Comments on: Freemium Founders: Start Charging for Things Today!

By: MetaconomyCEO

MetaconomyCEO — Tue, 02 Mar 2010 13:54:50 +0000

Great debate. I am also at this stage where we are about to enter a free Beta for our product. I have read many of the arguments and also think highly of the Sean Ellis approach. My dilemma is that we have a B2B offering and some of the Beta 'friendlies' are companies I would definitely not like to lose when we go to the pay model after Beta.
I think the push towards Trialware is a the best combination for us because like all startups we have to get the case studies to convince the next round of customers we aim to acquire. The reference is king for us because our premium service is a 'Corporate' offering that requires some Big 5 style consulting alongside it for business process and change management analysis and re-engineering.
Its a fine balance to get early revenue streaming and to get awareness at the same time without losing the customers when you ask for their credit cards.

By: MetaconomyCEO

MetaconomyCEO — Tue, 02 Mar 2010 05:54:50 +0000

By: dlifson

dlifson — Wed, 17 Feb 2010 14:10:50 +0000

Agreed. As we experiment with different price points, we continually grandfather in our old users instead of trying to explain what we're doing or shoehorn their featureset vs. the new ones. So in fact, we have a few of our early $9/month users getting the same access as new users paying $250/month. All that matters is the next customer, not the last one.

By: dlifson

dlifson — Wed, 17 Feb 2010 14:04:52 +0000

I disagree that a free product is nothing but a cost center, if you are creating a new market. These free users may not become paying customers, but as early adopters, they may be the trusted source you need to educate someone else as to the value of your new product, and that may lead to sales you otherwise would not have had.

Long story short, word-of-mouth may be more valuable in new markets than existing markets, because the value proposition is less well understood.

By: Mark Maunder

Mark Maunder — Tue, 16 Feb 2010 15:50:01 +0000

Tony, great post and a few interesting insights as always. I've chosen to charge my customers for a few reasons:

1. I like recurring revenue. If you've ever done a cashflow plan with a recurring monthly revenue model you'll understand why.

2. I don't like the idea of getting a few cents for a click and having someone else downstream earn a heck of a lot more from each customer - often on a recurring basis. I want that revenue for myself.

3. I think the ads business is highly volatile in the current global economy and there's about a 20% chance it may completely collapse. I want to be immune from that apocalypse.

4. If you're in the ads business, you are at the mercy of your upstream providers whims e.g. rev share changes, changes in the quality of ads you get as your own brand grows and changes, etc.

5. You ABSOLUTELY MUST charge before you can find a product market fit. [Sean WTF are you smoking?] So once you do charge, you have an incredible platform to start experimenting with products that provide both growth and revenue and you can start incorporating features that increase both.

6. Did I mention that I like recurring revenue?

By: todd sawicki

todd sawicki — Mon, 15 Feb 2010 20:05:26 +0000

” Joe Kraus (founder of Excite and later Jotspot) and the fellas from Wufoo. Both had horrifying anecdotes about asking a bunch of free beta users to start paying for their software. The conversion rate was awful. When we first turned on our premium offering, we were struck by the same thing. We opened the floodgates for paying customers and found that almost none of our free users made the switch.”

I've heard similar feedback from social gaming companies who are charging for virtual goods. Essentially all the users who are used to the site/game/goods being 100% free, assume it always will and don't adjust well to the change. To the new users who show up after the payment gateways are added paying is a part of the experience so they pay if they are inclined to pay. So don't kill yourself converting your existing users, but do kill yourself converting new visitors/users.

By: webwright

webwright — Mon, 15 Feb 2010 15:38:01 +0000

Hey Healy! I think that's smart experimenting with your free trial period.
Does it take 15 days to get hooked? 60? 75? I know at least one other
founder that had a lot of success with 60 days (it also helped his
conversion-- a 60 day free trial sounds a bit less risky than a 7 day free
trial). We experimented with long trials and didn't find that they gave us
a bump at all. To your point, this knowledge doesn't transfer very well
from market to market and business to business. The rules that you're
digging up and the same ones that we are.

That said, you can't start digging/learning until you start experimenting
with a paid offering!

By: webwright

webwright — Mon, 15 Feb 2010 15:34:33 +0000

Hi Kristen! I agree that the product is key and folks certainly tend to be
a bit generous with free. That being said, there are some clever ways to
use free to expand awareness about your product. The trick (which we're
still trying to figure out) is making sure that your free customers bring
you value and eventually upgrade to a paid product.

By: Healy_Jones

Healy_Jones — Mon, 15 Feb 2010 15:29:43 +0000

My company (pixily) has a 60 day free trial, where the user gets to experience the full paid product. We have pretty decent free to paid conversion, but are still optimizing the marketing process. One of our advisers (ceo/founder of a publicly traded SaaS company) suggested early on that we give trial users the full experience for a limited time and try to get them hooked. We did experiment with a feature reduced free trial, but did not get as good of a conversion rate. So, I guess I'm suggesting that a feature rich trial period is working for us… but from my seat it's hard to know what would be the right “free” model for other companies.

By: KirstenWinkler

KirstenWinkler — Mon, 15 Feb 2010 15:22:42 +0000

Excellent post. If you have a product that people really need, so if you offer value people will pay for it.
Lowering prices or knocking them off completely is not the answer to everything. Just build a darn good product.