When users say "simple", they mean to describe something incredibly easy to use. But easy to use doesn’t equal easy to create and that’s the main complexity of simplicity.
So, when we as SaaS product designers say "simple," we mean the highest goal of design, which requires a lot of planning, research, and vision to achieve, because there is always a huge amount of data and many complex algorithms behind simplicity.
For instance, look at the Dropbox software.
Or Apple Pay interface.
Both products seem simple, but that’s not completely true. Though they are accessible, easy to comprehend, and have a clean user interface, these products are very hard to implement technically. That’s why creating UI and UX for them is indeed difficult. To make such products look and feel simple, designers had to consider all the intricacies of their architecture, audience, and the market, which is a lot of work to do.
But despite all the difficulties, a lot of businesses choose to make design for simplicity one of their top priorities. Why? Perhaps because they understand the role of psychology in UX design.
Why do people need simplicity?
Human behavior is important in the design process. People need simplicity because they encounter the basic laws of UX every day in their life.
See it yourself. Think of the Olympic logo. How can you describe it?
It’s unlikely that you would talk about it as a combination of connected lines or shapes. Most probably you’d say these are five circles that overlap each other. And that’s because circles in this situation are the most familiar objects your brain can identify with the least cognitive effort.
This is called the law of Prägnanz, the cornerstone of the Gestalt laws of grouping. It tells us that the human eye enjoys finding order and simplicity in complicated forms and turning them into unified shapes. This is because our brain strives to keep us from being overloaded with data.
Your UI can benefit from this law. Users see your interface as a whole, thus if you want to simplify their perception, choose basic forms and arrange them in ways that are clear and predictable. If you, vice versa, want to highlight some part of an interface - break this rule.
And here are some more evidence that the human brain strives for simplicity in complexity.
- Zeigarnik Effect describes people’s tendency to give incomplete tasks more attention than finished ones. We are more likely to remember the information we might need to complete an unfinished task because of the psychological stress produced by this unfinished state.
You can apply this law when you want to push users to complete a certain task or help them cope with a difficult job. Giving users some extra motivation, like adding a progress bar to your product’s onboarding increase the chances that people will proceed until the end and not churn.
- According to Hick's law, the number of options a person has influences how long it takes them to make a certain decision. The more options there are, the longer it takes to perform an action. This way, if you want to simplify your app by applying this principle, limit the number of choices you offer your users (for example, the number of options in a menu bar).
- Peak-end rule claims that people's memory retains only the strongest positive or negative moments and the outcome we got from a certain experience (not the total experience). That’s why, when developing a complex product, try to make the user forget about any activities that require a lot of time and effort to cope with.
- Tesler’s law states that every application/product/software has a certain amount of complexity that cannot be decreased and therefore must be handled by either the developer/designer or the user.
Larry Tesler, the explorer of the law, claimed that complexity does not vanish, but rather shifts from one area to another. Therefore, if you decide to make the app simpler for users, this complexity will unavoidably be transferred to the developers/designers. Consider carefully how much complexity should be transferred from users to developers and the other way around.
These were only five out of dozens of psychological laws, discovered by scientists and proven with experiments that show us how to balance between simplicity and complexity in your design. Learning about such experiments allows us to formulate simplicity design principles that help you eliminate challenges on users’ way to their goal.
Simplicity principles of UI/UX design
Businesses are constantly trying to build simple and usable products. They want more features and advanced technologies together with a lightweight and easy-to-use format. But is it possible to add functionality without compromising simplicity and usability?
From our more than 7-year experience in designing SaaS products, we can say that though it all depends on each individual case, there are simplicity principles in product design you can apply to any kind of application, no matter how complex it is.
Below are ten of them.
Products need to be focused on value
We all know that you can't please everyone. This statement is also true for your software. If you try to design an app to be useful for a great variety of audiences, most probably people won’t understand what problem it intends to help them with and thus they won’t use it.
To make your application simple, identify its core value and people that can really benefit from using your product, and keep this value in mind throughout the whole design process.
For instance, while Yahoo’s home page offers its visitors a lot of different features (many of which may be irrelevant and distract users from their main goal), Google uses its clean UI to focus people’s attention on one core goal only - search.
When in doubt, just remove
The fastest and easiest way to reach simplicity is by getting rid of unnecessary elements in your interface. Be it a rarely used button, a sort of secondary information, or some fancy, but distractive formatting style, if it doesn't make your users closer to achieving their goal, remove it.
