I am a huge fan of the unlimited (duration) free trial. How many of us sign up for something, poke at it, forget for a few weeks, and then go back again more seriously? I'm sure I do it all the time. By the time I remember, I am most of the way through a trial period and haven't actually evaluated wether the product is a good fit for me or not.
Regardless of how long your trial runs, people really need to bake in resource limits. I assume most SaaS companies have offered (or will offer) tiered rate plans based partially on consumption, so if you are starting as a free-only beta, why not bake in some sane resource limits from the start? Some ideas for this might be:
* maximum podcast size/duration (10 min or 3MB free?)
* 4 free uploads, then you pay
* Retention period - free accounts only store data for 30 days from upload
Sure, you are still technically paying for the free folks, but you greatly limit the cost damage while providing reasonable motivation for people to move to a paid tier when they are ready.
the problem is often unlimited free trials == subsidized by paid customers.
I'm sure if Heroku, for instance, was a paid product without free trial,it would potentially cost less to paid customers. This and services like mongohq,mongolab,... clearly subsidize free accounts with paid ones.
I think the amazon free tier model is a better model.You have one year to mess around but you still have to pay if you abuse resources.
Of course in the podcast hosting space,things are different since there is a lot of competition. Not that much in the paas market,where good services are rare.
Most paas suck,we all know which are the good and the bad ones.
Of course unlimited free trials are subsidized by paid customers. It is a marketing cost and is baked in to the CAC figure that every SaaS should known and understand.
The trick isn't removing free trials, or changing unlimited to limited. Instead, the trick is to find the sweet spot between costing as little as possible while offering enough functionality that someone can actually figure out if it might be worthwhile for their use without giving them too much that they never pay. It strikes me that the OP was too far to one end of the spectrum--knowing their demographic as they were hoping to, they offered a trial that was bigger than the average podcaster would ever use. Where is the incentive to convert if you can get what you need for free?
While I would never presume to know the OPs business like they do, from a strictly personal standpoint, I find great utility in the unlimited-time aspect if budgeted appropriately.
I'm struggling to see why bandwidth is costing you so much. We have a dedicated server with 10tb bandwidth on 1gbps port for under $100 a month.
Also, if the podcasts are failing they can't be using much bandwidth? I think this is cognitive dissonance, you're complaining about free users costing you a lot of money in bandwidth yet apparently they are all failing (very few listeners?)
I wonder if instead of having 90 free days, he capped the free trial based on bandwidth. The more popular the podcast, the more bandwidth it would use, but the more likely the podcaster has revenu from ads which would scale (sub-linearly!) with the bandwidth costs.
Anyone could try it out with a small or starting podcast, but would have to pay out once it became popular.
I'm serving files from Amazon S3. This gives me the benefit of world class storage and streaming, without having to own / run the servers myself. Bandwidth from them is "cheap" at $0.12/GB... but with an average podcast of 30 minutes being 25meg file, an episode with 1,000 downloads is 2.5GB of bandwidth.
i have a customer that averages 20,000 downloads per episode, and a bunch of others with close to 1,000 downloads per episode. it adds up fast.
Right, but if you go with a "budget" dedicated supplier of dedicated servers for cheap (probably based out of EU such as Hetzner/OVH) or out of the US (through someone who provides "unlimited" bandwidth), have everything through s3 as a backup incase the server has any issues, you will be able to save money.
25 meg downloads don't last very long, so the very worst is that your gigabit pipe gets caught for a bit - hell even a company like Linode does 2GB out for $160/m :).
S3 is very expensive for what you are doing, saying you don't need to own/run servers for things like a podcast is just pissing money into the wind.
"saying you don't need to own/run servers for things like a podcast is just pissing money into the wind." - that's probably true. i may end up doing something like your suggesting in the future. right now, the streaming side of things is not something i want to concern myself with. i have other things that need my attention.
linode's $160/mo plan would cover me for a while. i'm transfering around 4TB a month right now, and that would cover 16TB.
thanks for the feedback and suggestions! this is something i'll need to keep in mind in the near future.
