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Is Freemium a must for a SaaS application?

My company has an early stage planning and project management software with a couple of dozen charter (free) customers using it. We are currently looking at targeting the product toward freelance consultants who work in virtual teams, often across multiple clients and projects. Basecamp would be a competitor, and they don't offer a free version (min. is $20 / month), but they are also well established and the norm these days seems to be a free version with paid premium versions for either added features or added users or added content (e.g. projects). I would especially love to hear from others who have had to make this decision. Is freemium a must? What is the downside to a paid version only with say a 30 day free trial?

16 Replies

Daniel McEnnis
0
0
Daniel McEnnis Advisor
Researcher Consultant
Having worked in places where this has come up, the problem is customer engagement. How can you get customers to stay interested long enough to take a risk on a less established version. Even for established players, how do you keep new customers from being funnelled to an upstart competitors product (free or not) if there is not at least a try before buy feature to connect them to your product before using someone else. It's a marketing budget question without an easy answer or even an easily defined cost. Daniel McEnnis CEO Research at Scale
Mike Taylor
3
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Mike Taylor Entrepreneur
Web Developer
I think the downside to a 30 day free trial is that it is such a short period of time for a project management application, in my opinion. It might be helpful for you to determine a typical project duration for existing or potential customers.

If, as a freelancer, my projects are less than 30 days then I might give your product a trial run. However, if I know that my projects will typically last longer than 30 days, then I am essentially committing to your product from the beginning. What if I find that I am frustrated and dislike using your software for my workflow? I don't want to switch project management software in the middle of a project, because that creates confusion and extra work which drives down my hourly earnings since it is not billable time. Optimistically, I would consider a free trial to be a first-time customer discount. If my projects run 60 days, I get a first-time customer discount of 50%. If longer, then that percentage discount is less.

With a free tier model you (the service provider) can cap your costs by limiting user activity, and the user is likely to gain a longer trial period since they can limit their activity. As a user, the more my activity increases and I build momentum with projects, the more likely I will want to keep using your product vs. another, because it's the path of least resistance. I think that is referred to as "customer stickiness." Not only am I more comfortable with your software over time, but since I am building momentum, this probably means I am also generating more income with client projects, which means I might be able to justify paying for your service. If I only have a 30 day window without a chance to build momentum, I will cancel the service before I even have a chance to build that momentum.

On a side note, if your software mirrors the sticky note analogy, make sure you are also aware of Trello as a competitor.

Hope this two cents helps.
Dick Hardt
4
0
Dick Hardt Advisor
Identity Guy at Amazon Web Services
Kenny Van Zant, COO at Asana did a presentation on this and has a decision matrix on freemium vs free trial athttp://www.slideshare.net/jamescham/lessons-from-the-new-sales-model
Sandy Fischler
3
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Sandy Fischler Entrepreneur
Experiential Marketing Director | Event Producer | Event Management | Entrepreneur
We've gone back and forth on this ourselves and eventually discarded the freemium option. You MUST have some kind of trial and only testing will determine exactly what works for you in terms of retention. You might need to A/B test a few different trial periods to see what the optimum time period is for keeping users engaged.

Having spent a good deal of time examining freemium, my personal opinion is that it only works at enormous scale. Most products I know of that have a freemium model have a paid user base in the low single digits (think 5% if you're lucky). That works at a LinkedIn or Evernote level scale but I don't think it works for a small company with a big name competitor. Users attracted to FREE are highly unlikely to convert to paid, what they want is free so you have to offer something valuable enough for them to pay.

Project management in particular is tough because you need to get an entire team on board, not just an individual user. I can't tell you how many times I've tried to entice my teams away from email and onto a PM platform and it just doesn't happen. So, what you're likely to see it a lot of signups of people testing the waters (FREE!) who abandon your product once they can't get the rest of the team onto the bus.
Felix Livni
3
0
Felix Livni Entrepreneur
CEO at Schedulista
Freemium is not a must. As you point out, Basecamp has no free version. Many others as well.

