use it on an ongoing basis.<\/p>\n<p class=\"p3\">Soft-limited Freemium relies on you <b>nurturing<\/b> free customers onto a paid plan. This might mean in-app reminders, email campaigns, or even an inside sales team focused on engaging with and converting said customers.<\/p>\n<p class=\"p3\">There are multiple SaaS products that I use perpetually on a free plan. And <b>this is the problem: <\/b>I\u2019m never likely to purchase the paid version of these products. By definition that makes me a BAD Freemium customer! As a B2B service, you don\u2019t want these people. <strong>Note:\u00a0<\/strong>This model <em>can<\/em> work if the product has some form of built-in referral loop, such that a free customer can help spread awareness and drive signups through use of the free plan.<\/p>\n<figure id=\"attachment_9232\" aria-describedby=\"caption-attachment-9232\" style=\"width: 720px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-9232 size-full-column\" src=\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-720x472.png\" alt=\"\" width=\"720\" height=\"472\" srcset=\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-720x472.png 720w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-300x197.png 300w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-1024x671.png 1024w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-1920x1259.png 1920w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-720x472@2x.png 1440w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-300x197@2x.png 600w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/slack-freemium-1024x671@2x.png 2048w\" sizes=\"auto, (max-width: 720px) 100vw, 720px\" \/><figcaption id=\"caption-attachment-9232\" class=\"wp-caption-text\">Slack&#8217;s free plan can <em>technically<\/em> be used forever. But it&#8217;s quite a &#8220;hard&#8221; soft limit, i.e. the free product becomes more and more limiting over time.<\/figcaption><\/figure>\n<h2 class=\"p4\"><b>Freemium with hard limits<\/b><\/h2>\n<p class=\"p3\">Hard-limited Freemium plans may look similar to the customer, but they have one very important difference. There is a point in time for most free customers where they won\u2019t be able to continue using the service on the free plan. This is because of a built-in limit in the design of the plan that essentially <i>forces <\/i>customers to upgrade.<\/p>\n<p class=\"p3\">Hard-limited Freemium doesn\u2019t require any of the <b>nurturing<\/b> that you need on a soft-limited plan. No in-app marketing, no email campaigns, no inside sales team focused on persuading customers to upgrade.<\/p>\n<p class=\"p3\"><b>Example hard limitations:<\/b><\/p>\n<ul class=\"ul1\">\n<li class=\"li3\">The number of email subscribers you have (\u00e0 la <a href=\"http:\/\/mailchimp.com\">MailChimp<\/a>)<\/li>\n<li class=\"li3\">The number of logins (seats) you use<\/li>\n<li class=\"li3\">Your recurring revenue (\u00e0 la <a href=\"https:\/\/chartmogul.com\/pricing\">ChartMogul\u2019s<\/a> new Free plan)<\/li>\n<\/ul>\n<p class=\"p3\">It\u2019s important to note that with these plans, not every customer will naturally hit the limit and upgrade. Of course, some people will always have just a few email subscribers. Some businesses are small and won\u2019t hit the revenue limit. The important distinction here though, is that <b>you have control<\/b> over this. You can define the hard limit, and you can make that decision based on as much data and modelling as you like. You can even optimize this over time. This is something you just can\u2019t do with a soft-limited Freemium model.<\/p>\n<figure id=\"attachment_9230\" aria-describedby=\"caption-attachment-9230\" style=\"width: 637px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-9230\" src=\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/mailchimp-limit.jpg\" alt=\"\" width=\"637\" height=\"131\" srcset=\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/mailchimp-limit.jpg 637w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/mailchimp-limit-300x62.jpg 300w, https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/mailchimp-limit-300x62@2x.jpg 600w\" sizes=\"auto, (max-width: 637px) 100vw, 637px\" \/><figcaption id=\"caption-attachment-9230\" class=\"wp-caption-text\">MailChimp&#8217;s hard limit<\/figcaption><\/figure>\n<hr \/>\n<p><em><strong>Hint:<\/strong> If you want to see examples of B2B SaaS pricing pages, check out our analysis:<\/em><\/p>\n<p><em><a href=\"https:\/\/chartmogul.com\/blog\/b2b-saas-pricing\/\">5 key learnings from analyzing top B2B SaaS pricing pages<\/a><\/em><\/p>\n<hr \/>\n<h2 class=\"p4\"><b>Isn\u2019t this just the same as an extended trial?