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.
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.
Dropped our free plan, dropped the trial period, dropped our cheapest plan and doubled our prices. Result? 40% increase in revenue.
— Josh Pigford (@Shpigford) May 20, 2013
Standalone Occurrence or Repeatable Model?
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.”
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
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?”