How to name your SaaS pricing plans? A primer from 89 examples

There are over 7500 SaaS companies according to angel List. Over the last few weeks I had a chance to review 89 of the companies to understand their free to paid conversion and also a chance to talk to 13 companies. What I learned was that time spent on the pricing page was a key indicator of conversion and you can A/B test your pricing page for colors, position of your highest and lowest prices, number of plans showed, feature listing and your call to action.

I did notice that of the 89 companies, 82 of them gave their pricing plans “names”. Each plan had a name so their customers could associate the name with the plan. Most (over 80%) used standard and conventional names but it was interesting to see the spread. Here is the data from 89 companies and 251 plans.

Names of SaaS Pricing Plans

Names of SaaS Pricing Plans

The most important points you want to take away are the following:

1. Even though SMB and SOHO (Small Office, Home Office) users are the first few to sign up for a SaaS service, 3 of the top 5 names were named Enterprise and Business and Large. I would imagine this has to do more with the inside out naming (the plan is large or enterprise, not the company buying it).

2. The plans named “Small or equivalent” were largely in the bottom quartile of the distribution. Even though over 70% of companies had 3 plans, only 35% of them named the smallest plan as “Startup”, “Starter” or “Lite”. The most common starting plan was named “Standard”.

3. Of the 20% of companies that used “custom” names like Boutique, Tyrannosaurs, or Garden named all their plans uniquely. The surprising element of the companies that used custom names was that most of them had images to convey the “size” of the plan.

There were some other surprising things I learned as well in my discussions.

1. In naming plans, understanding the end customer’s billing and invoicing was key. Most customers got an email invoice (a few sent PDF invoices) and they would either file them or expense those invoices (if < $50) or would send the invoices to an accounting team.

Ensuring that the “accounting” team did not ask any questions was the consistent mention among 3 of the startups with custom names for plans.

2. Naming the plans to support your payment gateway is also critical. Getting too cute with names means the payment gateway will support a higher refund request that were marginal.

3. Many of the companies had to setup standard names so their marketing and product management teams could do better analytics and research on the backend, consistent with their reporting. Surprisingly, if the names were “standard” the companies found it easier to have a conversation to understand conversion rates, pricing options and changes with their finance teams, design teams and other outsourced companies as well.

Top 5 things you should A/B test (except for price) on your pricing page

When I looked at 89 SaaS companies to determine their conversion from freemium to paid options for their customers, I also had a chance to talk to 13 folks about their approaches to continually optimizing their pricing pages for good conversion. Time spent on the page was the most important criteria associated with freemium conversions.

Why keep A/B testing if you have the industry leading conversion rates though? Three reasons:

1. Customers change, their preferences changes, or their perception of value changes.

2. You bring out new features or new product offerings.

3. The market or competition changes.

What I did hear clearly from all the 13 folks is that they tested price changes a lot less frequently than other changes they made on their product page. So what are the top 3 things that marketers changed? It all boiled down to a clear understanding of their customer and their (better) understanding of their own product (or features).

1. Position of the lowest and highest prices: Some folks like the usual left to right increasing price format and others like the opposite.

Right to Left

Left to Right

What is the difference? Not so much on the desktop in terms of conversions, but when viewed on the mobile phone with top to bottom view, most people tend to understand the value a lot better and tend to go for “any plan, even the cheapest”, than not sign up at all.

2. Same colors for all plans versus different colors showing the different plans available with the premium plans having “premium colors associated with them”.

Same Colors

Different Colors3. Total number of plans shown – over 70% of the companies have 3 plans, the second most popular is 2 plans followed by 5 plans. One plan or four pricing plans are rare.

3 Plans

5 Plans

4. Listing all the features on your pricing plan versus a list of features with check boxes to indicate which plans support which features.

Listing features

Check box for feature comparison5. Using one Call to action (CTA) button (what should the customer do) versus providing options for the call to action associated with each plan.

