Our product is a B2B SaaS tool that has most of the users in the free plan. We do have a "Pro" plan, but not many people have converted to it yet and our marketing efforts till now have been to increase free signups.
Our plan is to offer more benefits for the "Pro" plan that would entice the freemium users to switch over as paid customers.
Should we wait until that stage is reached before trying to raise a seed round? What metrics would seed stage investors be most interested in? The
In theory, savvy investors are likely to question the freemium model, especially for a B2B business. Many case studies show that it's really hard (not impossible) to convert users on free plans to paid customers. Showing traction on a paid product will help your valuation and help you retain larger ownership share, compared to getting investment at an earlier stage. The main question for you is - do you really need the money now? Because if you don't, you are better off waiting. Also, consider the number of users you have on a free plan - with typical conversions around 1-5% you need a lot of users to end up with some meaningful sales numbers or more importantly learn enough for your next pivot.
Some positive signals from users on a free plan:
- Good activation and usage statistics (that show usage of the product, not just sign ups). This one is important because any prospective investors will ask you to clarify if the # of users you are referring to is actually # of ACTIVE users.
- You get a lot of feedback from your users that suggest and/or ask for features (shows they are invested in your product and want more out of it).
Some tips for designing the paid plan:
- Don't speculate what features your customers want - ask your customers about what they want and not in a true/false way. Send a survey asking what features they would most likely to use if you added them (list 4-5) and ask them if they would be willing to pay for the features they are interested in and how much. Make sure to have an open-ended field in the survey for freeform feedback - your best insights might come from that.
- Pricing. Start with a lower number and raise it after a few month (for new users). If your conversion rate doesn't drop, raise the prices again. Or, you can split your free users into groups (random split) and send them different emails or send them to different versions of landing pages with different prices and/or bundles and see what the conversion rates will be to decide which path is best for your bottom line. You don't have to have support for all the prices, you can just bill them the lowest price and leverage your findings for future decisions. You need sufficient # of users to split test on so your results are statistically significant.