This is strictly an opinion, but I think your pricing is way off.
The Pro account should be $9 or $10. You should move to dedicated server hosting, or to perhaps Linode, and drastically reduce your cost basis and dramatically improve your value proposition. 250mb of storage is nothing for $19 / month. The numbers just seem out of whack. Shouldn't customers easily be able to store a huge number of podcasts, given how cheap storage is? Store and forget. You want their content on your servers, all of it. For $99 / month I better get a terabyte of storage these days.
Slash your costs to the ground. Boost your value proposition to the sky. Dramatically increase how many podcasts customers can store on your service. You want them to stream your brains out, and you want it all to happen with bandwidth rates around $0.01 or $0.02 / gb.
With scale, and lots of usage, expand what services you offer to customers. Storage & streaming are commodities, so treat them accordingly, and instead focus on building a customer base with modest margins on the core, with an eye on what you can do with all those customers over time.
By going with the easy AWS solution, you're pinning yourself into a very tight corner on costs.
Also, while I 100% agree on lowering costs, I think the idea of lowering pricing is foolish. I don't think cutting price in half is going to more than double sales. In fact, with as small as his sales likely are, it's very likely that he could stand to double the lower end plans. Something more like $25/$50/$100 might be more appropriate.
Podcast hosting is a very small niche. It's not wordpress hosting where there are millions of potential sites. You're talking about potentially thousands of customers total in the marketplace. Now, even at 10% of 1,000 potential customers you're talking about 100 potential customers. At $9 a month that's $900 a month, which is not a lot frankly. At $25 a month you're at $2,500 a month which still isn't great but it's somewhat interesting and something you can at least reinvest in customer acquisition.
At even the top end plan $100/month is going to need 100 customers to get to $10,000 which is probably salary replacement level after taxes for one developer, depending on where they live. Realistically, if the average customer pays $20, that means you need 500 customers to get to the same outcome.
If the company gets 10 sales a month and has 0 churn it is going to take approximately 4+ years to get to 500 customers. Figuring on a reasonable churn rate, it's more like 5 or more years at $20/month to get to $10,000 a month.
Now, if you are starting a podcast hosting company on the side, do you want it to take you 5 years to get to income replacement? I wouldn't.
As a comparison, it took the fairly successful time tracking app freckle 5 years to get to approximately $38,000 MRR with much better pricing. I estimate they have around 500 customers based on their $79/mo. plan. http://unicornfree.com/2013/5-years-of-saas-growth-every-mon...
So, unless this guy becomes a lot better at running his app than other SAAS operators have historically been, it could take 5 years to get to 500 customers paying $20/month. And the outcome would be about 1/4 of the revenue of freckle.
The math behind lowering your price rarely works out in terms of getting you enough extra customers to cover the revenue/profit difference.
Without exploring what you do too deeply, is there a way for you to monetize the freemium/free trial accounts? Can you apply some advertising to them automatically unless/until they upgrade?
I know Cloud is appealing for the scaling side of things, but you could save a lot of money using dedicated servers from other providers. Something to consider anyway.
I'm currently thinking that for my next SAAS project it's going to be pay up front with a 30 day money back guarantee. I've done freemium and 30 day trials and the data I got early made me think that people would convert and they didn't even though they would use the product every day. Maybe my pricing was bad or my sales technique was terrible. I don't know.
What I do know is if you price something up front you'll know right away if your sales pitch works and if your pricing is remotely reasonable.
I know the conversion rate without a free trial won't be maybe as high, but when you are looking to just validate a product and a marketing strategy, you need to know if it will turn into real sales. You don't have to have a free trial to sell a product.
If people use it every day and aren't interested in upgrading, I'd look at it and say you offered too much to the free option.
You don't want something completely limiting, but you need a carrot there, and if you offer "enough" to a free user they'll lack an impetus to upgrade.
I don't think there's a lot of risk in changing the freemium terms down the road if that's the case.
This is a good compromise -- certainly better than the take-your-credit-card free trial that surprises you with a charge. 'Money back guarantee' has worked for a long time, particularly in pre-internet days.