One CTA All Plans

 

Multiple CTA for Plans

 

 

Time spent on pricing page is the #1 early indicator of your SaaS freemium conversion rate

When I looked at 89 companies to learn how to convert freemium customers to paid, I also reached out to 13 of them to understand what drives the conversion.

Any early indicator to better conversion from viewing the pricing page to signing up for a plan was time spent on the pricing page.

If customers spent very little time (less than any other page) on your pricing page, then they would either not sign up or sign up for the “free plan”.

If customers spent too much time (more than any other page) then they would not sign up at all.

If customers spent time in the “middle zone” of your other pages, they conversion rate to a paid plan was most likely.

This was even if you had a free option prominently featured on your pricing page.

So how do you figure that out. I am assuming most people start out using Google analytics.

Google analytics: Time spent on pages

Google analytics: Time spent on pages

On your Google analytics page you can navigate to All pages and look at the average time spent on page. (see below).

Navigating to Time spent on page in Google Analytics

Navigating to Time spent on page in Google Analytics

So why is this the case? There are 3 major reasons I learned:

1. More time spent usually meant more options and more confusion for customers. When customers were given 3 pricing options (one of them being free) the conversions were higher, than when there were 5 pricing options. Not surprisingly even when the “free plan” was displayed “under the fold”, the conversions were the same. See below for what “Below the Fold” means.

Free plan as an option

Free plan as an option

Free plan below the fold as an option

Free plan below the fold as an option

2. More time spent on the page also indicated customers were reviewing other competitive options on other tabs. While less time meant customers had already made up their mind, so they were more likely to just “sign up and try”, it also meant the customer liked the options enough to try.

3. If the pricing option was the place where customers spent the least amount of time, than other pages, that was an indication that the customers were not ready to sign up and were “window shopping” alone. Either they did not have the pain point that your product addressed, or they were not in as much pain to even try the solution.

There were 2 exceptions that I found consistently among all the marketers I spoke with.

Not surprisingly, if the “referral source” of the customer was a search marketing campaign, and the time spent was the least, then the conversion rates were much higher than the referral sources.

If the referral source, was social and the time spent was more than other pages, then the conversion rates were much higher as well.

You can find referral source on Google analytics and correlate that to the time spent on pages.

Referral Source Google Analytics

Referral Source Google Analytics

What I learned from looking at 89 SaaS companies on how to convert freemium customers to paid

The most frequent question I get asked about a SaaS busines is pricing and sales growth. With pricing the biggest question is how to covert more free customers to paying customers.

While there is no average, I have seen companies focusing on consumers having as low as 1% conversion to a max of 10%. Companies focused on pro-sumers (professional consumers like freelancers, etc) have a slightly higher rate of conversion at 2% minimum and those that focus on SMB (Small medium business) have some of the highest at close to 5%. Finally 10% converted customers is not unheard of for companies selling to enterprises.

The time taken to convert when a customer is free to paid also varies from days to months or never.

What determines when a customer moves from premium or your paid version?

I look at 89 companies in the Microsoft Ventures accelerator programs from the 370+ alumni to understand the techniques used by companies to convince customers to pay. While not comprehensive, here are the 10 most frequently used levers that companies have used to encourage their customers to a paid version.

1. Advertising: In this version, the paid version has no ads. (e.g. WordPress hosted has am option for non ad based and advertising supported blogs).

2. Time: These companies allow for a free version for a period of time (e.g. HighRise, or Trigger.IO) – a week, 15 days, 30 days, etc. This is the most frequently used model.

3. Features: The most widely used model has basic features for free (e.g. Buffer, LaunchRock) and some premium features locked unless you pay. This is the third most used model to convert.

4.Collaboration: Individual usage is free in this version (e.g. Slack) and you will pay if you wish to collaborate with others in your team. Obviously the team usage gets your more benefit.

5. Control and Security: In this version, if the IT administrator (e.g. Yammer) wants to control the usage and wants security features (e.g. Yammer, GitHub), then you will pay for it.

