Customers won't give you money unless you ask

Sounds obvious, but you'd be surprised how many startups are scared to ask for money or even if they do, they're scared they're asking for too much (although the latter is a topic for another day).

There are a few reasons why you might not ask for money, and whilst there are plenty of times when this is appropriate, you really need to ask yourself if it's the best choice for you.

The freemium model seems to have become the default option for startups these days, for both B2C and B2B. The thought process goes that you can get many more people using your product for free than you could by charging. So if you give it away for free, you'll grow your audience faster and learn more in a shorter period. Valid in theory, but it’s not without its problems.

There are times when freemium makes perfect sense, so I don't want to poo-poo the entire concept. For example, Freemium works really well when your user IS the product. This is the case for things like gmail, Facebook and even our own FiveSecondTest (where our free users give feedback on designs for paid users). Alternatively, if your app is super sticky (one which people won't stop using once they start), then you can leverage your low churn rate with the knowledge that inevitability users will reach some milestone which will trigger payment (e.g. dropbox, evernote). There a few other examples of good freemium models, but these are the main two.

If you’re not in either of those categories, then there are a few well known dangers with giving away your product for free. First, you may be collecting a lot of data, having a lot of conversations and learning a lot about your users, but you may well be learning about the wrong users. If you satisfy the needs of your free users, you may well be making a product that is only great for those free users. You always need to be sure you're pleasing the people who're going to pay you, not those that wont. 

Secondly, there is the classic "if we just convert 1% of our free users". For many businesses this is a fool's errand. Unless you're running an extremely sticky app, it's really hard to get people off their free plan onto a paid plan. Your free plan needs to be good enough to gain traction, but not so good that you prevent people from wanting to upgrade. You're stuck with a constant battle to balance these needs and it can be a messy challenge. 

Possibly the most dangerous thing about freemium (particularly for B2B) is that "free" comes with a perception of "cheap". It makes it just that little bit harder to prove value when you're clearly willing to give so much of your app away for free. What you find is that many users will go to great lengths to defer upgrading, often users that would've paid you up front had you asked them.

We struggled with all three of these issues in the early days of BugHerd, but we also found some things we didn’t expect. 

The first is that many users simply tried to "make do" with one user account and found workarounds to share the account. They’d use comments, or tags to assign tasks, or often just not assign tasks at all. It meant they were not only not getting full use of the app , but they were having to include “hacks” into their normal workflow just to avoid the monthly spend. Not ideal. 

The second, much larger problem, was that usage on free accounts was, on average, well below usage on paid accounts. Installation rates were lower, users were less likely to create tasks and they were far less likely to invite other users. 

The weird thing was, we found that this same behavior was consistent both before and after the unrestricted trial period! Even though a user had access to all the features, unlimited users and guests and all the support services, they still acted as if they were already on the free plan. Just knowing that “free” was an option was enough to cause a change in user behavior.

To confirm this, we conducted a simple A/B test where 50% of users we're not shown that a free plan was available at registration. With no change in the product, trial period or the pricing, we saw an immediate increase in usage across all key metrics. Engagement more than doubled. Furthermore, this resulted in a doubling in conversions to paid plans. Yes, double.

The perception of value is one of the biggest challenges facing any startup. When you have clear value, you have a clear growth opportunity. That can all be undone when give it away for free! Users will evaluate your product cognizant of the price even when they're not already paying. More often than not, if you tell someone up front that your app has no value, they’ll believe you! 


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