Eliminate the need to choose when it is not required
Making any decision takes time and effort. When asking users to make too many choices, you create an additional cognitive load giving them work they’d prefer not to do (recall Hick’s law we’ve discussed earlier in this article). So in order to make the user experience easy, support quick decision-making.
For example, when we were redesigning a cloud phone system, we noticed that on an “Add a new lead” page, a phone number field had no clearly defined format, so users had to decide themselves how to fill in the number (separating digits with dashes, using brackets, or some other variant). This caused confusion and uncertainty.
To resolve this issue, we added a small tooltip to make users adopt a standard phone number format.
Guide and handhold users
Sometimes we need extra instructions before we can complete a task or before our first-time experience. Instead of bombarding customers with loads of learning information, offer them contextual help. To make users feel comfortable using your app, you can add small tooltips, enable autofill and autocorrect, add error messages, support inline edits, and so on.
Meet users' expectations
Each person that comes to your product has some previous experience that forms certain expectations about your app. Meeting those expectations makes users feel in control over your application and therefore makes it feel more trustworthy.
Apply common UX patterns and limit the number of creative design innovations to help users adapt to the new interface quicker and focus on what matters most.
For example, the three dots notation typically indicates that there are more options available when clicking on it.
Choose the correct data visualization method
As humans are physiologically wired to analyze everything around them through visual means, representing data visually boosts content’s effectiveness by making information easier to perceive, process, and retain. So, help customers make data-driven decisions faster by choosing an appropriate form of data visualization.
For example, multi-line charts suit best to describe subtle variations in data, while bullet chart does a great job of showing a significant indicator in comparison to a goal.
Show users where they are currently in the process
Giving users a clear understanding of where in the app they come from and where they should go next removes uncertainty and makes their overall experience more intuitive. This principle is especially relevant for complex processes.
Focus users' attention on the elements that matter
Every step of the path your user takes to achieve their objectives has elements that are more important and will get them closer to the end result. Find such places and make them the focus of user attention.
Something that stands out from the crowd is more likely to be remembered. When we use bold type, or choose a distinctive color so that it differs somehow from the rest of the page elements, we highlight important information in a row of similar data.
Create a hierarchy using typography
You may have heard before that most users don’t read. That’s true, but UX readability is still important when designing for simplicity.
People scan your app looking for signals that would tell them “this information is worth paying attention to”. You can arrange the information on a page so that it will guide the user through their journey. This way, descriptive headings and labels, font size and color, the use of capitalization, and so on, allow you to create hierarchy and help users ensure they are in the right place, taking the right action.
Group components that relate together
If you remember the law of Prägnanz we’ve discussed here, you should remember that people’s brain perceives visual objects as a single form (not separate components). Therefore, it’s much easier for users to deal with several groups of content rather than multiple unrelated elements.
You can indicate that content relates to a certain group by putting it in one drop-down menu, using the same background color, adding borders, and the like.
For example, you can group related features together using the same style and size of menu icons.
Seems like simple design is not that easy to create. Also, you can’t just apply these principles without understanding the product idea, conducting proper planning, and research. Here’s how design for simplicity looks in real life.
A real example of the complexity of simplicity
Meet Prift, a personal finance platform that helps people achieve their long-term financial goals quicker.
Eleken was hired to create an MVP for it. Our goal was to design a platform that makes the complex process of controlling personal finances simple and understandable for a regular user. Together with a Prift team, we managed to create a clear, accessible, and minimalist interface that you can see in the screenshots above.
But what really stands behind this simple UI/UX design?
- A detailed user research to discover the true needs of the target audience.
- Competitive analysis and benchmark research to assess competitors’ strengths and weaknesses and, based on these findings, define the unique value proposition.
- Market research to understand the legal constraints of providing financial advice in the UK and coming up with ideas on how to adjust the app to existing rules.
- Feature prioritization to correctly define that minimum set of workable features.
- Wireframing to think out and visualize a consistent platform structure aligned with a product vision.
- A/B testing to determine which of several screen variants meets users' expectations and needs the most and will form future MVP.
- Prototyping to present a finished platform design with structure, functions, content, and visual components.
- Constant communication via Slack and regular video calls twice a week to discuss the design process progress and results.
And that’s even not the full list. Three people and about 200 hours stand behind this product. Not a very “simple” design, right?
