We’ve already written a fairly
detailed overview on Free Tiers, how they work, and whether or not you should use one for your SaaS startup. In this article, we’ll dive deeper into the specific question of
whether or not you should collect credit card details when your customers sign up for your free tier.
There’s valid reason for debate on this topic. Founders and CEOs we speak to often have strong opinions about this question. On one hand, it can streamline the transition from a free user to a paying customer. On the other, it may deter potential users from signing up at all. Let's explore the reasons why collecting payment details for a free tier might be beneficial or detrimental to your SaaS product, and let's help you so that you don't get into a fight with your co-founders about this issue.
Reasons to Collect Payment Details for a Free Tier Signup
The strategy of collecting payment details during the signup for a free tier has its merits. Here's a deeper dive into the reasons why this approach might be beneficial for your SaaS product:
Ensures Commitment from Users
By requiring payment information upfront, you're more likely to attract users who are genuinely interested in your product. These users have a higher potential to convert to paying customers since they've already made a micro-commitment by providing their billing details. This acts as a qualifier, ensuring that the users signing up are serious about exploring your offering and its potential value to them.
Streamlines the Upgrade ProcessWhen the free tier expires or users hit usage limits, having payment details on file simplifies the process of transitioning to a paid plan. There's no need for users to re-enter their billing information, which can be a friction point and a moment where you risk losing them in the conversion funnel. The ease of this transition can lead to higher conversion rates and a smoother user experience.
Read more: How to get your PLG customers to upgrade here. Reduces the Chance of Churn
Collecting payment details can help reduce churn by creating a natural progression from the free tier to a paid subscription. Users are less likely to abandon a service they've already set up billing for, especially if they've integrated the product into their workflows and recognized its value. This can lead to a more stable and predictable revenue stream.
Mitigates Abuse of the Free Tier
Without barriers, it's possible for users to exploit the free tier by creating multiple accounts or using the service without any intention of becoming a paying customer. By collecting payment details, you're placing a hurdle that discourages such behavior, ensuring that your resources are dedicated to serving potential long-term customers.
Facilitates Accurate Revenue ForecastingKnowing which users are on the brink of conversion allows for more precise revenue forecasting and resource allocation. With payment details on file, you can better predict cash flow and make informed decisions about future investments in product development, marketing, and sales.(
This article goes deeper intro why metrics matter.)
Enhances Customer Value Perception
When users commit to providing payment details, they may perceive the free tier as more valuable. This psychological commitment can make users more engaged with the product, encouraging them to dive deeper into its features and benefits, thus increasing the likelihood of conversion to a paid plan.
Reasons Not to Collect Payment Details for a Free Tier Signup
After we’ve taken a look at the arguments for collecting payment details, here's a look at the potential drawbacks of this approach:
Higher Barrier to User Acquisition
Asking for payment details during the signup process for a free tier can deter potential users from even trying your product. The psychological barrier of entering credit card information for something that's supposed to be free is significant. Users may fear hidden charges or simply be unwilling to take the time to find their payment details for a product they have not yet found value in.
Trust and Privacy Concerns
In an era where data breaches are commonplace, users are increasingly cautious about where they share their payment information. Requiring such sensitive details for a free offering can raise red flags for users, making them question the security and privacy of their data.
Impact on Customer Perception
The perception of your product can be negatively impacted when you request payment details for a free tier. Users may perceive the free tier as less genuinely free and more of a trap to get them to pay eventually. This can lead to skepticism about the product's value proposition and the company's motives.
Risk of Cart Abandonment
Much like in e-commerce, cart abandonment can occur in SaaS signups when users are asked for payment details too early. Even if a user initially intends to sign up for the free tier, the request for payment information can lead them to abandon the process altogether. This can result in lost opportunities for user growth and feedb
3 Startups That Collect Payment Details on Free Trial Signup
1. FreshBooks
FreshBooks, an accounting software designed for small businesses and freelancers, offers a free trial that requires payment details upon signup. The rationale behind this decision is to attract serious potential customers who are more likely to see the value in FreshBooks' features, such as invoicing, expense tracking, and time management, within the trial period.
2. SEMrush
SEMrush, a popular tool for SEO and digital marketing professionals, also opts to collect payment details for their free trial. The platform offers comprehensive analytics and insights that can immediately demonstrate value to users who are serious about improving their online marketing efforts.
3. Shopify
Shopify, the e-commerce platform, provides users with a free trial that includes payment details at signup. This approach allows Shopify to filter for committed users who are ready to start their online store and are likely to use the platform long-term. The free trial gives users access to nearly all of Shopify's features, enabling them to set up their store and start selling before making any financial commitment.
3 Startups That Do Not Collect Payment Details on Free Trial Signup
1. Canva
Canva, the graphic design platform that has democratized design for non-professionals, offers a free trial of its premium features without requiring payment details. This strategy allows users to explore the full range of Canva's capabilities, including advanced design tools and extensive libraries of images and templates, without any commitment.
2. Zapier
Zapier, which connects and automates workflows between different web apps, opts for a free trial that does not ask for payment details. The company's goal is to encourage users to experiment with creating "Zaps" (automated workflows) and realize the time savings and efficiency gains possible with their platform.
3. Asana
Asana, a project management tool designed to help teams organize and track the progress of their work, provides a free trial of its premium features and does not require payment details. This approach allows teams to fully integrate Asana into their workflows and experience the enhanced productivity and collaboration features without the pressure of an impending charge.
Final Thoughts
The decision to collect payment details for a free tier signup in your SaaS product is a tough one. But there are a number of factors to think through that can make a decision in one direction or the other very clearly the right one.
In the end, it all depends on your customer acquisition strategy, the nature of your product, and the profile of your customers. We hope that shining some light on the factors that can help with this decision will help you to actually make it - and to find a strategy that you and your co-founders won't fight about moving forward.
