#39 Free Tiers: A Backward Strategy
Is The Free Tier Trap Working Against You?
Free tiers aren’t what they’re made out to be. For every SaaS that strikes gold with them, hundreds face a baffling struggle.
➡️ The promise of free tiers is simple: remove the friction of financial commitment for new users, let a large number of users try the product, thereby experiencing its values that marketing could not have ever expressed. Delighted with this value realization, many of these users will get hooked to the product and sooner or later upgrade to the paid plan without your business development team doing the heavy lifting.
But in reality, business after business report that free tier users:
Are not converting to paying plans. In some cases, the conversion rates are as low as 0.25% to even absolute 0%.
Are abusing the free tier limits by creating multiple accounts, and these are not lone wolves working from their basements but often enterprise employees.
Raise too many support tickets instead of relying on help documents that you initially envisaged.
Provide conflicting feedback leading to a scattered and misdirected product roadmap.
Are a load on your servers and a financial load on your precious early-stage resources.
Don’t think twice before bad-mouthing the product, fully aware that it’s still new and evolving.
As if it's not enough, you will quickly find that bots keep signing up to your free tier even if you put in place IP blocking and rate limits.
The free-tier champions see these as ‘good problems’ because they are indicators of ‘momentum’—things are happening. Which is true if you are a highly funded company with a team of product managers, researchers, and whatnot on board. Because when you have a large team, you have the bandwidth, all you need is one or another kind of momentum and problems to solve.
However, if you belong to the humble majority of 90%+ companies (bootstrapped or lightly funded) that have limited resources and skills at their disposal, these ‘good problems’ are going to grind you down and burn you out before you could ever cross the chasm.
✅ The quantum, sophistication, and cycle time required for conversion strategies are not everyone’s cup of tea.
Marred with these challenges, free tier—freemium and free trial alike should be a ‘no-go’ for most companies.
But like most information in public space, SaaS marketing content is also geared towards highly funded companies with big purchasing power that can provide ROI for content. Without the necessary context, founder after founder falls for free tiers like sheep following one another into a pit. 💡
If any of this has made sense to you and you find yourself nodding, keep reading as I’m sharing a contrarian and nuanced model for early-stage SaaS growth.
Nuanced early-stage playbook for the new epoch
Assuming you’ve done preliminary research before building your product, here are next steps:
Soft-Test Before MVP Completion. When your MVP is 80–90% complete, reach out to a small, contained audience. Don’t blast it everywhere or build backlinks—just selectively bring in relevant users and give them free access. For a ‘to-be-low-priced’ product, you should be able to get 50 to 100 of such users. Remember, you are not promoting to the world, you just brought in a very specific set of users.
Observe their behavior, and if you can, chat with at least a few of them. You will be able to detect high-priority improvements.
Complete the original MVP along with new improvements. Let’s call it MVP+.
Add the payment layer and launch the product to your target market.
Aim to get 10, 50, or 100 users. All you have to do is figure out marketing ways to find 100 paying users out of 8 billion people. If you think it through, it’s not a problem that can’t be solved. With each new user, your MRR increases, giving meaning to your efforts, unlike those free tier users that burden your efforts with uncertainty and upfront cost.
Keep building your marketing. Even if it takes a week or two to land a new client, the fact that it’s a paying client makes it worthwhile.
After you have achieved a comfortable MRR, developed a solid product, established a support system, and set your marketing in motion, you can optionally introduce a free tier to expand your market. By this stage, your product has already evolved based on feedback from real paying users, your foundational systems are in place, and you are financially better positioned to let the free tier grow at its own pace without being derailed by its inherent challenges.
Thus, for bootstrapped or lightly-funded early-stage SaaS:
A free tier is an expansion strategy not a launch strategy 🚀
Just as freemium and free trials aren’t suited for every business, this approach may not be either. Consider whether it fits your business and adjust accordingly.
What are your views on free tiers? Leave a comment or ask me a question:
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Ankur Tiwari