The thing is that both complexity and simplicity in design are subjective. That is, different people perceive them differently. So, to successfully apply the UX principles we’ve discussed above and start reducing complexity, you have to first of all understand what is complex about your product.
Once your app gets to a stage where you can present something visual like a sketch, wireframe, or mock-up, show it to users to get their feedback. Analyze their feedback carefully and be ready to iterate. And remember that there is always a lot of work behind every simple product.
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Best SaaS Web Design: Unveiling the Secrets of Impressive Websites
The SaaS industry has become one of the fastest-growing ones in recent years. Just imagine, in the USA alone, there are about 17,000 SaaS companies serving up to 59 billion customers across the world. So it’s no wonder that many SaaS startups seek ways to survive and thrive in such a competitive environment. But what can help them stand out?
As a SaaS design company, Eleken has worked on numerous SaaS projects, from agriculture to data analytics, and gained a lot of valuable experience. From our standpoint, it is a well-thought-out SaaS web design that can help young startups gain a competitive edge. In one of our recent videos, Ilya Dmytruk, the founder and CEO at Eleken, shares some insights into what is so special about SaaS UX design that requires a narrow specialist.
When some of our clients come to us, they request to “make it like Stripe” or some other popular SaaS solution. But creating an impressive SaaS web design is not about mimicking the best companies and copycatting their user interface. It is, first and foremost, about creating simple, easy-to-navigate, and user-friendly designs that combine functionality and aesthetics. Still, we can always learn from the best, so let’s see what helps successful SaaS businesses deliver exceptional web designs launch after launch.
What tactics do reputable SaaS websites employ?
In the recent McKinsey report, researchers uncovered that design-driven companies outperform industry benchmark growth by as much as two to one. The report highlights that user-centric design provides businesses with more opportunities than ever today. Leading companies appear to excel in these four areas:
- More than a product: embrace the power of user experience.
- More than a feeling: employ design metrics.
- More than a phase: follow an iterative process.
- More than a department: hire cross-functional talent.
Eleken designers agree that the above four clusters of design actions work well and are ready to share some SaaS web design practices to help every business become a top performer.
More than a product: embrace the power of user experience
SaaS websites' goal is to sell software to the user. Therefore, the designer's task here is to present the product in the most favorable light, namely to showcase all the advantages, highlight all the features, and show that your application is better than competitors.
As we mentioned, many of our clients are asking us to make their solution look like Stripe. But why do so many SaaS businesses look up to Stripe? The answer is clear: Stripe has a good combination of a user-friendly interface with consistent design elements like color schemes, font styles, and layouts across all solutions, as well as a professional team that promotes customer feedback.
In one of the interviews, Michael Siliski, the Business Lead at Stripe, said that one of the major principles in their design process is that they “really, really care” about user experience and put customers' needs first. This user-first approach encourages their team to search for the right balance between function, craft, and joy. One of Stripe’s designers shares an example of how everybody is involved with the product at all levels. The designer mentioned the case when the CEO didn’t like the result and wrote the needed code by himself.
Yes, most SaaS companies do acknowledge the value of user experience, but just like Stripe, it’s also important to know how you differentiate yourself through your UX.
Eleken use cases
Our UI/UX designer Dasha notes that the first step to differentiating yourself through UX is to maintain the same style across all visual components of the company. This means that the design of both your website and the SaaS product should be created by the same designer or agency. Such practice ensures that everything looks, feels, and sounds the same. As an example, let’s look at the case of SEOcrawl.
Aside from doing the platform overhaul, our designers helped the SEOcrawl team to create designs for various marketing campaigns aimed at attracting audiences.
When talking about designs for marketing purposes, we believe that they should not only include authentic visuals but also convey brand identity, emotion, persuasion, and, most importantly - trust. Let’s look at a sign-up landing page. It has it all: a contrasting headline, relevant visuals, social proof, as well as a clearly visible call-to-action button.
It’s great if designs for social media with headers and icons align with the overall style, so we did for SEOcrawl:
Also, we designed numerous easy-to-read email notifications and newsletters for different purposes, including a free trial activation newsletter or new comment notification.
Tamara, another designer at Eleken, also shared her insights with us. When she was designing Кірsi’s platform for accounting, consulting, and specialty law firms, she also created marketing materials for participating in the exhibition and creating a pitch deck.
