Now that you have the pricing fundamentals in place, here are a few additional tactics. If you think any are right for your startup, consider what questions you might add to your survey/interview template to implement them strategically. We’ll finalize your survey/interview on the next page.
Both freemium and free trials are product-led growth tactics for customer acquisition. They help with conversion by reducing signup friction and getting users to experience your product’s JTBD faster.
There are plenty of reasons why both are popular.
Free trials and freemium provide an opportunity to hook a prospect by delivering value before any money changes hands. When done right, by the time the user starts paying, ==they 1) understand how the product solves their problem, and 2) have developed a habit around product use.==
By analyzing data from thousands of SaaS and subscription companies, the ProfitWell team
found that freemium cuts CAC by nearly half, and free trials had 15% lower CAC.
The ProfitWell team also found an almost 20% improvement in net retention and a twice-as-good NPS score for freemium vs. non-free.
Those are all encouraging points, but they don’t mean you should definitely have a free offering. Freemium is tough to get right. ==Unless you understand your value metric really well, you run the risk of giving away either too much or not enough value in your product’s free version.== It takes a lot of data to know how to strike the right balance.
Our upcoming discussion of model-market, model-product, and model-channel fits will help you determine whether freemium is right for your startup, but some indicators that it’s a good match are:
Low product friction: Your product is easy to get started in and experience value from.
Product stickiness: The value of your product increases the longer someone uses it, making them less likely to leave for a competitor—and giving you more time to convert them to paid.
Network effects: Your product’s value increases as more people use it. Both stickiness and network effects help maximize user retention. And the longer someone is retained, the more likely they are to upgrade eventually.
Product virality: Your product has
pull virality and word-of-mouth potential.
Self-service: You don’t need to put many resources toward supporting self-service users. They can experience product value without extensive training or support.
Market competition: You’re offering an alternative to a well-entrenched competitor or introducing a totally new concept. Both might benefit from a freebie nudge.
Market size: Your product would be able to convert enough people to make the economics work. Which means either a bigger market or a higher conversion rate. Market size is important for freemium because 1) you need a big market to truly go viral, and 2) freemium has a lower purchase rate than higher-touch models like sales.
Even if all the above are true, you should still do research to validate that a freemium version or free trial is right for your business. That might mean ==adding relevant questions to your survey.== We’ve included a few examples in the project doc.
Also, those promising stats from ProfitWell notwithstanding, there is the potential for freemium / free trials to result in an increase in CAC and drop in retention. If you decide to offer freemium or a free trial, ==make sure it works with your CAC and ARPU and provides a clear conversion path.== (We’ll discuss CAC and ARPU calculations in an upcoming section of this module.)
A common practice for SaaS tiered pricing is to ==integrate in-app upgrade triggers, for increased customer lifetime value (LTV).== If a user is already in a product, and they run up against product limitations that would be resolved by an upgrade, they might go ahead and upgrade as an organic part of their user experience.
Some options for SaaS triggers:
When a user attempts to access a higher-tier feature
A banner or popup
In-app CTAs and options
Upgrades/add-ons at checkout
This is the same concept as upselling or cross-selling in ecommerce.
Upselling: selling a higher-end version of a product
Cross-selling: selling a related item
Two common places for ecommerce upsells and cross-sells are on product pages and in carts.
Tip: Set up ==conversion tracking== for any triggers you use, to see which ones result in upgrades.
Rule of thumb: Early-stage startups should avoid offering discounts. They can easily become a crutch or a Band-aid that’s covering up—and failing to solve—a bigger problem.
Often, that problem is wrong pricing—either because prospects don’t understand your product value, or they do understand it but can’t buy your product (e.g., because of a conversion or funnel issue), don’t feel the urgent need to, or don’t think your price is justified.
Plus, discounts can have a drastic effect on your product’s perceived value:
If you discount your product too much, your market might think your product is cheap.
If you discount your product too often, they might start to expect a discount. And they might end up either waiting until a discount becomes available—the opposite of the urgency you want—or flat-out refusing to buy your product without a discount.
Example: Apple Store shoppers don’t typically buy based on discounts, but J.C. Penney shoppers do. The department store chain found that out the hard way when they brought an Apple exec in. He got rid of J.C. Penney’s discounts—and sales tanked.
If you’re considering experimenting with discounts and incentives, here are some guidelines to help you get started: