I sell monthly subscription of a SAAS service. Currently, I'm handing out 99%-off coupon for the first month to new customers as a way to get them to get into the mindset of forking out cash. The first month revenue is only 8 pennies but I'm betting that they will stay.
Is there any downsides to this strategy? The obvious ones I can think of are the following:
I don't think your second point is anything to be concerned about. The way you'll end up with unhappy customers is if the increase in monthly price comes as a surprise to them. You say that your pricing information is clearly stated on your site, so I don't think this will be an issue to worry about.
One thing you do need to consider are your monthly costs associated with the subscription model. I don't know what your monthly expenses are, but they are likely more than $0.08/month. With SaaS, you are likely using something like a combination of PayPal and a service like Spreedly or Chargify. These services usually have a minimum monthly cost, regardless of how much you make in revenue. So, in the beginning you'll be losing money. This technique can be successful if it attracts new customers that wouldn't normally have bought your service, but to be successful in the long run, you need to retain these customers at the regular monthly price.
Watch your numbers carefully. If a majority of your $0.08/month customers convert to the regular monthly price, you are on the right track. However, if a majority of your users don't renew at the regular monthly price, then you have a problem, and you'll be hemorrhaging money. Note that if this is happening it may not be a cost issue, but an issue with your service.
Offering a discount for the first month/s is a good strategy but IMHO 99% off is far too much. I bet you'll get the same effect offering a much lower discount.
I think it's too much work for you but also for them to ask them to register and pay for only 8 cents. Not sure but maybe companies will even find difficult to justify a 8 cents expense on software
Discounting a service to 8 cents a month is, in my opinion pointless. Do the math, let's say you are able to drive a 1000 non-subscribing unique visitors to your site in one month. Let's say you get a good conversion rate of 50% because of the low cost, congratulations you've made 40 dollars. Now how many do you think will stick? By the way, that conversion rate is really high, you'd be lucky to get that even at 8 cents.
If I did my math right your, site costs 8 dollars a month. Say you do a 50% discount. Let's say you get a much lower conversion rate of 5% on those same 1000 visitors. Now you've made 200 dollars of those users, better covering the cost of supporting them, in addition these customers are much more likely to convert to long term users as they already have enough interest to fork out 4 dollars a month. Now they just have decide if the service is worth another four dollars rather than another 8.
My opinion, either go free or offer a more moderate 25-50% discount. I would experiment with it though. Maybe try a moderate discount to start then try a steeper discount. See if you're getting better results with the steeper, if not the steeper discount is likely not worth the effort.
It depends on what your SAAS is and who your target market is. 99% off coupons would work well for the general public but for companies or businesses $5 isn't a lot of money... In fact it isn't a lot of money for the general public either.
Without knowing what your product is it would really be hard to hazard a guess to the best way to market your product or whether subscription is really your best revenue model.
There is merit for you to give them a 99% discount. With virtually every product I've seen offered they have a lot barrier to exit... in fact, they all advertise that its hassle free to exit. The whole point of offering a really low initial price up front is to decrease the barrier to entry, but if you have a higher barrier to exit (or fail to promote an easy to exit method) your acceptance rate could be rather low compared to what it could be.
I've seen this work best on products that have a higher recurring fee.
Even with 99% off, you'll still need a really strong pitch to sell it... Yes, it's painful but still necessary in having to do the hard sell for 8 cents.
With your product having a pricing point of $5 or less, I suspect the "Try before you buy" model might suit you better. It'll end up costing you less as you won't have the merchant fees and you'll (fingers crossed) get more people to try with a lower barrier to entry. This also assumes your product is worth way more to the customer than the monthly asking price.
Free is infinitely a better deal to a customer because they don't have to choose to open their wallet. (8 cents still requires a payment.)
Either offer the first month free or reduce the discount, because it won't convert as well as it sounds on paper.
A bunch of good answers here, but none of them mention the most important point: Transaction fees costs more than $0.08. Paypal, merchant accounts, and otherwise; every single one costs more than $0.08 per single transaction. You are losing more money than you would if you just offered a free month.
For me, I'd go with 50% discount for B2C and 30 day free trial for B2B.
99% off is just a gimmick, and I'd probably resent having to type in all my credit card details for and 8 cent payment, then remember to cancel it later if I didn't like the site.
On second thoughts, just offer 30 day free trial to everyone.