The standard colors used in the accounting and financial fields are dark, restrained colors, usually blue shades. But Kipsi is a dynamic and young startup that is developing rapidly and introducing innovative ideas. To stand out from competitors, the client wanted to express this freshness in their style visually. So we used bright, vibrant, and youthful color palettes, such as fresh blue and purple. Here are some post examples Tamara created for LinkedIn:
This ensured consistency of the project's visual style in all communications, making a positive impression.
More than a feeling: employ design metrics
Successful SaaS companies don’t rely on opinions and personal preferences. The design is more than a feeling for them. They implement design metrics and measure the design in the same way as cost, quality, or time.
Design-driven companies link design to value, considering the entire customer journey and using the UX design metrics, like satisfaction ratings, usability assessments, field studies, A/B testing, and so on, to understand their user needs better.
Stripe is a master in user testing, empowering every employee to connect with users. For example, the company recommends following the “Make surveys about users, not about you” principle. This means UX researchers should avoid general requests, asking to help users to take the survey. Instead, it is better to explain to people why their answers will benefit them. For example, it will help fix a bug, improve the quality of service, or make the page more useful. Stripe offers this example of Rocket Rides, a demo for Stripe Connect, to illustrate this point:
As Eleken designers always want to remain user-focused, we constantly monitor user behavior and conduct usability testing. For example, while working on Kipsi, we measured the time users spend on the platform (Time on task metrics) and tracked the functions and tasks they use most often (Success Score). As a result of our effort, we extended functionality, adding a Product Tour function that helped new users navigate the interface.
Design metrics play an important role when talking about product redesign. For example, our clients from Refera, a web platform that allows doctors to create and send referrals, came to us to redesign a product’s landing page. They wanted to convey the feeling of trust and confidence, urging leads to leave an email address and book a demo. To achieve this goal, we conducted the user research. We found out that users have more trust when they see people with whom they will interact. So we placed a real doctor’s picture instead of illustrations to evoke trust. Our designer also suggested changing the blue color, often overused in medical design, to a calm green palette, as well as replacing outdated flat-style illustrations with more classical 3D images.
More than a phase: follow an iterative process
Many companies still consider the design phase as just one of the product development stages. Yet, design works best in environments that encourage learning, testing, and iterating with users. This is especially true for SaaS projects. When companies rely too much on one iteration, this can result in losing the customer's voice.
The Stripe designers follow a rapid iterative loop when they start their work by analyzing actual users’ needs and understanding their problems, and then designing the right product to solve them. The company calls this process “product shaping”, which means building “a rough solution to a concrete user problem” when it is strictly planned what to build and why.
At Eleken, we follow a similar process. Ilya, our CEO, explains that design is a process, not an event. Users’ needs and market expectations often change, so adjusting to the time and changing design is important.
For Eleken, the iterative process is quite effective because of its simplicity. The team follows a series of repetitive steps, improving and refining the product with each new cycle. Here are three stages of Eleken’s design process:
- Creation: Once the initial observation, research, and requirements have been gathered, Eleken designers analyze the first screens and discuss how they may work. Then, we create raw mockups and send them to the clients for approval.
- Testing: The clients share their ideas about what they like and what could be improved. Eleken designers gather the feedback and make the needed changes.
- Evaluation: We think of ways how to improve the mockups. Once the first iteration ends, the second starts. This process repeats until we get the result that satisfies everyone.
Let’s look at Kipsi’s design of documentation requests. The section navigation is simple and intuitive. But before it evolved to the version you see, it went through a number of approval cycles.
The first iteration of the flow for document requests did not include the ability to indicate that the request is not relevant or the document does not exist. During this iteration, we collected our client’s feedback and understood that this option was necessary. The second iteration already included this functionality.
More than a department: hire cross-functional talent
In a truly collaborative environment, there are no departments, titles, or assigned offices. Instead, there are cross-functional teams that work in tandem. All of them are focused on making a great product together to meet users’ needs.
Even though Stripe early invested in design, they were not immune to scaling up. In the beginning, they had a product-focused team. But for efficient scaling, they needed more cross-functional specialists to assist Stripe with storytelling, design research, content strategists, and so on. To address these challenges, Stripe built five teams with over 100 designers that focus on cohesion across all design disciplines, product design, operations of UX research, and many more.
In the current space, setting up central design departments or smaller independent design teams is no longer effective. McKinsey researchers found that the distributed teams are much more successful, as they have a clearer focus on their customers and can build better cross-functional partnerships. As a result, they are 10% faster to launch a product and have a 30% higher success rate when getting concepts to market.
