Managing Startups: Best Blog Posts

Chapter 8. Freemium Pricing for SaaS: Optimizing Paid Conversion Upgrades

Rishi Shah

I’ve been building a new product and I’m almost ready to launch it. However, I’m having a really hard time figuring out the right pricing structure, so I’m going to analyze my favorite freemium Software-as-a-Service (SaaS) businesses.

Here is what I know I want:

1. A free plan. Since we are just starting out, I really want people to use the product for free (no credit card required). I’m okay with killing off the free plan later if it isn’t working economically (existing free users would be grandfathered in).

2. It is a hosted product, so it will be recurring revenue. There will be a monthly fee for the paid packages (with an option to pay yearly up front for a discount).

3. Based on many, many studies, the paid package prices should end with a “9”. So, the packages will be priced with that in mind (i.e., $11.99, $24.99, etc.)

4. I want to leverage our free plan to get more referrals. For example, the free members can earn more features or storage by referring a friend or posting a status update with our link in it—pretty much exactly what Dropbox and AppSumo do.

Questions:

1. How generous should our free plan be?

2. What limits should we place on it?

3. We need our free plan to be something amazing so people will sign up. However, we don’t want it to be so amazing that they don’t ever need to upgrade.