Jason Lemkin writes re Freedmium and SaaS business apps:

"Freemium alone, by itself, simply can't scale that big absent relatively rare, universal apps that almost every single business needs and is willing to pay > $10-$20/mo for. There simply are not enough businesses in America to make the math work."

His entire post on Freemium (and just about everything he writes) is worth reading:
http://www.quora.com/Is-freemium-a-stable-economic-model-Why

Do you have funding? Or are you bootstrapped? If you have more modest goals, Lemkin's analysis might not apply.

Some things that I have not heard from others:

Freemium will impact your product, your brand, and your marketing in ways that you might not expect.

Two examples:

(1) It will impact customer support. If everyone pays, maybe you can put a phone number prominently on your website and talk to all potential customers, impacting conversion and changing your relationship with your customers. If you expect only a few percent to convert (IMO 5% is too high), then you probably cannot afford to do this.

(2) it will impact your options for acquiring customers. It is unlikely you can pay to acquire customers if most of them won't pay you. Advertising is more expensive as well. And, if your viral coefficient is low but meaningful (likely), viral marketing will have even less impact.

An aside: I think it is a mistake to give your charter customers your product for free. It makes it very hard to test what is likely your primary question "Will customers pay for this?". Instead, give them your time.

Mike Taylor
0
0
Mike Taylor Entrepreneur
Web Developer
I like this discussion. Plenty of good points to consider.



With my initial response, I assumed you wanted to acquire individual freelancers as users who would manage their own work, separate from their remote teams, but after Sandy's answer, I wonder if you want to convert whole teams to use your product.

If you're converting whole teams to your product, I would question whether any free options are necessary. If you think you can convert whole teams to your product, then free options might not be necessary. That's not to say that your existing free users are worthless - I'm sure they've provided valuable feedback. I'm no expert, but I would probably even keep them grandfathered in for free so that they would be my ambassadors.
Monica Borrell
1
0
Monica Borrell Entrepreneur
CEO and Founder at Cardsmith
Thank you all so much for your thoughts and suggestions on other things to read! I have resisted the idea of freemium up until now for many of the reasons stated above, but I recently had an outside advisor suggest that it was a must. Because we want to bootstrap for a while longer, and don't have a lot of capital, my sense is that for now we should test the value by asking people to pay after a trial version.
Ed Jeffers
0
1
Ed Jeffers Entrepreneur
MD at EDGE +
Monica, I have a few ideas. Yes straight up free is a must. But position it with your investors as a marketing or customer acquisition expense which is what it is. The problem with the "free trial" is too many people have been burned with the automatic renewal trap that a lot of SAAS offerings have used. Actually you may want to consider letting them sign up and advertise in your CTA that there is "no credit card required" otherwise your drop out rates will go through the roof. Secondly I have another idea. I manage a network of project management and project management practitioner professionals (1100+ members) and maybe there might be a way to get them to have a look. We could gamify it or offer some sort of giveaway in return for them trying it and providing feedback. I doubt I am the only one to manage one of these networks but it might be a way to get the ever important chatter from industry users which are the strongest decision influencers. Happy to have a further discussion if you would like. PM me if you'd like.
Inbae Ahn
0
0
Inbae Ahn Advisor
Managing Partner, CIO at Polyform Labs
Short answer is yes. Freemium is a must. How you execute this strategy will depend on your market, early adopters, product differentiator etc...

What's interesting about your category of product is that you need to sell to early adopters who have the power to get their entire project teams onto your platform to 'experiment' with it - which means failed attempts at adopting your platform will be very public and very expensive in terms of credibility since there are safe incumbents like Basecamp.

Your key to early traction will be less about pricing and more about making your early adopters feel safer about choosing your product. This can be accomplished using thought leadership, video demos, canned projects that match your most common user base projects etc. etc.

Reward your early adopters by letting them sleep at night. :-)


Dirk de Kok
1
0
Dirk de Kok Advisor
Founder and CTO Mobtest
Question is, who do you sell to?

If you go in low, have individual employees make the decision to start using a tool and getting used to it, then freemium is a good idea. Having to pay early, or already input their credit card will scare them away.

If you go in from the top, via CIO/CFO/CTO's, then you can skip freemium and go to 30 day trial only.
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