But sometimes, companies struggle with having the right talent on board. TextMagic, a Nasdaq-listed SaaS company, managed to overcome this challenge by extending its team with our designers. They hired Eleken to design a platform, including designing marketing campaigns, CRM, and desk services functionality.
Eleken designers were always in touch with the TextMagic team. We had video calls with the product manager every other day and arranged demos to present the results of our work every one or two weeks as if our designers were in-house employees. Here is what Irene Avdus, PM at TextMagic, shared on Clutch:
The takeaway
Delivering excellent web designs has never been an easy task for SaaS companies. It remains especially difficult for companies that raise the bar on consumer expectations like Stripe.
But no matter the case, having a design team who deeply understands your product and the target customers is important. Eleken can provide you with the right SaaS design talent for your product, even if you have a narrowly-focused project that requires niche expertise. Jamie Conklin, VP of Product at Astraea, commented, “It is unusual to find a designer who has experience building applications with geospatial data - especially imagery data. We found that in Eleken.”
So if you want to develop your SaaS web design with a team who enjoys solving problems and has a high degree of autonomy, drop us a line.
Freemium Pricing: Customer Acquisition Hero or Revenue Killer?
For free or not for free...If you're reading this article, I guess you've been ruminating on this dilemma for a while and still haven't come to a decision. It's no wonder. Since the early 2000s freemium pricing model, which turned to be successful for some famous freemium practitioners, including Evernote, Dropbox, Spotify, and other billion dollars companies, has been gaining traction and giving hope for stellar success to many SaaS startups.
But is freemium pricing a magic pill for a SaaS company to ensure its dramatic growth (spoiler - no)? Unfortunately, you can't just google the answer or follow the advice your best friend, a successful SaaS founder, gives you. Just because what worked for him will not necessarily work for you.
Actually, in the headline, I put the rhetoric question. Yet, I hope you'll get a bit of insight if the freemium pricing may work for your business by the end of this article.
What does freemium mean?
Freemium, being a combination of the words "free" and "premium", is a business pricing model that offers customers both free and paid versions of a company's product. The free option typically has fewer features than the paid one. Free users have limited access to product functionality or lack of customer support unit they upgrade to the paid account.
The freemium pricing model's core objective is to get the users hooked to the free product, encouraging them to subscribe to the paid plan later.
Whereas the conventional customer acquisition strategy requires significant marketing expenses to move leads through the SaaS sales funnel, freemium pricing can reduce costs, saving on advertising and engagement. The users self-educate themselves through the actual product usage, so your main goal is to make their user experience as great as possible, improving your product's "stickiness".
As a go-to-market strategy, the freemium pricing model can be justified by the quick customer base growth. However, this approach has some pitfalls I'll uncover in the next paragraphs.
Just a few examples of freemium pricing in action.
It can be:
- A service with limited features on a free plan and additional functionality on the paid ones (MailChimp)
- An online magazine that sets a monthly free articles limit and requires customers to upgrade to get unlimited access to the publications (Harvard Business Review)
- A free app with advertisements, which users can get rid of by paying for the premium plan (well, I'm sure you have at least one such app on your phone)
In the ideal world, after the users fall in love with your product, they reach the limits of the free account and decide to upgrade to experience the best value your product can ever provide. However, in reality, only around 2%-5% of free customers convert into the paid ones.
Before we dive deeper into the freemium pricing peculiarities, I'd like to stop for a minute to emphasize the difference between freemium and free trial models (as they're close, but not the same).
Freemium vs. free trial
Like freemium, free trials help lower the customer acquisition cost by letting the product and onboarding do the main job of converting leads into customers. Yet, these two pricing models have significant differences:
Freemium products are forever-free, whereas free trials grant access to the product only for a limited period.
Free trials provide users complete access to all (or most) product's features; freemium customers enjoy only basic functionality and can unlock additional features by going premium.
The most obvious free trial benefit is that you don't need to support users who never generate any profit for your business. Once their free period expires, they have to either sign up for the service or churn.
As a pricing model, a free trial is generally more effective at converting leads into paying customers.
The first reason, during the free trial, the users experience the full product functionality and are aware of what they need to pay for. Another thing, in most cases, requiring the credit card to sign up for the free trial, you may account for more qualified (read - ready to pay) though fewer leads.