6. User or seat (Fresh desk): In this type of pricing, (e.g. Freshdesk) the company provides a certain number of users free (3 agents or 2 users) and charges if you have more users.

7. Analytics and Insight: The usage of the app is free, but if you wish to obtain analytics (e.g. Feedly) or insights into your usage and data, you will have to pay.

8. Integration: In this version, if you wish to integrate the SaaS app into other enterprise apps in your company (e.g. CircleCi) or internal apps you will have to pay for that.

9. Data access: In this version, you can use the app for free, but if you wish to get your data (e.g. Capricity) out of the SaaS system you will have to pay for it.

10. Usage: In this version the more you use of the product (e.g. Dropbox, MixPanel) you will pay more. You will get a free version for 2GB, but for more than that you will pay per month. This is the second most popular conversion technique.

There are many more models that you can use, but the most frequent are a) Time bound, b) Usage based and c) Feature based.

Startups as a target market – a framework for thinking about #entrepreneurs as customers

In the last 5 years, I had the chance to look at many products which are targeted at others startups. Unless your product is an absolute utility (MailChimp, AWS, Google Analytics, Launch Rock or Survey Monkey), I’d say avoid this market with products that cost money.

1. Startups tend not to have a lot of have no money.

2. Startup founders believe they can “build your product themselves” and it will cost them much less and only need 10% of your features.

3. If they end up paying your churn rate (number of customers who wont renew) will be large since many will shut down.

That said, if you still believe you want to do this, then I put a framework together for you to think about your pricing and business model.

Business models for targeting Startups as a customer

Business models for targeting Startups as a customer

The two main criteria for thinking about this is time and money.

Your customers either have lots of them or none at all.

What I have found is that if your customer has no time and no money (typical of engineering teams or hackers at startups), then the only solution that works will be a “free” or open source. Some times you might want collaboration features (Slack) for which people might pay, but it is rare.

When your customer has money, but not time (Customer acquisition and User Growth hacking teams) they will tend to pay, and freemium models work very well here. E.g. Mailchimp or Intercom.

When your customer has lots of time but not money, they will likely do it themselves, so only ad supported models work. Most products aimed at founders end up in this bracket. The sales cycle is very unpredictable and it is likely the customer is not going to pay.

Finally when the customer has both time and money (I dont know any startup that does), the sales cycles are extremely long. The deals will be large, but you will be expected to hand hold the customer and hire a sales person to “sell” them the product.

Another way to think about the model is the type of sales model you want to adopt.

If your customer has no time or money, expect to only get customer via word of mouth, otherwise, your model wont support the LTV since there’s no value in the LTV. You CAC (Customer Acquisition Costs) need to be as close to zero.

If your customer has time, but no money, you should still not hire sales people but put social features into the product to help enable virality and word of mouth.

If your customer has money, but not the time, you can actually spend money on advertising, using Facebook, SEM and other techniques to acquire customers and have an inside sales team to help close.

If your customer has time and money, you will need to hire a field sales team and expect the deals to be much larger in size. You will likely have to create a lot of collateral and sales tools to support them through the sales cycle.

The ultimate list of questions about “market research” for a #startup asked by 30+ Venture capitalists

I had a chance over the last 3 weeks to talk to many colleagues and associates in the Venture industry. Most were smaller, seed funds, with the largest fund size at $35 Million and the smallest at $8 Million.

They have between them about 210 companies they have invested seed capital in, with the average check size being about $315K. Over 70% were in the Silicon Valley.

The most important insight I gathered from my discussions was that if an entrepreneur was not looking to raise a follow on round after raising a seed round from a Micro VC, they were likely to be a much smaller company and hence not interesting enough for the seed investors.

If you are going after a small market, or slow growth one, your chances of getting funded by a Micro VC were negligible.

Which makes sense, but I think most entrepreneurs I speak to have the incorrect perception that Micro VC’s or seed funds as those that invest in smaller opportunities.

That cannot be further from the truth.

