When it comes to SaaS pricing models, one of the crucial decisions you'll need to make is whether or not to offer a free tier for your product. This decision can significantly impact your customer acquisition, conversion rates, and overall business growth. In this article, we'll discuss the benefits and drawbacks of offering a free tier, delve into various SaaS pricing models and strategies, and provide insights into when it might be the right choice for your business.
What is a Free Tier?
Des Traynor, Co-founder and Chief Strategy Officer at Intercom:
Freemium is an incredible customer acquisition strategy when done correctly. The key is understanding which features are free and which are paid, and that balance changes over time.
A free tier is a pricing strategy used by many SaaS businesses to offer a basic version of their product at no cost to the user. It gives potential customers a chance to try out the product, evaluate its value, and decide if they want to upgrade to a paid plan with more advanced features or additional resources.
What's the purpose of a free tier?
The main purpose of a free tier is as a customer acquisition strategy, enabling SaaS companies to attract a large user base, some of which they expect will upgrade to a paid version.
Free tiers are also used to boost user numbers quickly, gather valuable product feedback early on, and create product awareness. They also help in building trust and credibility with potential customers, as users can test the product and ensure it meets their needs before committing to a paid plan.
Free Tier vs Free Trial
While similar in function and purpose, it's important to distinguish between free trials and free tiers. (It doesn't help that the names are that close, either.) They are two distinct SaaS pricing strategies, and they typically benefit different types of SaaS products.
SaaS free trials are a way for users to try your product for a set period of time, similarly with the goal of converting some of those users to paid plans. A free trial period is often much shorter than a standard billing period; ie. 1 week free trial, 14-day free trial, etc. .
The core difference is that free trial users get access to all the functionality of the product (albeit only for a short time) whereas free tiers only let users access certain parts of the product.
Free Tier vs Freemium
"Freemium plans" or "freemium pricing" is another SaaS pricing strategy. Used interchangeably with the term "free tier," freemium plans basically mean both a free and premium plan (paid) version of your product are available. The free version typically includes a basic set of features or services, while the premium version offers more advanced features, additional resources, or enhanced customer support. Again, the idea is to incentivize the customer base to upgrade to a paid version.
Whether you offer freemium plans, a free trial version, free credits, or stick with basic pricing tiers -- they all have their place in a solid SaaS billing model.
Caveats
Before diving into the pros and cons of offering a free tier, some important callouts...
You’ve already implemented a Self-Serve Sales Motion (or plan to)
The free tier strategy typically works best when your SaaS company has already implemented a self-serve sales motion - meaning customers can sign up and start using your product on their own, without contacting your sales team.
While it's possible to offer a free tier for enterprise or sales-led businesses, doing so can be labor-intensive and may defeat the purpose of a free tier, which is primarily designed to convert leads into paying customers.
Pro tip: If you have yet to implement your self-serve/self-signup process, you can get up and running in a matter of hours with Wingback, which offers out-of-the-box solutions like pricing pages, signup links, customer billing portals and more.
Learn how → You’ve already determined that tiered pricing is the right model for you.
Since we’re talking about tiers and all… we’re assuming that you've already done the work and strategic thinking and determined that tiered pricing is the best approach for your SaaS company. If you haven’t yet done that process, it’s worth taking a step back to first evaluate if tiered pricing will work best for you overall, before you can really dive in on whether or not to make one of those tiers free. It’s a worthwhile process, so don’t despair.
Pro tip: If you get stuck, head over to our free
Pricing Model Recommendation Quiz or book a free Pricing
Consultation call with us to get clarity.
Offering a Free Tier: The Pros
This approach can be an effective way to attract new customers and encourage them to try out your SaaS product.
✓ Pros
- Attracts a larger audience: By removing financial barriers to entry, a free tier can help attract a more extensive user base, increasing the number of potential customers who are exposed to your product.
- Familiarizes users with your product: A free tier allows users to become familiar with your product over time, increasing the likelihood of them converting to a paid plan once they understand the value your product provides.
- Generates word-of-mouth / brand awareness: Satisfied users are more likely to recommend your product to others, creating valuable word-of-mouth marketing and increasing brand awareness.
