Killing Free How to make every SaaS Customer Pay

RYAN KOONCE

@Kissmetrics

#Kisswebinar

@thuelmadsen

Thue is the Kissmetrics Webinar Wizard and Marketing Ops Manager. Before joining forces with Kissmetrics, he was a Lyft driver in SF, which is also how he ended up as a Kissmetrics marketer. Whenever Thue is not trying to

automate everything around him, you can find him hiking in the Sierras.

THUE MADSEN Marketing Operations Manager, Kissmetrics

@ThueLMadsen

As CEO of Mammoth Growth, Ryan works with his team to help clients leverage data to drive growth. He is also

Executive Chairman of Attributionapp.com, a SaaS platform providing multi-touch attribution, and Managing Director of Roaring Bull Studios, a social game studio.

RYAN KOONCE CEO, Mammoth Growth

@ryankoonce

@mammothgrowth

#Kisswebinar

@ryankoonce

1 Section One - Introduction

Defining Free

Understanding Freemium

Taking Advantage of Your Pricing Power

Balancing Free and Trial

Time Based Vs. Metered-Based Trials

Switching From Free

2 Section Two - Killing Free

3 Questions?

TABLE OF CONTENTS

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What does it mean to make a customer pay?

Free is giving something away and getting nothing in return.

- or -

FREE = Net Profit per Customer <= Zero

DEFINING FREE

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There are different types of payment

IF YOUR PRODUCT HAS VALUE, YOU SHOULD GET PAID

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Money Indirect Promotion Direct Promotion

RESPONSE WHEN ASKING REID FOR A FREE PREMIUM LINKEDIN MEMBERSHIP

Reid Hoffman Linkedin

If it’s going to be useful for you then you should just pay for it.“

*note, this was paraphrased.

Give away 100% of your core service to everyone.

Unlock features for people that upgrade.

Maybe great for social games.

Almost never optimal for SaaS.

No, Mailchimp didn’t really win with Free.

WHAT IS FREEMIUM?

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FREEMIUM IS GREAT, UNTIL IT IS NOT

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Cut loose your deadbeat customers.

When does it make sense to keep or kill free?

You must be free when you have no pricing power

• No real product differentiation (or crappy product) • Customers can live without you • Switching cost low • Competitors pricing you out of business with VC war-

chest (e.g. war of attrition) • Crappy sales team

Reality check: If this sounds like you, you have a existential issues (e.g. no business model)

WHEN YOUR PRODUCT HAS TO BE FREE

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You can charge when you have pricing power!

• Unique (great) product • Customers struggle without you • Switching costs high • If above true, hard for competitors to spend you to death • Great sales team (trumps all of the above)

If this sounds like you, it’s time to go win bigger!

WHEN YOUR PRODUCT DOES NOT HAVE TO BE FREE

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We will assume you have some pricing power.

AND THAT IT DOESN’T COME FROM YOUR SALES TEAM…

Free trials are great! But you have to balance the Trial and the Free.

FREE TRIALS ARE NOT FREEMIUM

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Two things are really important:

1) Get Customers to the Ah-Ha Moment FAST

2) Don’t lose money on Trial users.

BALANCING FREE AND TRIAL

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Your trial should show the value of your product to your customer, without providing full value.

BALANCING FREE AND TRIAL

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The ah-ha moment is different for every

business. FIGURE OUT YOURS!

Two types of SaaS Businesses

1) Easy / No Commitment (simple implementation)

2) Difficult / High Commitment (harder implementation)

BALANCING FREE AND TRIAL

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Clearbit provides data augmentation for every step of your sales and marketing funnel.

1) Simple Setup - Fast AH HA

2) First 100 api requests are free. Then metered pricing.

SIMPLE IMPLEMENTATION EXAMPLE

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Find out what web sites are built with.

1) No Signup Required to Use - Fast AH HA.

2) Report returns first 10 rows of a 10k row competitive report for free. Start sub to unlock.

SIMPLE IMPLEMENTATION EXAMPLE

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Attribution provides multi-touch attribution modeling.

1) Implementation required (varying degree of difficulty)

2) Cohort based reporting requires time to bake.

3) Scrapped 14 day trial for MTU and Campaign-based usage.

4) Upgrade request triggered at AH-HA moment

HARD IMPLEMENTATION EXAMPLE

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www.attributionapp.com

It is almost always more optimal to implement a

metered free trial than a time-based free trial.

Don’t lose money on trial users.

You must understand your Cost to Service (CTS).

Your CTS is your hard cost of serving each incremental free customer.

• AWS (storage, server etc.) • Messages Sent (email, SMS, etc) • Other SaaS MTU Costs (analytics, etc) • Onboarding cost (CS headcount)

These add up at scale

DON’T LOSE MONEY ON FREE

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CAC > LTV is not enough

(CAC + CTS) > LTV is the winning formula

DON’T LOSE MONEY ON FREE

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Identify high value customers early for optimal resource

allocation

Madkudu stuff

MADKUDU SLIDE

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Now that you’re convinced to kill free…

So how do you make the switch to revenue yield, without blowing up what you have?

MAKING THE SWITCH

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• Pricing page testing

• Rate limit testing • You probably know where value is in your

business. • Start throttling back from 100% gradually. • Upgrades should be immediately preceding

full value exchange.

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MAKING THE SWITCH

It unlikely that you are perfectly priced, which means you can get more from every customer.

Give it a try and let us know if you would like some help.

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SUMMARY

LEARN MORE NOW

Discover how Kissmetrics can help you optimize your marketing

THUE MADSEN Marketing Operations Manager, Kissmetrics

@ThueLMadsen

tmadsen@kissmetrics.com

Questions?

RYAN KOONCE CEO, Mammoth Growth

@ryankoonce