What is really funny is when you think about it, we all buy things without trying them every single day. We make assumptions that a product will work or that it can be replaced/refunded when it doesn't.
Surprisingly, in the online world we think everything is different and that nobody buys things without a free trial of some kind, but over and over again I see products and services that sell without a free trial.
I think it's doing early stage products a disservice to assume you have to have a free trial to make money. When you are proving out if a product will sell, you need to know if people will pay you money for it, not if they are casually interested in trying it.
The internet is similar to mail order but faster with a lot of tricky details (in the same way that mail and print have tons of tricky details). People don't change all that much.
'Free' gets you a lot of tire-kickers automatically, whereas a guarantee pre-qualifies the customers to the people who can afford to float you some cash. If they're a tire kicker, at least they're not a totally broke / budgetless tire kicker.
There are other free sweeteners that you can offer that aren't a free trial.
I agree that your free trial was at the very least much too long, and that the money back guarantee makes a lot of sense for a bootstrapped SaaS company [Jason from WPEngine strongly recommends this as well]; however, I would interpret some of your data a bit differently.
50% of your signups never uploaded a podcast, but once they did, 80% uploaded more than one. Your takeaway from this should be that you absolutely need to do everything you can to onboard the user and get them to upload their first podcast because once they do, they are much more likely to continue using the service. I am guessing that now that you have a money back guarantee your average customer will be more motivated than before, but you still need to work to build processes that help users get started and continue using the service, otherwise your churn is going to be horrible.
The only problem I see here is that yours: You wanted customers to discover bugs but you didn´t think that this would cost you money.
As I see it, paying $400 a month for a "bug discovery" service is not that bad if it helps to improve your product. It is your expectations that are not in line with yours actions.
It is true that "people Don’t Value Free Things", but it is equally true that you don´t value your customer´s time.
Anyone know a good collection of SaaS articles like this? We're about to launch our first SaaS service and would love some battle hardened good practices.
As a marketer working with SaaS companies, I would caution you against reading articles like this.
They make big generalizations (free trials are bad!) based on hindsight reasoning and very few data. For every article you find that says you should do X, you can just as easily find one that says you should NOT do X.
With that said, two good sources of information are Jason Cohen[0] and Patrick McKenzie[1].
Whatever you do, just make sure that cancelling really is easy if you expect them to give you their credit card because consumers beware of scammy 30 days moneyback guarantee that are designed to make you jump through so many hoops that most give up, or worse, continues billing you until you manage to.
An example, eFax: a black hole of pure evil when it comes to cancelling: anyone who ever tried wants to murder kittens afterwards. Whatever you do, never ever ever signup for that thing. Seriously. (At least in the U.S. there is the chat and twitter options, but in Europe, you're basically screwed unless you cancel your credit card).
About to launch a Saas here as well and have been struggling in regards to the free trial thing.
I think it depends on the market and the business tastes of the founders/owners.
I've ran a couple of businesses, and I tend to agree with Derick that I'd prefer to get my money now, rather than at some point in the future.
This can be off-putting for some potential customers, but then again this depends on the market.
If I'm creating a vertically integration Saas in a very niche market, I think it's appropriate.
If I'm doing a social app, then you basically have to give it away to increase user acquisition, and book the cost of the new user as part of the user acquisition cost equation.
It really depends on the market. My prior project went well with 10 day free trials. People installed it, it did what they wanted, so they kept it.
Current project...trials are popular, but getting people engaged in the trials is tough. Lots of engagement diet day..then it drops sharply off,many no amount of emailing bumpsup the return rate about a percent or two.
I think it depends on the market, the product and the price point. I think for free trials to work, the person has to have a recurring use for the product, and can easily get value after a short and simple install/initiation session.
SaaS business is not based on some random failed example, but A/B testing, marketing, product development, and more. Any business come with risk and SaaS is the same.
The problem about drawing any broader conclusions here is it appears to boil down to "Don't offer a 90 day free trial in the podcast hosting business because most customers run their course in 56 days" Not sure it really tells us anything about the effectiveness of a free trial for x days and pay vs a charge now with a 30 day money back guarantee
I think the big caveat here is that the space you're in makes it particularly dangerous to offer a free trial.