- Serves as a testing ground: A free tier can serve as a testing ground for new features and improvements, allowing you to gather feedback from users and refine your product before rolling out updates to paying customers.
- Lowers customer acquisition cost: Offering a free tier can help lower customer acquisition costs by enabling potential customers to experience your product without any financial commitment, increasing the likelihood of converting them into paying customers.
- Builds trust with potential customers: A free tier can help build trust with potential customers by demonstrating the value of your product without asking for an upfront financial commitment.
Offering a Free Tier: The Cons
As popular as the free tier concept is, it comes with downsides too, which can sometimes outweigh the benefits.
✖ Cons
- Attracts users with no intention of converting: A free tier may attract users who have no intention of ever converting to a paid plan, consuming resources without generating revenue.
- Strains resources: Offering a free tier can strain resources, as free users may require customer support, consume server bandwidth, and increase infrastructure costs.
- Dilutes brand perception: Providing a limited version of your product in a free tier may dilute your brand perception, as users may not fully understand the value and capabilities of your complete product offering.
- Detracts from perceived value of paid plans: A free tier may detract from the perceived value of your paid plans, as users may question the need to pay for additional features when they can access a limited version of your product for free.
- Encourages "freeloading" behavior: Some users may continually create new accounts or find workarounds to continue using your free tier without ever converting to a paid plan, taking advantage of your offering without providing any revenue in return.
- Complicates pricing strategy: Offering a free tier can complicate your pricing strategy, as you'll need to balance the features and limitations of the free tier with the value proposition of your paid plans.
Where to Draw the Free-Paid Line
When designing a free tier for your B2B SaaS company, you’ll want to zero in on your Ideal Customer Profiles (ICPs) to determine when and where to cap the free tier and transition users over to paid plans. By understanding the needs and preferences of your target customers, you can strike the right balance between offering a valuable free experience and encouraging users to upgrade to paid plans for additional features and benefits.
Here are some factors to consider when deciding where to draw that line:
Feature usage:
Identify the core features that your ICPs rely on and determine a reasonable usage limit for these features in the free tier. This limit should allow users to experience the value of your product without giving away too much for free.
User behavior and engagement:
Analyze how your ICPs interact with your product and identify the tipping points at which users are likely to convert to a paid plan. This information can help you set the right limits on your free tier to encourage conversions.
Competitor analysis:
Take a look at what your competitors are offering in their free tiers, paying special attention to where they make the free-paid divide. This can provide insights into best practices and industry standards for your specific market.
Success Stories: Companies That Benefited from a Free Tier
Several well-known companies have successfully implemented a free tier, resulting in increased user adoption, brand awareness, and overall growth. Let’s deep-dive on what their approach was, how they did it, and where they drew the line between free and paid.
Mailchimp
Strategy: Mailchimp sets limitations on the number of contacts and email sends to encourage users who need to manage larger audiences, access advanced automations, or use premium templates to upgrade to one of their paid plans.
This free tier has been a significant driver of Mailchimp's growth, enabling small businesses and startups to experiment with email marketing without investing in a paid plan. As these businesses grow and require more advanced features, they are more likely to upgrade to Mailchimp's paid plans.
Implementation: Mailchimp's free tier, called the "Free Plan," provides users with essential email marketing and audience management features. These include:
- Up to 2,000 contacts
- 10,000 monthly email sends
- Single-step automations
- Basic templates and forms
HubSpot
Strategy: HubSpot strategically limits the volume of email sends, the number of forms and chatflows, and the depth of reporting and analytics in the free tier. This encourages users who require more comprehensive marketing and sales tools or higher volume capacities to upgrade to their paid plans.
By providing a robust free tier, HubSpot has attracted a wide range of users, from small businesses to large enterprises, who can experience the platform's value before committing to a paid plan. This approach has helped HubSpot build a strong brand presence and drive adoption of its premium features.
Implementation: HubSpot offers a free tier called the "Free HubSpot CRM" that includes a range of features for sales, marketing, and customer service. Some of these features are:
- Contact and company management
- Email scheduling and tracking
- Contact form and chatbot creation
- Basic email marketing and ad management
Zoom
Strategy: Zoom strategically limits the duration of group meetings to encourage users who require longer meeting times or additional features (e.g., recording, reporting, or administration tools) to upgrade to one of their paid plans.
