How to Move the Needle From Zero to Paid
How to Convert Free SMBs to Paid Ones?
To be frank, I hate freemium.
It’s nice to get the big numbers of people using your tools; it’s great to get a lot of data and feedback about what’s working and what’s not and about how much value your tools really provide your customers, but then you have to convince someone that signed up for something free that he should be paying for it.
In our niche of marketing tools for SMBs it is very common to provide free tools or at least freemium ones, so we didn’t really have much choice — you can’t offer only premium in such a market as you won’t get traction.
In the past 5 years and 150,000 SMBs we have used free, freemium and premium, and therefore gained a lot of insights about how to convert customers to paying customers and how to have paying customers increasing their budgets on a monthly basis.
In this article, I will be sharing:
- Free v. Freemium
- Pricing table — 3 columns v. 4 columns
- Monthly v. Annually
- Upgrading clients — budget recommendations v. range of budget
Free v. Freemium
The only business model I hate more than freemium is the free one J
TL-DR:
- If you have to provide a free version of your product, take the credit card in advance.
- If you have to provide a totally free version of your product, hide it below the fold below the 3 columns of premium.
Taking the credit card in advance lowers the number of users that would sign up with your product. You still want to do so.
A. Because you are not likely to see their credit card otherwise.
B. Because you are going to handle only potentially serious customers.
With our Facebook store solution, we offered a very small free version — minimal usage and no smart features that are required to really manage a store.
In addition, we offered a free trial for our 3 premium plans, and asked for the credit card in advance (after the merchant sees and customized his Facebook store, but before he can publish it).
The results were 3.5% conversion rate.
With our Coupon Pop and Exit Pop solutions which are onsite promotions, we gave a free trial without asking for a credit card and only later on sent emails asking to be paid. No matter what we did — emailed, added admin notes on the pop ups, blocked some of the features, we couldn’t go beyond 1.5% conversion rate.
When someone starts for free it is much harder to actively convince him to take out his wallet. Passive decisions are always easier — if he has already provided his credit card, then he needs to actively cancel the tool rather than actively pay for it.
Want to learn more about this phenomenon? Watch this TED talk by Prof. Dan Ariely here.
Pricing table — 3 columns v. 4 columns
TL’DR:
- Always provide 3 pricing columns — not less and not more
- The only exception is if you have to provide a free plan, but offer it below the 3 paid ones and not as one of them
After 500 free Beta users we started charging our merchants. We wanted to see if the value we provide our clients is enough for them to pay for, and we wanted to see the revenues coming in… and our first angel wanted to see that, too.
When to start taking revenues and how it might impact your company’s chances to raise money from VC is a topic for a different article. In fact, once you get X clients and Y revenues, VC no longer look at your vision, but put you in an Excel in which 2X would always gain 2Y.
Quite from the start we started charging our merchants.
Reading everything that Prof. Dan Ariely ever wrote or gave as a lecture, we knew that we have to provide 3 columns on our pricing table, and that the third one would have to be much more expensive than the first two.
We priced our first monthly product at $19.99, $29.99 and $79.99.
Guess what? It worked!
Most of the paying clients paid the $29.99, probably because they felt that next to the $79.99 plan they are not paying too much, but there is no need for them to be too cheap and pay for the small plan.
In fact at some point it worked so well, that I got some kind of a Hubris and thought if it works so well with 3 columns, let’s make it 4 columns and then some of the $29.99 would pay us $44.99 which was the additional middle plan we added…
Guess what? It didn’t work!
It ruined everything. We confused the clients with too many plans, and they no longer saw the middle $29.99 as the obvious easy and safe choice to make as it was competing with another plan now.
Embarrassed by the fact I was trying to challenge a working theory proven to be successful all for being too greedy, we had to take down the 4th column.
Stick with the 3 columns model
Side note: we tried reversing the order of the plans and instead of presenting them in this order:
$19.99, $29.99, $79.99
Presented them as follows:
$79.99, $29.99, $19.99
But it didn’t really make an impact, and we reversed the order back.
Monthly v. Annually
All of our tools have subscription plans.
We want to allow continuity of the tools and we like getting paid.. :-) if we got someone to pay, we want him to keep doing that.
The former CEO of our gateway service, Eldad Ben Tora inspired me to see every monthly subscriber as a failure.
“If you got someone to subscribe” he said “don’t make him re-consider his decision every month. Make him pay for the entire year and re-consider only once a year”.
Priceless.
While it is not relevant to any tool (our recent one is all about upgrading on a monthly basis as I will discuss in the next chapter), but whenever the price is going to be steady in the upcoming year — take the money in advance. Provide incentives for it, and take the money.
Besides giving a discounted price, we stopped giving a free trial for the monthly plans, in order to provide the potential clients with an incentive to commit for a year (they could cancel within their free trial, and some of them clearly do so, but still the active decision was made and the annual plan was chosen).
Upgrading Clients
A Suggested Quote v. Suggested Range
People like to be guided.
TD’DR:
- Tell your clients what to pay
- Provide them with a range so they could happily pay its lower part — which was the one you wanted them to pay
Our last tool, the Traffic Booster, offers automatic setup and optimization of AdWords campaigns. As such, it requires a monthly marketing budget that needs to be upgraded whenever the ROI meets the clients’ satisfaction.
We started by just reflecting the performance. Daily dashboard and weekly email with the performance and ROI.
Nothing happened.
We added a cool slider, fun to play with, enabling the client to increase the budget whenever he wishes.
Some used it.
We built a system to alert us whenever there is a good timing for emailing the client, something that would push him to upgrade as it will answer the question “why now”
Some more clients upgraded.
We added our recommendation — you paid $100, you got $500, we recommend that you pay $500.
Some paid. But they paid $250.
Then we gave a range. You paid $100, you got $500, we recommend that you pay $500-$750
Then we hit the jackpot.
People wouldn’t pay the $750, but they would pay the $500 instead of settling for $250.
We simply created a table for our system to recommend:
You get the drift.
We never range too high, we recommend on something that we know that would work well for them, we just help them get the smart decision for them, but putting on a scale.
This actually works with anyone, not just clients — but even suppliers, wives, husbands, and kids!
But this much we know: the results with the clients are amazing.
