Freemium vs. Free: why we got rid of the free subscription

Coming out of the beta state, in our startup Trak.io, we made an unpopular decision: we removed the free subscription and replaced it with a $ 9 / month subscription.

I want to explain the reasons why this was done, and why we think that this is the best solution for both the company and customers.
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I hope the other founders of the SaaS companies will find something useful for themselves and will think twice before starting work on the Freemium system. If you don’t think everything out, you’ll simply hand out your product for free.

Reason 1: “Free” is not a competitive advantage.

At the dawn of development, we told everyone what our service would be a wonderful and generous free plan. Such that the average startup will not be able to outdo him. We will fall tons of users that spread from other services to us, because we will be free. Like air.

We thought that startups choose SaaS at their cost - whether it be $ 0 or $ 499. And we were wrong. Free is not a competitive advantage, because your competitor can instantly do the same. This is not a proprietary algorithm, not an attractive interface. They will simply add a free plan and allocate part of the money to cover lost profits.

If your competitors can copy you instantly, then you have no advantage.

Reason 2: Free Users Help Develop a Cool Product; Paid - Valuable

Entering a plan for priority access to the service for $ 29, we immediately saw a change in the work with users. Those functions, which we resisted earlier, because they are “cool”, have not been mentioned in conversations. Instead, we began to throw more mundane ideas, which in this case were more valuable from a business point of view. People asked about such useful things that we simply did not think about - data export, integration, and so on. Free beta testers asked for more icons or the ability to add photos of users.

Not to say that free beta testers are useless. Or that paid users are best suited for creativity and innovation. But if you need to build a resource for which people want to pay, you need to pay more attention to what paid users want.

Reason 3: most support is required for free users.

If the user cannot allocate us $ 29 from his business, he can hardly hire a freelancer or developer who integrates support for Trak.io into his application.

Of course, we do not refuse to help people with this and write some specialized code for them. But it takes a lot of time. And usually, it is free users who most often have to drive the first time when they begin to use the service.

On the contrary, reviews from paid users were “the installation was very easy” or “show us the documentation and our CTO will figure it out”.

Do paid users simply have more resources to get the most out of our service with our minimum participation. A developer who would provide qualified technical support would cost $ 100- $ 200 per hour. Since our service costs from $ 9 to $ 299 per month, we need to make sure that we can support all users without investing a lot of money in support.

Now (April 2014) in Trak.io registered 1460 users. Many of them are still free beta testers. Our team of three people simply can not competently serve them all.

But if there were hundreds of users, and all of them would be paid, we would be able to hire qualified technical support for them.

Reason 4: We don’t see the viral benefits from thousands of free users, which lead us to the next thousands of free users.

If hundreds of people discuss your product, that's great. But not in the case when they discuss it only because it is free. It is unlikely that the one who recommended the free product will be his paid subscriber.

10,000 free users who are not going to pay - this is not freemium. This is just a free product.

We do not want the glory of a free product. We need users to recommend us because their business benefits from working with us far more than the few dollars they spend on paying for the service.

Reason 5: Their data has no value for us.

We do not sell collections of data collected from millions of people. We just provide a platform. The data belongs to those users who store them with us.

Some other services provide free access in exchange for their access to your data, with the ability to use and resell it. They sell this data usually to marketing agencies or ad networks.

We think this is wrong.

Since we do not have such sales, we will not be able to monetize the data that free users bring us.

Reason 6: We want to build a profitable business on a product that people like so much that they are willing to pay for it.

Much has been said about the successes achieved in freemium models. But no one tells how this model led to the bankruptcy of the company. Or to unsuccessful attempts to monetize what used to be free. People exemplify the success of the Mailchimp model: “they cost a billion, and they have excellent free access!”

They miss that, since launch in 2001, Mailchimp spent 7 years building a huge product, acquired 85,000 paid users before presenting a free plan in 2008. They even began to provide free test access several years after launch.

If you have a product for which they want to pay, you have an income. If you are sure that viral marketing will bring an increase in revenue, then you need to think about the freemium model.

If you are engaged in B2B, you need to focus on building a reliable business based on a product that people like.

Reason 7: we miscalculated our calculations and service prices.

During the beta, we told us that our price grid would be approximately as follows:

Free, $ 29, $ 49, $ 149

After launch, it looks like this:

$ 9, $ 49, $ 149, $ 299

At first we wanted to offer data storage for 6 months, so the cost of their storage was low. In fact, it turned out that a business wants to store its data for much longer. Therefore, all of a sudden our spending on server capacity has increased.

We also wanted to charge a fee depending on the number of site visitors or users of the application. But then we realized that it had nothing to do with the profit or success of the product, so such a policy would not make sense.

Again, we had to store more data for the average account than we had planned.

Also, estimating the number of events that the application will track, we also first wanted to charge a fee depending on the number of data points that it stores with us. But then they realized that it had little to do with the value of the business, moreover, our customers began to worry about what events they could track, so as not to exceed the limits.

In fact, I need our users to track everything they can, so that after the fact they don’t reproach themselves for not tracking something very important.

Total

I do not want to say that B2B SaaS class applications should not consider the Freemium model at all. There are examples of when this works. I also understand that we have upset a lot of beta testers by canceling the free plan.

But I think that you need to seriously think about the reasons for choosing a freemium plan, and make sure that you don’t actually choose a free plan. Free - it's just a hole in the budget. Freemium is an opportunity to attract users.

We think that the appearance of the $ 9 Solo plan will allow us to separate free users who are not going to pay from early birds. And the results of this decision already suit us!