There’s a hidden option for your SaaS pricing strategy

If you’ve studied a bit about SAAS customer acquisition - or if you’re a regular consumer of digital products - you’re familiar with the two main strategies: freemium and free trial.

Both are aimed at removing friction, allowing potential customers to experience your products and understand the value it provides before committing financially.

For B2B, freemium is risky business. It requires lots of capital to support your free users, specially if you’re unable to monetize them, and you risk devaluing your product perception by making it available for free.

The other approach, offering a free trial, usually leads to a very often debated choice: requiring or not your users to give their credit card information at sign up. Either way, free trial is usually a better alternative for most business, since your customer acquisition cost tends to be lower and you don’t devalue your product by giving it away for free.

But it’s important to remember that when a new user signs up for your trial, you don’t yet have a customer.

You must onboard your new user and provide tremendous value during the short period of time you’ll be getting their attention after they sign up. If your software is too complex and fails to onboard the user, you just lost a customer before they even paid you.

And that’s a very difficult position for many SAAS companies, since most offer tools that require a significant investment of time until you start getting value out of them and start feeling comfortable using it.

We ran into this problem with Proposeful, our online business proposals startup. When a new user arrives, if they feel it’s too much work to learn to use our tool, they drop it and it will probably be months before they give it another shot.

It’s very frustrating when you’re starting to gain traction to see so many users who could benefit from your product simply giving up.

You might even be inclined to blame the user, saying they’re not the ideal profile or that you need to “educate the market”.

Of course that’s not true. The fault is in your strategy.

Your Customers Are Not Lazy, They’re Unmotivated

Think back to when you last learned to use something new, studied a subject you were not familiar with or took up a new physical activity.

It surely was a challenge, uncomfortable to some degree. Still, you had some kind of motivation to keep trying. The same thing happens when a user sign up for your trial.

What motivation are you offering your users? Can you guarantee their sales will double? Probably not. Will they love using your tool to the point that they are genuinely having fun? Most likely not, specially in the B2B world. Are promises of a slightly better future and the privilege of paying you the sole motivation they get? Would that be enough for you?

Whenever a new user was successfully onboarded and is now happy with their purchase, there has been some kind of motivation in action.

Sometimes, they are motivated because they really, really need it to work. And no matter how boring, ugly and slow the process is, they don’t really have a choice.

Sometimes, they are motivated because they have fun in the process. That’s the best case scenario, but extremely rare. I recently experienced thks in the few months I’ve been learning to use Unity 3D, the game development engine. It’s a very intuitive but complex tool and it will probably take months before I feel confident using it, but it’s so much fun to see things come to live that I’ve never felt like quitting.

And, finally, sometimes they are motivated because they feel they’re already too invested. Like when you paid for that gym membership upfront so you wouldn’t slack on your fitness goals. It’s paid for, so you better get your money’s worth.

This last one is a trap we all fall for.

We tend to invest further into losing position because we don’t want to admit our mistake, even when it clearly makes more sense to withdraw from further loses. Like staying to watch a movie you paid for but aren’t enjoying. You’re not getting your money back by wasting your time, are you?

Now, it sounds very negative when put like that, but it can actually be a positive force that pushes you beyond your own willpower.

As we found out, when combined with a good onboarding experience, this motivator was capable of balancing our users’ tendency to give up too soon.

How We Fought Customer Inaction by Breaking The Freemium/Free Trial Tradition

A few months ago we decided to try allowing users to test our tool before they even signed up. We thought that by getting more people in front of our tool, we’d get more clients. But it turns out you need the right people in front of your tool to get customers.

Conversion plummeted. Not because they hated it, but because most didn’t even try and would give up after 30 seconds on average. Those who stayed, we learned, would learn the basics and have their first proposal ready to send in a few minutes, becoming customers shortly after.

So, to motivate users to really take their time and learn about our tool, we decided we wanted them to commit by paying upfront.

No more free packages. No more free trial. The only users now were paying customers.

When your only users are costumers, you enjoy a lot of benefits:

Quicker return on marketing costs;

More resources to spend on customer support;

Very few customer with poor fit and less churn;

Greater value perception;

And, the best of all, your customers are now willing to endure your learning curve.

Customers who already made the purchase are a lot more likely to go through your onboarding experience and really learn how to get the most out of their new toy. This results in a more positive experience for the customer and less churn for you.

Now that doesn’t mean you shouldn’t apply just as much effort on your onboarding as you would for a free user, it just means that you will see better results because those users are actually on the purchase stage of your funnel.

Though that might not be sustainable after you reach a certain level of market penetration, it’s perfectly viable for early stage SAAS companies and a much more realistic approach for bootstrapped startups than freemium.

For us, it took us to 2%-5% visitor to customer conversion, depending on the acquisition channel, lower CAC and a much better support to our real customers.

More profit, better feedback and a lot less time worrying about how “educating the market”.

What else could a SAASpreneur ask for?