As for the freemium pricing benefits, this pricing model is definitely easier for the customers as it doesn't make pressure up-front, requiring the credit card to sign up. And, for the SaaS business, there is a possibility to eventually convert the free users when (if) their needs will evolve. This scenario depends much on successful product integration into the users' workflow. At the end of the day, it'll be much more painful for them to switch to something else than change from freemium to premium within your app.
Getting a bit clear whether you should go with freemium pricing or not?
I guess, no, as I haven't told you yet...
What is wrong with freemium pricing?
"Freemium is like a Samurai sword: unless you’re a master at using it, you can cut your arm off." - Rob Walling, Founder, Drip.
Personally, I'm not against freemium pricing, say more, as a user of dozens of free apps, I love zero price! However, if I were a SaaS business owner, I'd think twice before going into this gamble.
Why?
Let's look at freemium from another angle.
Problem 1 - Freemium attracts freeloaders
The biggest problem with freemium pricing that it attracts the wrong customers. Offer something for free, and you will attract people who like the free stuff. As a business, you need to make money to ensure sustainable growth, and here is where the problem roots. You may get a huge customer base, but the question is how many users you'll persuade to pay for the product or service they used to have for free.
Just note, around 7% only of Evernote users switch to premium. We'll come back to Evernote later to see their freemium story, though.
By the way, do you use Evernote? If yes, do you pay for it?
Freemium pricing allows to quickly expand the user base, but the fact is the majority of the customers will never go premium.
How to overcome
Firstly, you can limit the free version and make the paid version truly valuable. More cloud space (as Dropbox did), unlimited marketing emails (as Mailchimp), ad-free music, playing offline (as Spotify).
Then, don't hesitate to add advertising and paid promotions to your free product. Some people will be freakingly annoyed with the ads, and they will leave. So what? They don't pay you anyway. Some of them will take the ads as a necessary evil and stay. And some customers will opt for the premium.
Problem 2 - Freemium cost is high
While most users will not help you make a profit, you will have to spend money to let them use your product. Along with your user base growth, you may face capacities limitation.
For example, you will need to pay for the servers to host your product or invest in the development team who will maintain it. Sooner or later, you'll have to expend your customer service, put more money in the product updates, and whatever else may happen as a business is a living creature. That's why many freemium pricing startups try to raise money from investors - they know they will need money to survive.
How to Overcome
One "unpopular" solution may be to learn users' behavior and sell the intelligence to other industry players. And again, the advertising and paid promotions will help. At the beginning stage of your SaaS, you can put aside the idea of getting immediate profit. However, one day you'll have to tackle this task, so better to prepare the plan.
Problem 3 - Freemium makes validation questionable
This problem is not that obvious, but I consider it critical for the early-staged companies. When you have a new product idea, you need to test it and get market feedback. It's crucial to define if the idea is worth your efforts and determine whether people are ready to pay for the solution you offer.
The point here, offering the product for free, you'll definitely find people who are eager to try. But there will be no confidence they would have paid for it as for something valuable and irreplaceable.
How to Overcome
To validate your idea (of course, when you have an MVP ready), you may track daily and weekly product usage. The statistics will give you an understanding of whether people enjoy your product or just downloaded it and keep it on the last home screen page of their phones. The more the customers interact with your product, the higher the chances they won't leave it easily.
Despite all the problems you may face with freemium, it is still a very effective short-term customer acquisition strategy. And to understand more if freemium pricing will work for your business, let's turn the kaleidoscope to see another picture.
How to decide if freemium pricing is your "good-to-go"
Running a SaaS business is an exciting journey and, minding this journey is not a one-day trip, it's crucial to have a road map and prepare for the adventure.
Before putting everything on the table and going freemium, assume what strategy will lead you to success.
Choose your market entry strategy
If you are serious about business, you know that the right go-to-market strategy is at the core of success. Tony Ulwick, in his job-to-be-done growth matrix, distinguishes the five most common growth strategies that will work for your SaaS business if you want to grow fast. I'll highlight here the three of them - the differentiated, disruptive, and dominant strategies - so you can think over what may be the best strategy for you.
Dominant, differentiated, or disruptive?
The dominant growth strategy works great if you perform better and charge less than the rest of your niche market players.
Uber, Netflix, Shopify - these companies employed dominant strategy and didn't mistake. This strategy can help you seize a big market share with one important condition - the market should be big. Jason Benkins, the SaaStr founder, claims that you need 50 million users to make the freemium pricing model work.