<\/b><\/h2>\n<p class=\"p3\">In some ways, yes. We\u2019re allowing people to try out the product for a period of time before they purchase. \u201cTime\u201d is another example of a variable you <i>could<\/i> use for a hard limit \u2014 and the one that\u2019s used for most SaaS trials.<\/p>\n<p class=\"p3\">What I\u2019m arguing here is that \u201ctime\u201d is a completely arbitrary variable to use, and it\u2019s not very closely tied to the value customers get from the product. What you\u2019re saying with a timed free trial is essentially \u201cokay, after two weeks most people have realized the value of the product so they\u2019re in a position to make a decision.\u201d But in the case of more complex products (e.g. requiring some technical integration) that\u2019s not always true.<\/p>\n<p class=\"p3\">So why not use a variable other than \u201ctime\u201d to base your hard limit? Something more directly tied to the product itself, and less arbitrary.<\/p>\n<h1 class=\"p4\"><b>Freemium can work<\/b><\/h1>\n<p class=\"p3\">It\u2019s important to not consider all implementations of the Freemium model the same. Depending on how it\u2019s designed and implemented, Freemium can unlock sustainable growth for many B2B SaaS businesses.<\/p>\n<p class=\"p3\"><b>BUT:<\/b> You need to plan upfront. You need to run the numbers. And you need a pricing structure that suits your product.<\/p>\n<p class=\"p3\">\n","protected":false},"excerpt":{"rendered":"<p>Freemium models are not all equal. Here&#8217;s what you should consider before you dismiss introducing a free plan for your business.<\/p>\n","protected":false},"author":9,"featured_media":9225,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[249,49,21,261],"class_list":["post-9220","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pricing","tag-freemium","tag-pricing","tag-saas","tag-strategyb2b"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>SaaS Pricing: The two sides of Freemium | ChartMogul<\/title>\n<meta name=\"description\" content=\"Freemium models are not all equal. Here&#039;s what you should consider before you dismiss introducing a free plan for your business.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<link rel=\"canonical\" href=\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SaaS Pricing: The two sides of Freemium | ChartMogul\" \/>\n<meta property=\"og:description\" content=\"Freemium models are not all equal. Here&#039;s what you should consider before you dismiss introducing a free plan for your business.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\" \/>\n<meta property=\"og:site_name\" content=\"ChartMogul\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/chartmogul\" \/>\n<meta property=\"article:published_time\" content=\"2017-07-14T11:01:15+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-06-22T12:34:38+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/freemium2-header.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"3000\" \/>\n\t<meta property=\"og:image:height\" content=\"1250\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Ed Shelley\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@Mr_Ed\" \/>\n<meta name=\"twitter:site\" content=\"@chartmogul\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Ed Shelley\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\"},\"author\":{\"name\":\"Ed Shelley\",\"@id\":\"https:\/\/chartmogul.com\/blog\/#\/schema\/person\/55ca03cbfebabf05e94258e529620fcb\"},\"headline\":\"SaaS Pricing: The two sides of Freemium\",\"datePublished\":\"2017-07-14T11:01:15+00:00\",\"dateModified\":\"2022-06-22T12:34:38+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\"},\"wordCount\":1138,\"publisher\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/freemium2-header.jpg\",\"keywords\":[\"freemium\",\"pricing\",\"saas\",\"strategyb2b\"],\"articleSection\":[\"Pricing\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\",\"url\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/\",\"name\":\"SaaS Pricing: The two sides of Freemium | ChartMogul\",\"isPartOf\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/chartmogul.com\/blog\/saas-pricing-two-sides-freemium\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/07\/freemium2-header.jpg\",\"datePublished\":\"2017-07-14T11:01:15+00:00\",\"dateModified\":\"2022-06-22T12:34:38+00:00\",\"description\":\"Freemium models are not all equal. 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