Dropping Freemium: How One Company Killed Its Free Plan and Grew 40% — And You Can, Too

Josh-Pigford by

For most SaaS companies, offering free trials and freemium plans is a no-brainer. But according to one SaaS entrepreneur, going in the opposite direction might actually do more for your bottom line.

Should You Drop Your Freemium Model?

In most SaaS circles, conventional wisdom suggests that in order to have any hope at rapid growth, SaaS businesses must offer freemium plans and free trials that entice prospective customers to give a product a try before they actually decide to pay for it.

So, for the first 18 months of running his online survey software company PopSurvey, SaaS entrepreneur Josh Pigford bought into that strategy. “If you’re running a SaaS company, it’s kind of a given that you offer some sort of freemium option,” Pigford says. “So that’s what we did.”

Not surprisingly, that freemium strategy worked — to a degree.

PopSurvey’s free plans were attracting tire kickers, but they weren’t delivering the long-term results that Pigford and his team wanted to see. Customer churn was higher than Pigford thought it should be, and the business was having trouble convincing trial users to convert into paying ones.

“We’re not a huge survey tool like Survey Monkey that allows customers to make these massive surveys with super complex questions,” Pigford says. “We built our product to appeal to a very specific segment of customers. So when people came to us looking for something like Survey Monkey, they didn’t hang around. That didn’t seem like a very productive process to me.”

So, Pigford decided to try something radical. He dropped PopSurvey’s freemium plan, eliminated its trial period, and doubled the prices of its other plans.

The result? A 40 percent increase in revenue in the first month.

 

Standalone Occurrence or Repeatable Model?

No Sale

Pigford admits that PopSurvey’s incredible results could very well represent a flash in the pan. But that doesn’t mean he thinks that success should be written off as pure happenstance.

“At a high level, giving SaaS customers a free trial or a freemium option makes logical sense,” Pigford explains. “But what’s the real value of those free signups if they don’t convert?”

By not offering the free trial, Pigford believes that PopSurvey has forced prospective customers to do more research before they sign up. Ultimately, that allows the business to attract a higher quality batch of educated customers whose expectations better align with what PopSurvey’s product delivers.

“In my mind,” Pigford explains, “that’s not some sort of rogue idea that will only work for our company. It’s a very reasonable, quality-driven customer acquisition strategy that I think many SaaS businesses could benefit from.”

“Our early returns are showing that customers who give us their credit card up front are much more likely to stick around.”

Josh Pigford

Josh Pigford, founder of PopSurvey and Temper

The reality, Pigford says, is that some SaaS businesses don’t need to — and probably shouldn’t — market themselves to any and everyone with an e-mail address. Instead, they should be trying to appeal to the customers whose specific pain points align with the company’s value proposition.

“From there, you can make your pitch and ask them to pay,” Pigford says. “If you can quickly and compellingly state why your product is worth the investment, serious customers will gladly give you their credit card information.”

Of course, that doesn’t mean that SaaS companies should force prospective customers to take all of the risk. PopSurvey still provides some insurance to its customers with a 60-day money back guarantee. But Pigford says that he’s found that strategy to be much more effective than the freemium one.

“Our early returns are showing that customers who give us their credit card up front are much more likely to stick around,” Pigford says. “And that makes customer acquisition a much more efficient process. It removes the need to constantly beg non-paying customers to convert to premium plans and allows us instead to focus on meeting or exceeding paying customers’ expectations.”

Why You Need to Evaluate Your Situation Before Dropping Your Freemium Model

Free Lemonade

Before you rush off to copy PopSurvey’s strategy, Pigford suggests heeding this warning: Don’t do anything until you’ve considered your market’s competitive landscape, and factored in the expectations of customers you’re trying to attract.

“If you’re in a super competitive space and your product isn’t much different than everyone else’s, then offering a free trial or freemium plan might be the right thing to do,” Pigford says. “And if every other comparable service in your market offers a free trial, you’d be taking a significant risk by not offering one, as well.”

That being said, Pigford says SaaS entrepreneurs should not be so afraid to ask customers to pay for a product that they believe adds real value.

“So many early-stage SaaS companies operate with this mindset that they can’t charge too much for their product or they’ll scare everyone away,” Pigford explains. “The reality is that any substantial business will gladly spend the money if your solution relieves their pain. Some of our bigger customers — FedEx, Foursquare, and Whole Foods — could spend thousands of dollars a month and not think twice about it. So if your product legitimately solves those types of businesses’ problems, why give it away for free or undercharge for it?”

What’s your experience with freemium models? Are free plans and free trials a must, or should more companies consider raising their prices?

  • Chuck DeVita

    Josh,

    Your experience confirms ours with several Enterprise SaaS Solution clients that have moved form free trials to paid trials. There is also substantial data across hundreds of SaaS app providers that Freemium conversion rates regularly disappoint. I plan to use your article in my Selling & Marketing SaaS class at Stanford. My students are software & SaaS executives and professionals.

  • petercohen

    Josh,

    Thanks for your sharing your experience. Free trials or freemiums sometimes make sense… but not always.

    As you point out, the free model didn’t work for you because it attracted users who we were really looking for something different than what you offer.

    A few other reasons why this model doesn’t always work:

    – The trial doesn’t extend long enough for people to see any value from it.

    – The prospect is putting too much at risk with a trial. They won’t experiment with something that puts a vital process at risk just to save a month or two in subscription fees. In other words, “free” isn’t really a motivator.