Well, maybe, not 50 million, but it wouldn't hurt to think whether your market is big enough, the product is significantly better, and the audience is price sensitive and needs a lower price.
If you have a narrow-niche product, the dominant strategy may not be the right choice.
The differentiated strategy works well with the underserved market segment in a particular niche. If there is no strong competition and you do a job much better than competitors, you can charge more. However, due to the specifics and small market size, the freemium most likely will not work in this environment.
And for the disruptive strategy, the freemium pricing may work.
Don't be confused, looking at the graph above, that disruptors really do their job bad so that they charge less. No, they just may create simpler and accessible by many people products on the overserved market.
For example, Canva is a simple custom graphic tool and can't compete with Photoshop by its functionality. But, due to the product's simplicity, Canva gained huge popularity with those who need to quickly create social media graphics.
With an understanding of whether your market is big and you have enough resources to support free product usage, you can go ahead making freemium work.
What else?
Work out your tactical plan
To make a long story short, just try answering the following questions before deciding to use the freemium pricing.
Why do I want to offer the product for free? If you have any doubts you'll get customers, then, is there really a market?
What benefits will you get by offering freemium? Are you going to improve your customer acquisition? Increase your market share? Any other reason?
Do you have a plan for how to shift customers from a free to a paid version? Unless the premium features have irresistible value, the customers may not have the right incentive to upgrade to a paid account.
How are you going to monetize the users if they do not convert? Placing the advertising inside of your free product? Selling customer's behavior insights to other industry players?
Before I leave you with these questions, let's see two different freemium pricing success stories. I promised to come back to Evernote's business model, so here we go.
Notable cases to learn from
Besides Evernote, the second hero we'll talk about is Mailchimp. I found the stories of these two skyrocketed companies in "The Freemium Manifesto" ProfitWell's e-book, so I will briefly cover the essence.
Evernote, the struggling giant
When Evernote was launched as the first cloud-based notes app in 2008, they didn’t raise much venture capital. In 2011, the CEO Phil Libin said, “The easiest way to get a million people to pay for non scarcity product may be to make 100 million people fall in love with it.” And this was done.
Having relied on word of mouth referrals, the App Store, and freemium pricing, Evernote rapidly grew to 75 million users and a $1 billion valuation by 2013. In 2014, they hit 100 million customers. However, the conversion rate was around 1% only - millions of people just didn't see any point in upgrading. Instead of improving its core note app, Evernote released a bunch of new products and focused on partnerships with Post-it Notes and Moleskine. The main product became secondary.
With 150 million users, Evernote laid off 18% of the workforce and closed ten offices to save costs. In fact, Evernote's strategy to upsell other products along with the core one was great. They just failed to do two things:
- Continue offering the app's high value to loyal users
- Understand their customers and what really makes them use Evernote
To give more value to the note app, they could use, for example, machine learning to predict what users might want to write. In a nutshell, Evernote might not have struggled with revenue, providing a more valuable product to the customers.
MailChimp, the product perfectionist
MailChimp's business model also used freemium pricing, but their approach differed from that of Evernote. MailChimp had been working for years with customer data to ensure they built the product everyone needed.
When they implemented freemium pricing in 2009, the core email product was affordable and profitable. They had saved server costs by switching to the cloud.
A year after launching their free plan "Forever Free", MailChimp grew from 85,000 users in 2009 to 450,000 users in 2010. The "Forever Free" still is a perfect match for startups, non-profit organizations, and small businesses if you’re not sending a large volume of emails.
During 2009-2010, MailChimp's profit grew by 650% (!), and CAC (customer acquisition cost) decreased by 8% (this was the main reason for the company's profit growth).
MailChimp not only created more value for more people but also increased their profit.
Closing thoughts
The freemium pricing is rather an effective marketing strategy aimed to boost growth through quick customer acquisition and user base growth than a revenue model. Before going freemium, it's crucial to work out the right go-to-market strategy and choose appropriate monetization options. However, you have all chances for success if you make sure your product has a huge market, delivers irresistible value, and can become an indispensable part of customers' lives. And to learn how to stop guessing and start growing, read SaaS pricing strategies article.
Well, we at Eleken can't decide instead of you what pricing strategy will be effective for your SaaS, but we can work with you on designing a great SaaS product that provides the value your customers are looking for.
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