I recently met with a startup CEO and talked about fee policies and transitions.
Offering a free plan may be a strategy to attract users in the beginning, but for long-term profitability and sustainability, you should consider switching to a paid model. In fact, Notion had a hard time in the early days because they set up a wrong pricing plan.
Increased profitability: Upselling free customers to paying customers is extremely rare. Because of the low conversion rate, maintaining a free plan policy is not profitable for startups.
For example, if 3% of your free users upgrade to a paid plan that costs $5 per month, that works out to $0.15 per user.
That means if your goal is to make $3,000 a month, you need to have at least 20,000 new customers every month (assuming there are no churns).
The actual paid conversion rate is often lower than 3%. In this case, you obviously need more customers.
Better user feedback: Paid users are said to provide more specific and useful feedback because they have expectations about their investment. This feedback helps startups grow and improve.
People tend to think of money as theirs the moment they spend it, which leads to more appropriate feedback.
Rather, those who used it for free quietly leave when they are dissatisfied with the service.
Sustainability: Free users do not contribute to the sustainability of the business. They are just trying to eat and live.
When you are certain that you will acquire new customers and have no clear strategy to increase their conversion rate, hastily deciding on a pricing policy or releasing a feature for free can end up being self-inflicted.
Who can guarantee these two premises of acquiring new customers and having a high conversion rate? It is meaningless.
Personally, I was reminded of the Believer plan that Roam Research recently did. They gave us a 5-year unlimited account, but we got $500 up front. In a way, it was an investment that we didn't have to pay back from our customers.
I recently had the opportunity to talk to the CEO of Scrintal, a Danish startup, and I was really impressed with how they grew. They were a very small team (6 people) and they sold a lifetime subscription to exactly 1,000 people for $239. They sold out. And they built a community of 3,800 people, including the people they invited.
Scrintal is not accepting additional subscribers and is using this to secure initial operating funds and communicate very closely with customers. (It is quite a time difference, but first of all, they suggest a Zoom call...) Anyway, this approach seems very meaningful. I think that the strategy of first acquiring subscribers with a free plan from a few years ago is not very effective or fruitful unless you are going to do a platform business.
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https://techcrunch.com/2023/11/27/evernote-pushes-users-to-upgrade-with-test-of-a-free-plan-limited-to-only-50-notes/