In other words, there are spaces where those costs are far more negligible, such that you could certainly afford 500+ abandoned free trials to convert 1 paid customer.
In other words, you need to understand your acquisition costs and your conversion funnel. Then you can decide what form of a trial--if any--makes sense for you.
What is he offering? Podcast hosting service? That's commodity. Of course it doesn't make sense to offer free trial if you are selling commodity-based service. How many hosting companies are there offering free trial? Hint: Not many.
However, if you are offering a service with lots of added value which has strong lock-in effect (it's difficult for customers to switch), then do free trials by all means. If you don't, you will eventually do anyway. Let me explain...
When your startup acquires first customers, you really want to be selective about who your first customers should be. Ideally you want to find "zero-maintenance" customers who just use your service, pay monthly and never really bother you so you can concentrate on growing your startup.
It's true your conversion rate will decrease when you do free trial because as a new product, your free trial will suck so much that hardly anybody will make it through (think 5% if you are lucky) but those that make it true will be the most forgiving and the easiest customers you will ever have.
If you charge up-front, many people who would normally drop off during free trial will try to make your product work by making various compromises. They have all the incentives to do so because that will avoid them hassle of trying to cancel their subscription and get refund.
But I'm afraid this will also kill your little startup. Now you will get needy customers who are not completely in love with your product, made certain compromises and basically hate you for tricking them into using your service and they will make you work hard for a few dollars they are paying you. Not to mention, your churn rate won't be anything to write home about.
You need to work hard to acquire new customers, and hardly work on supporting existing ones. Your startup can't afford your existing customers to be pain in the neck when you are the most vulnerable.
By the time you have a lot of customers, your free trial on-boarding process will improve so much that you won't even think of charging up-front anymore.
It's interesting that this was a "failure" because it was supposed to be a customer acquisition strategy/business plan. I wonder how the math would shake out if you looked at it as a market research expense.
Has anyone found any good ways to force free users to upgrade to paid? i have a SaaS with a freemium option that has led to 2500 free users and only 1% conversion to paid. The support costs of the free users far outweighs the paid revenue. My guess is most of those free users won't upgrade, but has anyone had success in cutting the dead weight/forcing upgrades?
Have you tried removing more features in the free version? It may be you solved the problem to almost all of them and they don't see a reason to upgrade. You need to figure out if is a pricing or a business model issue so you need to do a lot of testing. If you are talking about your WordPress Backup service, in one of my projects we provide WordPress services and I can tell you that most of my clients rarely get over 200MB. Also, if you have a dashboard or a newsletter, try running a special discount to older users (split test it). Hide the free version for a month or two and see if conversions increase.
Well, you'd have to change the freemium plan. I suppose at this point because something was promised, an expectation set, that you'll perhaps upset some people with changes. I would look to see who the top users are usage wise (perhaps cost wise on your part) and what features they use. I imagine there'd be numbers that you could group, perhaps even number of actions per month, etc..
If the top users under freemium no longer want to use the service if you start including them in a paid group, then you have a problem and might have to rethink pricing or the business model overall.
I once used a SaaS—or whatever you call the abstraction on top of that—and ended up paying $80 for a “sample” EC2 instance of theirs that was just idling, after I had activated it a month earlier.
Soured me on trying out new platform services pretty damn hard.
I think he was right to offer the trial and then right to change strategies after the product got more refined. Can't jump to the top of the mountain in one leap. Still interesting data point!
Regardless of how long your trial runs, people really need to bake in resource limits. I assume most SaaS companies have offered (or will offer) tiered rate plans based partially on consumption, so if you are starting as a free-only beta, why not bake in some sane resource limits from the start? Some ideas for this might be:
* maximum podcast size/duration (10 min or 3MB free?)
* 4 free uploads, then you pay
* Retention period - free accounts only store data for 30 days from upload
Sure, you are still technically paying for the free folks, but you greatly limit the cost damage while providing reasonable motivation for people to move to a paid tier when they are ready.