    – The customer only needs to use the solution for a single event. Once they’ve used the free trial to manage the particular task, they’re done. No need to buy anything.

    In those instances where a free trial or freemium doesn’t fit, a 60-day guarantee like you’ve done, makes sense. Companies can also consider “no obligation, cancel anytime” subscriptions, extended demos, or even detailed videos that show the prospective customer what the solution looks like.

    Free trials or freemiums are not the only approach. For more on this, see http://bit.ly/yOUZyR

    Peter Cohen, SaaS Marketing Strategy Advisors
    http://www.saasmarketingstrategy.com

    • Great points, Peter. Like you mentioned, there are many reasons the model doesn’t work. So many businesses just jump to the freemium model because they don’t think their product is really worth it or they think it’s “just the way it is”…turns out, it’s not. 🙂

  • Chris Beall

    At ConnectAndSell we dropped free trials and only offer paid trials. The results have been uniformly positive.

  • You mention that you’re different than SurveyMonkey because you’re targeting a specific type of user – what kind of user is that? I went to your site, and the only thing I saw was you kept mentioning creating “beautiful surveys that people want to take”. I don’t see that as a concrete benefit over SurveyMonkey?

    I’m not questioning your tactic of removing freemium, especially if the results have been positive. Perhaps you can write a follow on post regarding impact of different messaging? Because at first glance I would say that’s even more important given the crowded field you are in?

    • We’ve A/B tested some other things (like “Get better response rates”) and what we currently have so far continues to beat any other messaging we’ve tested.

      Always room for improvement, though. 🙂

  • Greg Bardwell

    Yes, this can work. We dropped our free trial and lower cost plans and went upscale … 5x the price. And added add-ons on top of that. Either we solve a problem for you, and add value, or we do not. If you do you will pay.

    A lot of freemium target markets that can not or will not pay. We target businesses and free to them is never free — it always requires investment. When someone ask if we have a free trial we say not and explain our philosophy. They pay more often than not — really. If they have a enough pain or need and we can help they should right. Then we bust our butts to be sure they are happy users — trained, getting value, we constantly followup to be sure they are using it and know how to do everything they want to do.

    So far it works well.

    • Exactly. If you solve a pain point, any legitimate business will happily pay!

      • Greg Bardwell

        Solve a pain point or help with a need. ROI is hard to sell anymore. But pain or need, if they can pay they will gladly.

  • SaaS Guru

    I agree with and you suggest the following thoughtur : If you have a high volume/low cost solution you may consider a freemium model with caution. If you have a low volume/high cost solution forget it. For this latter case, you may want to consider to offer a free limited scope alternative solution that would pull demand for your paying complementary solution. Would you agree with that?

    • If you have a low volume/high cost solution, chances are you’d have a sales guy doing a lot of high-touch, one-on-one demoing of the product and *showing* potential customers how it works for their business.

  • Helith Sofer

    It all starts with profiling and segmenting your niche market place, versus developing a product and then looking for customers to bite into your offer. This is usually where we see freemiums and free offers when companies are trying to catch any fish in the ocean.

    When you have a clear understanding of your target audience, their needs/ pain points then they are willing to pay a price that quantifies the perceived value of your proposition. Otherwise only tire kickers will try your products/ services

  • Vern Imrich

    Freemium is best understood as a means to lower the cost to acquire new customers (CAC) not convince prospects of the lifetime value (LTV) of the service or product. I.e. it’s a top of the funnel “get found” technique, not a mid funnel conversion tool. Freemium exists because in technology “just try it” is often the best answer to “what does it do?”

    Freemium is not a very good way to address the lower funnel value question “is this service worth it?” or “is your service better than others?” That’s because in freemium, the goal is to reduce the commitment required of the prospect (and to reduce your costs as well). But a real purchase comparison requires a fairly high level of time and risk commitment from a prospect and higher touch interaction from you as a vendor. The freemium program can’t lower that requirement, and its low touch model will hurt you at the conversion phase because when customers are ready to get into the value discussion and buy they want higher touch interactions.

    • Roger D. Brown

      Forgive the ignorance but, to what funnel do you refer?

      • Vern Imrich

        I’m using the term “funnel” generally in reference to the classic marketing/sales funnel. The funnel shape measures the number people at any given stage of interaction, from “awareness” stage (all who know of you and your products) down to “customer” (those who buy your product or service). Different organizations use different funnel stages to capture the drop off vs. conversion as prospects interact with the company at that stage.

        The shape helps you figure out where you have problems. For example, if you have good conversion rate then the funnel shape is good at the bottom and you need to widen the top of your funnel and get more folks to know about you. Conversely, if you have tons of awareness, but little buyers, then you’re funnel got too narrow at the bottom and you need to look at tools that help convert browsers into buyers, and so on.

        Marketers often refer to these “top of the funnel” vs. “bottom of the funnel” concerns. Here’s a typical post on something like that: http://blog.hubspot.com/blog/tabid/6307/bid/33711/The-Steps-You-Need-to-Define-the-Stages-of-Your-Sales-Marketing-Funnel.aspx

        Here’s a more formal overview: http://www.marketing-made-simple.com/articles/purchase-funnel.htm

        • Roger D. Brown

          Thanks for taking the time and effort to respond Vern. Your response was most helpful and enlightening.

  • Great read, we just did the same thing and switched our pricing from freemium to trial.nnnI wrote a post about it here:nnhttp://www.process.st/2014/07/freemium-vs-free-trial-why-we-ditched-our-free-plan/