99% OFF for the first month, any downsides?


1

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:

  1. devaluing my product (explainable because it's only a coupon and the long-term pricing stays the same)
  2. customer dissatisfaction if they realized it's only $0.08 for the first month (Although my pricing page is pretty clear about my monthly pricing).

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asked Aug 7 '11 at 00:45
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Nick
173 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • make it free for a month – Cem 9 years ago
  • I think he's actually *trying* to avoid doing it free. Or at least exploring that possibility. He said his intention is to get users into the mindset of handing over cash without having to sacrifice anything significant for the first month. – rbwhitaker 7 years ago

7 Answers


3

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.

answered Aug 7 '11 at 03:58
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Zuly Gonzalez
9,194 points
  • Thanks Zuly. I'm treating the coupon as my marketing expense. What is your thought on Paypal recurring payment vs. Credit card recurring? I'm using Paypal recurring now but I'm concerned because it's incredibly easy for customer to cancel. I'm thinking about adding credit card subscription as a way to increase the barrier of exit. I understand unhappy customers will quit even if you point the gun at their head but for those who are not 100% sure, making it harder to exit might retain them. My product is less than $5/month. – Nick 9 years ago
  • @Nick: I'd say "make it too hard to get out and it will be too hard to get it". read: http://www.joelonsoftware.com/articles/fog0000000052.htmlYas4891 9 years ago

2

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

answered Aug 7 '11 at 03:13
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Jordi Cabot
243 points
  • Good point. I'm starting to believe some people will never pay no matter how cheap and some people will pay even without discount. – Nick 9 years ago

1

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.

answered Aug 7 '11 at 10:00
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Mike Cellini
121 points

0

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.

Good luck.

answered Aug 7 '11 at 09:51
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Mike
310 points

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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.

answered Aug 9 '11 at 14:36
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Justin Hammack
151 points

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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.

answered Sep 9 '11 at 05:50
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Sold Out Activist
414 points

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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.

answered Sep 9 '11 at 18:09
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Steve Jones
3,239 points

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