How freemium almost broke our business

https://wraptext.equals.com/the-fallacy-of-freemium-in-saas/

by bp8 • 3 years ago

30 9 3 years ago

wraptext.equals.com

bp8• 3 years ago

Hey HN, Bobby here, ceo of equals (equals.com). In the spirit of being open and sharing learnings with the community, wanted to share one of the riskiest changes I made to our business (almost broke it). There's such a pull in the startup ecosystem to have a free version of your product, to minimize friction in onboarding, to get as many people using your product as possible, and to figure out how to monetize later. I followed that thought process and it almost wrecked our business. Here's a pretty open view into our attempt at freemium, why it didn't work, and what we learned from it. Hope it's helpful and relevant.

galaxyLogic• 3 years ago

How about having a free version that is size-limited? Or did you have that?

I'm wondering why it happened the way you describe? Was the free version perhaps too good?

Or is there simple psychology at play where people perceive something as having more value when they have to pay for it?

If something is given out for free it looks like they are giving it away because they can't find paying customers?

I assume free is good for non-professional customers but those will never pay because they don't REALLY need your product. Professionals know they get what they pay for and are willing to pay it because it will help their business?

tqi• 3 years ago

Super interesting, thanks for sharing! Two questions:

1. It looks like ARR dropped significantly when the freemium product launched - was that because existing paid customers were downgrading to Free and continuing to use the product?

2. When killing the Free plan, did Equals also go back to a higher touch onboarding for new customers?

helveticar• 3 years ago

Raising prices is difficult, charging when people are used to free is near impossible. Most of your free users were never going to pay anyway so there is no point in having them use your product at all.

Trial periods still seem good to me (as a customer, not provider), the best I have come across offers a 30 day trial BUT those days need not be consecutive, use it one day a week and the trial lasts 30 weeks.

reducesuffering• 3 years ago

Your trajectory looks like the same Trough of Sorrow most startups go through[0]. But nothing in this post tells me that your ARR isn't just a lagging indicator. Of course Freemium isn't going to immediately up your ARR, you said it yourself, "We're also likely to grow ARR slower over the next coming quarters." You better be sure your current ARR isn't a lagging indicator from the virality and adoption built during your freemium period, otherwise you're in for future adoption pain.

Cynically, I think this is post-hoc justification for tightening the belt on the business since a Series B will be much harder to secure these days. With a bonus of content marketing.

[0] https://medium.com/@BoundeHQ/what-is-the-trough-of-sorrow-an...

nickelcitymario2• 3 years ago

I dare say they missed the real lesson: Friction increases commitment; commitment increases compliance.

In Robert Cialdini's book, Influence, he dedicates a whole chapter to this phenomenon.

The easier you make it to get started, the easier you've made it to quit. They have no skin in the game. People value more the things they've spent money/time/effort to acquire.

So the game is in trying to identify which types of friction will increase commitment enough to overcome a drop in initial participation. It's not an easy line to walk.

jamaicahest• 3 years ago

Did you read the article?

We believe that making people invest time, commit to a trial, and put skin in the game will help you build a more engaged user base. This friction weeds out the people who aren’t serious and creates a sense of urgency. It also forces you to focus on the customers and users that really matter.

nickelcitymario2• 3 years ago

I did! I guess you didn't read the rules on HN, though?

That paragraph is exactly what inspired me to comment. It misses the mark. It's not just about weeding out those who aren't serious. And it's not just about increasing engagement. It's about commitment.

You can build commitment by introducing moments of friction. Every hurdle they overcome makes them more committed to their purchase decision. It's NOT about engagement. You can have commitment from someone who isn't engaged. They're separate things.

In fact, when selling to enterprises, the person making the purchase decision is probably not the person who will actually use the product. So you need to get them committed to the product too. It's easy for the purchasing department to say: "That free thing you've been using? You can keep using it as long as its free." It's a whole other thing for them to say, "That thing you've been paying for? That you now want to pay 10% more for in order to get more functionality? No, throw it out."

So yes, I read the article and thought about it deeply. Thanks for asking.

How freemium almost broke our business

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