This free tier has played a crucial role in Zoom's explosive growth, as it enables users to experience the platform's ease of use and reliability without any financial commitment. As organizations realize the value of Zoom's services, they often upgrade to paid plans for more extensive features and capabilities.
Implementation: Zoom’s free tier is called the "Basic Plan" that provides users with the core video conferencing features. These include:
- Host up to 100 participants
- Unlimited 1-on-1 meetings
- Group meetings with a 40-minute time limit
- Screen sharing and virtual backgrounds
Trello
Strategy: Allow users to experiment with the platform's intuitive, visual approach to project management without any financial barriers. As users require more advanced features or integrations, they often upgrade to Trello's paid plans.
The free tier has been instrumental in Trello's widespread adoption, and we can only assume that’s also the case with its major competitors Asana and Monday.com which also offer free tiers.
Implementation: Trello’s free tier is a mix of having unlimited access on features with limitations on other features.
- Unlimited boards, cards, and lists
- Up to 10 team boards
- One Power-Up per board (integrations with other apps)
- Basic automation with 50 command runs per month
Takeways
In each of these examples, the companies have strategically chosen the limitations in their free tiers to provide enough value for users to experience the product while still encouraging them to upgrade when their needs grow beyond the scope of the free offering. This approach allows them to attract users with the free tier and generate revenue from those who find enough value in the product to pay for more advanced features or higher usage capacities.
Challenges & Pitfalls: Companies That Struggled with a Free Tier
Offering a free tier is not always the best approach for every B2B SaaS company. Here are some examples of companies where it didn’t work out as well as planned…
LogMeIn
LogMeIn, a remote access and management software provider, initially offered a free tier called LogMeIn Free, which allowed users to access and control their computers remotely. However, in 2014, LogMeIn decided to discontinue the free tier due to increasing costs and resource strain. The decision to eliminate the free tier was met with backlash from long-time users who felt blindsided by the sudden change. LogMeIn's experience highlights the potential risks of offering a free tier and then discontinuing it without proper communication and transition planning.
Evernote
Evernote, a popular note-taking and organization app, faced challenges when they limited the features available in their free tier, Evernote Basic. In 2016, Evernote restricted free tier users to syncing their notes on only two devices, down from unlimited devices previously. This change frustrated many users who relied on the free tier, leading some to seek alternative note-taking apps. Evernote's struggles emphasize the importance of carefully considering feature limitations in a free tier and understanding the potential impact on user satisfaction.
JotForm
JotForm, an online form builder, initially offered a free tier that allowed users to create an unlimited number of forms but with a limited number of monthly submissions. However, as the company grew, it became increasingly difficult to maintain the free tier due to the rising costs of server resources and customer support.
Eventually, JotForm had to limit the number of forms that free users could create, which led to frustration among users who were used to the more generous free offering. JotForm's experience underscores the importance of carefully evaluating the long-term sustainability of a free tier and its potential impact on resource allocation.
Wave
Wave, a financial software provider for small businesses, initially offered a free tier with unlimited access to their accounting and invoicing features. However, they eventually faced challenges with the sustainability of the free tier, as it was not generating enough revenue to support their growing user base.
Wave had to transition to a freemium model, offering free access to basic features while charging for premium features and services. This transition highlights the importance of finding the right balance between offering a free tier and generating revenue to support the company's growth.
Final Thoughts
If you have a tiered pricing strategy in place, offering a free tier can be a powerful strategy for SaaS sales. It's been shown to help attract new customers and drive growth and conversion to paid plans, all while giving you the chance to grow your user base and get additional product feedback. That's exactly why many of the most famous SaaS companies have leveraged it to success. However, like most things, it's not a "free" lunch: be prepared for some drawbacks that could emerge if you implement a free tier; making your brand seem less "premium" and your product seem less valuable is just one of the risks, while resource strains are another. Weigh the pros and cons to figure out whether it's right for you.
Ready to implement a free tier (or change up your existing ones)? Wingback can streamline the whole process, so you don’t have to bother your engineering team with a pricing overhaul.
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