Monetizing Bottoms Up SaaS: Pricing Plans
Learnings and best practices on what features to offer in your pricing plans from some of the fastest growing software startups.
At first glance, monetization for bottoms up SaaS products seems pretty straightforward. Offer some version of your product for free, users will love it and end up paying for it on their own credit card. They use and share it so much that their whole team gets on board. Before you know it, you’ve signed a six figure deal and onboarded the entire organization.
Dive a layer deeper though, and things start to get murky. What features do you give away for free, and what do you put behind a paywall? Give away too little, and your users don’t experience enough to keep using it. Give away too much, and you never make money. Plus, when do you even need to start thinking about monetization? And how do you prioritize what features to build when?
When you get that first itch to add a paid plan, it can be tempting to just slap a couple limits on your free plan haphazardly and tell yourself you’ll optimize later as you get back to building new features. But gating the wrong features while trying to grow the company is like putting the parking brake on and asking your team to drive up a hill. Sure, they’ll make it up eventually, but it’s a lot slower and painful than if you just released the brake.
I talked with some amazing product managers, marketers and investors from successful bottoms up companies to see how they approached and innovated around their freemium offerings. From this, I’ve created a process based on pattern recognition and best practices to help you think through monetization from your startup.
💡 Your Free Plan
Most successful bottoms up companies started by thinking about their product without a paywall. As you build up your free user base, really try to distill what the “magic moment” is of your product.
For example, for Zoom, the magic of the product is that it’s easy to use and that the video streaming works, every time. For Webflow, it’s that someone who’s never learned design tools like photoshop can create a beautiful website in minutes. For Asana, they’ve discovered that once one person creates a task, assigns a task to another person, and then resolves a task, a lightbulb goes off.
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All three of these companies share the fact that they allow for users to experience this magic as a free user. Whatever the hook is for your product, you want to ensure you allow the user to experience enough of it in your free offering to get them hooked. Some ways to distill what this is for your product:
- Ask your users: You can do this in product and user feedback calls. Superhuman’s PMF survey can be a useful tool to discover what features your users would be very disappointed to lose.
- Look at the data: For users that keep using the product, what actions are they taking the most? Does doing something individually in the first few days correlate to increased engagement, or does getting a certain number of shares & collaboration features drive things home? Are there actions that don’t matter at all to whether or not they keep using it?
💳 Your Premium Plan (Single Player)
The typical first step for monetizing bottoms up SaaS is getting an individual on a free plan to pull out their credit card and subscribe for a small monthly subscription fee. Most individuals upgrade from free to paid accounts for two reasons:
- They want unlimited access to your core features
- They want access to more advanced features that improve their workflow
Once people have experienced the product’s magic in their free offering, you can get them to upgrade to a paid plan by:
- Adding a usage limit: For example, Figma’s key value proposition are real-time collaboration and robust design tools. Their free offering gives users the opportunity to have 2 editors (enough to experience collaboration) and 3 projects (enough to test out all of the fantastic design tools). It just takes one or two projects for a new Figma user to realize there’s no going back to old tools.
- Removing additional friction in the product: A slight twist on above. While you might provide unlimited usage of your key product, maybe you include some friction users will want to pay to get rid of. Zoom realized that most business meetings are 45 minutes. So while their free plan allows you to have unlimited meetings, they cut you off at 40 minutes. And as many of us learned in 2020, it only takes that happening a couple times before you give in and grab your wallet.
- Add more advanced features that improve individual usage: It’s possible to give unlimited access to your core features and upsell individuals only on more advanced features. For example, maybe you only include a few integrations in your free plan but your paid plan unlocks access to a longer tail of integrations. But be careful: if these features increase usage and stickiness, it might be more powerful to offer them for free.
Operationally, figuring out what features to pull out of free into paid should be a process of trial, error, data analysis and conversations with your current users. This is not something you will figure out in one go and never change. You’ll revisit on a regular cadence… forever. Some guiding principles as you take your first stab:
- Sharing should always be free: One of the core ways your user base should growing is through collaboration— limiting how many people someone can share your tool with especially in the early days will cripple one of your main growth channels. Even Figma, where they only allow for 2 editors in the free plan includes unlimited free viewers. If you have any other “growth hacks” to your product, also be sure to make those as available as possible — for example, Airtable allows free users to embed tables in other sites, quickly allowing them to get in front of a lot more users.