Micro VC’s or seed funds write earlier stage, smaller checks, but they are looking for the large, unicorns, as well, only earlier.

The number one question then that all the seed investors had was about the market.

It was not a simple question about market size alone.

So I set out to ask them about all the questions they had about a “startup’s market” and have documented them below.

As an entrepreneur, you need to review as many of these questions, but dont expect to be asked all these questions. It is likely a subset of these that your investor will likely ask you. It serves you best to review all these questions though.

Some of them may be redundant, but the fact that you can get the same question asked multiple times in different ways indicates that your potential investors will want to triage and understand the market a lot better before they make the bet.

  1. Is the market clearly identifiable (e.g. are there users who are willing to pay)?
  2. What is the size of the market (bottom up and top down)?
  3. How fast is the market growing (current growth trends)?
  4. How quickly will the market grow (potential for growth)?
  5. By what methods will the startup be able to reach it (are there high costs to get capture the market)?
  6. Can the market be segmented (are there lower hanging fruits to be had)?
  7. What types of people (demographic profile of buyers) buy this product/service in this market?
  8. Does the product/service have appeal based on geography (is this a first world solution)?
  9. What do potential or existing customers like about curren products/services?
  10. How quickly are other products (competitive growth) in the market growing?
  11. What makes the product/service unique relative to others in the marketplace (is there a chance the startup can grow quicker)?
  12. Do we have expertise (knowledge, expertise, etc.) in this market to help?
  13. Do we have connections in this market so make a difference?
  14. What are current buyers paying for comparable products/services?
  15. What is required to succeed in this market?
  16. How many competitors will the startup be competing against?
  17. Are there big incumbents in this market?
  18. How quickly are the incumbents growing?
  19. Has there been innovation in this market over the last few years / decades?
  20. Can the market support another player?
  21. How do competitors reach the market?
  22. What does the competitive landscape look like?
  23. Can this company achieve more than their fair share of market?
  24. Is the industry growing in size?
  25. What are other current trends within the industry?
  26. Who are the existing market leaders within the industry, and why are they successful?
  27. What type of marketing strategies are prevalent (Is the cost of acquiring customers high) within the industry?
  28. Is the industry seasonal (e.g. more food is catered during holidays)?
  29. Are there regulations (e.g. Uber and local taxi medallions) that affect the industry?
  30. Is there customer loyalty (e.g. it is hard to unseat ADP from payroll) within the industry?
  31. Is the industry sensitive to economic fluctuations (e.g. Match.com decreases matching during recessions)?
  32. Are there technological changes happening (e.g. Obamacare and patient records) or required in the industry?
  33. What are the financial characteristics (average selling price of products, average inventory turn, etc) of the industry?

When do you know that it is time to fold your #startup?

Honestly you never will know. There is always a “what if”.

There are many times during your startup journey, when you get a sense that things are not worth it. When your cofounder leaves. When your customer bails. When you cannot articulate success.

The simplest situation is when you run out of money.

The biggest challenge is knowing when way before your run out of money if something’s not working out quite right.

You get a nagging feeling that the same time and energy you have can be spent on other things to get a better return – whether it is on the next startup or another job.

The constraints that most entrepreneurs face tend to be masked by their bravado.

I hypothesize that the only time you know when it is time to shutdown and move on is when you no longer have a desire for the end state.

When you lose your passion.

That’s it.

If you still have the desire for the space you are in, and the problem you have chosen to solve, then overcoming all other odds is easier, because you still believe there is a wrong to be righted.

Most founders, though dont realize they have lost the desire for the space or the problem until much later. They are taught that persistence is the key to success, so the slog through the early warning signals.

How do you find out if you have lost passion for the space, earlier?

“Going through the motions” is one way to find out.

“Not getting excited to get up and go at it” is another way.

“Inability to acknowledge the small wins” is a third.

I can list many more.

The next part of the question is how do you know if this is “temporary loss of passion” or “permanent lack of desire” for your startup.

It is a permanent problem when your opportunity cost of doing something else is more than your current situation.