The Internet is littered with the corpses of SaaS startups that were eaten by their own business model. On the face of it, the freemium approach just doesn’t make sense - when the majority of your users aren’t paying for your service, you’re going to need a lot of cash to burn in order to subsidise the free users. If you’ve been following this series of blog posts, you’ll already know that as a bootstrapped-but-not-quite-profitable startup, BugMuncher is not exactly flush with cash.
I’ve always disregarded the freemium model as a bad idea, Baremetrics recently posted a very detailed account of how going freemium nearly killed their business, so why the hell have I done a complete 180 and given BugMuncher a free plan?
It’s mainly because I don’t like to write ideas off without first trying them, and having given it some thought, I think freemium could actually work for BugMuncher.
Even so, I knew there was a good chance I’d end up regretting it, so I’ve set up BugMuncher’s new pricing structure to best take advantage of having a free plan, while trying to ensure it doesn’t end up biting me on the ass.
The freemium business model likes to kill companies by draining them of time and money. No matter what your company does, every user will cost you some non-zero amount, even if it’s just hosting costs. However, it’s often time that can be the real killer. Most freemium services find the majority of their users are on the free plan, and these users need support, which can take up a huge amount of time.
With the exception of my own meagre salary, BugMuncher’s single biggest expense is SauceLabs, who provide a farm of Selenium servers which I use to generate the screenshots. So in order to minimise the effect the free plan will have on BugMuncher’s cash flow, the free plan doesn’t get screenshots.
As for my time, I’ve stipulated that while support requests from paid accounts will be answered within one working day, free accounts may have to wait up to a week. The reality is I currently answer all emails within an hour or so (assuming I’m at a computer), but as BugMuncher grows, I’ll de-prioritise support for free accounts, so that I can maintain by current support standards for paid accounts.
For most businesses the freemium model is attractive as it means you’ll get more users. The idea being that some of those users may later upgrade to a paid plan, or will recommend the service to someone else sign up to a paid subscription.
And of course some startups choose freemium simply to foster rapid growth in an attempt to woo investors, but as I plan on staying bootstrapped, that’s not relevant here.
BugMuncher however, does have an additional benefit of going freemium that many businesses do not have - the BugMuncher widget gets installed onto people’s websites. This means every free user who puts BugMuncher on their site will essentially be advertising BugMuncher for me.
To make the most of this, I’ve added the following message to BugMuncher’s feedback interface, which is displayed after feedback is submitted, but only on free accounts:
I made the “Freeloader” plan live on Sunday 18th September, so it’s a bit early to tell what impact it will have on signups, particularly as I haven’t promoted the free plan at all. I’ll be adding metrics relating to free accounts to my monthly income reports, the next of which will be coming on the 11th October.