- Once you are paying, individual usage should be unlimited: By letting your individual users have at all single player features, they’ll use it more, share it with their teams more and eventually might become champions in an enterprise sales cycle.
- Usage > money: As you figure out what to pull out of your free plan, this isn’t the time to worry about leaving money on the table. As an early stage startup, the goal is to prove someone will pay for your product, not to optimize dollars. If that means setting a lower price point or giving away a lot more for free than you think you’ll eventually need to, do it. As you test and learn, you can always raise prices or add additional limits.
👫Your Team Plan (Multi Player)
Teams plans are about getting the features that improve usage and allow you to work better as a team. Most bottoms up team plans allow for unlimited number of users at a certain price. In freemium models, people tend to upgrade to a team plan for the following reasons:
- Get their whole team all the individual features of a paid plan (unlimited usage)
- Get access to features that make it easier to manage a team (reporting & analytics, permissioning, shared spaces)
- Get access to “business-grade” features (version history, unlimited storage)
Some more best practices for team plans:
- Unlimited Usage Features: Your team plan should offer unlimited usage of both individual and team features that you have. Companies do not upgrade to enterprise contracts for additional product features, so don’t hold out. Notion’s pricing page below is a great example — their team plan simply says “everything in Pro, plus”.
- Reduce account creation friction with multiple workspaces: General best practice is to allow for multiple team accounts to pop up in the same organization. Not all teams who want access to a tool need to work together in the same account, and allowing for multiple workspaces reduces the friction to getting more users within the same organization engaging with your product.
- Unlimited users: Another way to reduce friction is to not set a seat limit to your team account, especially if you are selling into larger organizations Because sharing is so integral, you don’t want to set up an artificial barrier to another person using your product.
- Team plan free trials: A lot of companies offer a free trial of their team plan, to get teammates who aren’t already on the software engaged. This can also be a useful way to reduce friction.
While in theory you’d first build out your free user base, then convert some into paying individuals, and then convert some of those into paying teams, in reality it’s a lot messier than that. Should you really try and get individuals to pay now, or should you give away more as a means to increase usage on the ground and convert a larger team deal down the line?
In cases where you are building for the following, it’s especially important to focus on individual free to paid conversions:
- Function specific tools, like design or dev tools
- Tools with a non-business use case
- Tools targeted towards SMBs
Why? In the full lifecycle of a typical bottoms up tool, you have generally three different points you can monetize: the individual, the team, and the enterprise. But if your customer base ends with an individual or small team, there’s no future upsell to trade off against. On the flip side, if your product derives all of its value from its “multi player” functionality (take Slack for example, you can’t message yourself!)— you’ll need to focus more on optimizing for team upgrades rather than individual ones.
💰Your Enterprise Plan
Teams upgrade to enterprise deals for two main reasons:
- Better pricing
- Security
If there’s a feature that improves functionality and engagement with the tool, it generally should be included in a plan that can be purchased self service. The features that are unlocked with an enterprise deals shouldn’t be about the end user, but rather things that procurement teams care about (SLAs, SSO, etc).
In a perfect world, you’d have users across an enterprise using difference instances of free, paid and team plans before a procurement team came to you worried about security, and you’d roll the entire organization onto a single contract. But that would be too easy, wouldn’t it?
Even at your early stages, you might have demands for SSO or other enterprise grade features from tiny teams, or demands for bulk pricing on contracts before you’ve really seen bottoms up groundswell. While you might decide to prioritize building one or two of these features or make exceptions on who you give custom pricing to earlier in your roadmap, enterprise should be the last tier you layer on. It can be hard to say no to building these features when big companies are knocking at your door, but f you stay focused on nailing the functional plans to build groundswell in the organization, the enterprise deals will follow.
It takes constant iteration, analysis and trial and error, and there’s certainly no one size fits all, but I hope some of these learnings from the most successful startups in the space can help new bottoms up companies as they start to think about monetization. If you have any questions as you think about building out your product offering, I’d love to chat. I’ve also included links to some of my favorite resources around bottoms up growth below.
email: nicky@streamlined.vc / twitter: @nickykamra
About Us: Streamlined Ventures is a seed stage fund focused on AI and application software. Based in San Francisco, we’ve invested in over 150 companies including DoorDash, TubiTV, AppLovin, EasyPost, Bolt Checkout, Forge Global and more.
