Blog Post

To Pay Or Not to Pay: When to Move Beyond Free

walletThe other day I noticed that someone had posted a quick poll on LinkedIn. I thought a poll like that might be a good tool to use for informal market research, so I clicked on the link to create my own. However, I was met with a message saying that I needed to upgrade my account to access the polling feature. I perused the prices, then quickly determined I wasn’t going to upgrade.

This isn’t the first time I’ve considered upgrading my LinkedIn account and decided against it, which led me to start thinking about all of the “freemium” apps — basically free apps with premium upgrades — I’ve been using. I started feeling guilty about taking advantage of the “free” in freemium services, especially because I’ve had the opportunity to interview founders of these companies, many of whom confess to struggling over pricing.  So what makes us decide to pay for an app?

My decision process works something like this:

1. Is it mission critical? Not every app or tool I use is critical to the well-being of my company, but some are. Our project management system? Critical. Our internal social networking system? Not so critical, because we’ve not all adopted it yet, but this could change.

2. How useful is the free version? In my WWD review, I was impressed that Deskaway‘s free version had more features than Basecamp‘s. That could have won me over, but its interface just didn’t work for me.

3. Can I live without more functionality? I used Basecamp for quite a while without ever thinking about the reporting available with a paid plan. I was getting my reports from Freshbooks, and Basecamp was just a way for me to manage client information when I was working solo. I only upgraded to the $24 per month plan when I needed to manage more projects. Payment made sense because I had so much more new work to cover the expense.

4. Should I upgrade and pay or seek out a different app? Once I began adding more team members to my company, Basecamp’s inadequacies for deeper project management became obvious. So instead of upgrading a notch or two further — and still not having the functionality we needed — we moved over to 5pm at $4/month more. Again, the cost was palatable because more team members meant greater productivity and more moving parts to manage, so it made good business sense.

5. Do the fee levels hit my sweet spot? I realize I have two tiers of apps that I am willing to pay for, each with its own sweet spot in terms of pricing. For apps that benefit the overall smooth functioning of my business and provide real value that I can quantify, I’ll pay around $25 per month. I feel comfortable having four of these. The second tier contains apps that are useful in some aspect of my work, and I’ll subscribe to up to five of these at $10 per month. That’s about my limit. Right now, I don’t have a real method for deciding how much I will pay — it’s all from the gut. But we’re working to measure the costs of doing business and the impact our apps have on our bottom line, so eventually I should have some real numbers to work with.

6. How entrenched am I? In some cases, I begin to feel “trapped” by the choice I made initially when I started with an app. If I need to upgrade and the next level is out of my price range, what then? When I left Basecamp, I couldn’t easily figure out how to migrate information over to 5pm, so I just downgraded my membership to a free plan, and now cannot figure out how to access my data so it just sits there. Over time, those assets will be outdated and no longer as valuable as they were the first months of the migration, but I still feel a sense of my data being trapped. Avoiding this trapped feeling — as well as avoiding a huge learning curve of a new app — are two big factors when deciding whether to move to another service.

7. Can I afford not to pay? If an app I’m using has a positive effect on my business’ bottom line–or moving away from it has a significant negative impact–then I’m much more likely to dish out the cash.

Back to the case of LinkedIn. The lowest monthly upgrade is $24.95. Per month. For me, that hits a sour note. I get so much benefit out of LinkedIn at the free level and have for years that there is no incentive for me to pay. Just missing out on that Quick Poll feature isn’t enough to entice me over to a paid plan.

All LinkedIn could do right now to win my paying business — possibly — is to remove the free level altogether. But by doing that, their entire business foundation would crumble as many people migrate quickly away.

How do you decide whether an app is worth paying for? Which services do you consider well worth paying for?

Image by stock.xchng user jana_koll

7 Responses to “To Pay Or Not to Pay: When to Move Beyond Free”

  1. I agree. I found this looking to see if there was enough value to justify cost. # inmails for $24.95 /mth. If I used them and I converted at least 1 in 3, it would be worth it. On the other hand, there is usually enough info to just find the person offline after search linkedin.

    Regarding basecamp, just like anything else, someone will have a bad experience at some time. The web tends to sky those because more people write about bad moments than good ones. I used free basecamp until I saw the need for more features. I’ve used others. Basecamp is a reliable solution that works and can provide good value, and is far cheaper than others on the market. I recommend it; never had a problem.

    Both come down to time/vale. How much is your time worth and what do you gain by using the solution?

  2. Roger B.

    This is a tricky subject since the service providers basically want you to upgrade to a paid plan and you, as a user, prefer not to pay. It means they need to offer just enough to hook you up, but still feel the need to upgrade.

    Though I would separate social networks and business software, since the first category increases its value with numbers – free users generate the content and buzz.

    I did pay for LinkedIn for about 6 months but downgraded back – it doesn’t offer enough to pay for (direct emails are not worth it – people treat them as spam).

    Now with business software it’s a tricky situation. The percentage of paying users to the free one is usually 2% and below. It means for every 100 free users, just about 2 pay anything. Besides the infrastructure costs, there is also support (they can’t be ignored, since they may upgrade).

    May be that’s why Basecamp lately did make the free account link so small that many think they don’t have a free plan anymore. And may be that’s why the service is having constant problems – just make a search on Twitter on "basecamp, slow" – you will see the picture in real time.

    Now, 5pm has no free plan (I wish they would). Just a free trial. It means that if you are paying customer, there is much less emails for their support to read to get to yours. May be that’s why their email responses are so fast. But I like good support and would rather pay for it.

    Now, as a user I would prefer it all for free. But in a real world, outside Google (that just uses money made on advertising to pay for everything), businesses stay in business if they make money. And they make money by providing a service for which we are willing to pay. If the value is right – makes sense to pay.

  3. jonpeltier

    The only service I pay for is GoToMeeting. It’s around $50/month, but it includes video desktop sharing (including sharing control over a desktop) as well as voip. The quality is great, it’s very easy to use, and several of my clients, whose companies have invested in bigger name conferencing services prefer me to set up our meetings in GoToMeeting.

  4. To turn this question upside-down… How do you set prices for freeium services? And how do you choose which ones to just give away?

    We make an App called MailCloak– it does email encryption for Gmail and google apps and several other services. Pricing is one of the hardest things we face right now (we’ve just released) because there are free alternatives (that are inferior) and SUPER expensive ($200-$20,000) alternatives, that have “enterprise class” features but don’t really do the same thing we do.

    We chose to give away our “MailCloak for Mail Clients” and “MailCloak for Firefox” products so we could undercut the competition and build a strong userbase. But we also need to have a pay app, so we chose to make our pay app build on google and microsoft’s pay apps: If you are using gmail, its free. If you are using firefox its free. If you are using Google Apps (gmail + your own domain name), or Internet Explorer, then it costs money – $3.99 a month/user.

    Like I said, we’ve just released, so we don’t have enough feedback on pricing, but that’s how we decided what to give away, and what to charge for.