5 Different PLG Pricing and Monetization Strategies
I had a recent exchange with a founder, which prompted this thread on pricing. The thread prompted a few more conversations on pricing and monetization, which prompted me to write this (long) post.
So, I thought I’d include part of the original conversation here with some commentary as context - but feel free to skip ahead to the juicy stuff below.
(FYI, the conversation is a good insight into the value of working with a Product Coach, like myself, for those wondering what that can look like.)
Founder: Hi Ant, Thank you very much for your reply. You have hit the nail on the head with these question.
My apologies for longer reply.
1. Is it vital to the buyer? -In this case the economical buyers are users are different. These apps are used mostly in larger process oriented companies but they are not recognized are key business critical apps. We are going product lead but so far we have not seen any active demand for enterprise buyers.
2. Is it valuable to the user? -Based on the traction on free version, these apps are valuable for users. We are noticing around 20 signups and around 100+ active logged in users everyday (plus hundreds of guest participants). This spark is making us keep going.
3. Is it viable for your business? - Not figured out yet. Free to pro upgrade is negligible. We are thinking of adding more valuable pro features and pro tools, to monetize the free audience.
[…]
ANT: Great breakdown there [founder], impressed by your realistic appreciation for the current state. The fact you have active users is interesting, shows there's something there but as we've already explored, can you montize it is an another question....
There are other alternatives for business models. Perhaps it's not trying to monetize the platform - perhaps it stays free and you monetize something else.... like creating content or a conference or selling coaching/training off the back of it. They're all options. As well as being not-for-profit and running off sponsorship and donations.
I'm now asking myself what would I do/what would I be thinking if I was in your situation?
1) Can I optimise for retention and grow my user base? Worry about monetisation later, focus on user acquisition and growth... (although that costs money to run things and I don't know if you have the capital to fund it for how long)
2) Discovery into the barriers for pro upgrade - perhaps even a JTBD analysis to see if there's things that would push people over to paid - need to consider competitive landscape into this as well.
3) Perhaps as part of that discovery, look into adjacent opportunities - are there ways to monetise outside of gating features on the platform. e.g. Could it be content, a community, training, etc.
Another option is to look at other pricing models. Could you give all features but cap the usage (like X number of uses per month) the goal being they can use the product enough that it becomes something they're reliant on but they eventually hit a cap which they will then need to pay for.
[...]
Founder: Hi Ant, Very valuable thoughts and ideas. Thank you for sharing your insights.
1. Currently we are exploring the competitive landscape to really figure out where we stand.
2. We are also exploring that what can we build next on the platform which will purely in the paid category.
3. As we are on the product led growth, hence we are not capping on the usage limit of the product. Instead we have selected following pricing levers- - Core features vs. Add-on features - Publicly accessible URLs vs. Restricted access to users and teams - Single user account vs. Company account
4. We should be really selling this platform to corporate, as expecting individual users to pay for company work is not going to work.
5. May be we need to focus on growing the user base. As we are freemium modal, we need a very large free user base so even 2% conversion would be good enough.
[…]
Right here was where it got interesting.
The founder mentioned they’re not capping usage because they’re ‘product-led growth’.
This is a misconception about product-led growth pricing that I debunk.
As a coach, I’m always looking for statements like this. These are known as limiting beliefs.
The value of coaching often lies in our ability to identify and break through these limiting beliefs and create these ‘aha’ moments - which you’ll see in a second.
In this scenario, the founder believed they couldn’t price based on usage and that the ONLY way they could price was based on features - not true.
This limiting belief was holding them back from exploring alternatives.
Here’s the rest of the conversation before we get into those fun pricing strategies.
Ant: You can cap usage limit and still be PLG. Depending on your product, it can be the only viable strategy. Imagine if Miro let you create infinite boards for free, they would struggle with the cost of storage.
Everything you mentioned are viable pricing strategies. I would however consider the context of your product and the constraints it has. Immediately I think there's going to be a storage problem and there's a cost related to that - you might need to monetise/restrict that.
This doesn't mean you can't still do the others but it's a consideration. Lots of products have a limit and increasing that limit is something people want (more boards, more storage, etc) so why not price like that rather than on features. But pricing on features still works too - just need to work out which is best for you.
I agree with 4) it's a B2B play not B2C however, leveraging PLG usually means you target B2C in order to get them to use it first and then they convince the company to register and they move from their personal account to a paid account. It's how most PLG B2B products work.
[…]
Founder: Hi Ant, Your comments are eye openers and your understanding of this space is incredible.
I am now forming my opinion that we are giving away most of the must have core functionality for free for unlimited usage and that may be primary reason for low conversion.
We may be doing that because to match with other free competitors in this space, but even our free version is much better than most of the other free apps.
I think it is time to do detailed analysis and rethink the strategy of what goes into free vs. pro. including the usage limit. Ant, thank you very much for sharing your thoughts and providing the direction.
Please feel free to let me know if I can be useful to you in some or other way. Once again, thanks a lot.
Boom! Limiting belief shattered.
This is why I love my job! I love working with people like this founder and helping to put them on a better path.
FYI If you’re interested in working with me, feel free to get in touch here.
This got me thinking about pricing strategies, and since this founder had a limiting belief on what pricing strategies were available to them, I wondered if others did too.
And just like that, a conversation turns into a newsletter post (or Youtube video).
Let’s get into it!
Product-led Growth Pricing Strategies
The idea behind product-led growth is to leverage your product in a way that it becomes the primary vehicle for growth.
This often means allowing your users to self-serve and ‘try before they buy’.
There are several common constructs for product-led growth products. The most common are free trials and the freemium model, but you also have reverse trials, sandboxes, and proxies (like how ConvertKit allows you to create a free landing page for your business).
Freemium
Freemium is all the rage these days, and most people incorrectly assume that freemium = Product-led growth.
That’s not true.
Product-led growth is where the product itself drives growth as opposed to other channels like sales and marketing.
All that needs to be true for a product to leverage product-led growth is that the product is the primary tool for user acquisition.
This could be through free versions of your product or trials.
In both scenarios, the product is the primary tool for growth.
So what is freemium then?
Freemium is where you have free and paid users of your product.
Freemium products restrict the free offering in some way and allow users to unlock it by becoming paid users.
As we’ll explore in the next chapter, you can do this by limiting usage (i.e. number of messages, storage, etc) or through features (paid vs free features).
The freemium model works well for products where you want users to try for an extended period of time, either to fully experience the product or to allow using your product to become ‘sticky’ and a habit.
Freemium relies on there being enough utility in the free version for it to stand alone.
There also then needs to be an inflection point where your free users eventually require one or more of the restricted benefits. This inflection point is where free users convert into paid ones.
We’ll explore the differences between restricting usage vs features and how to determine what makes sense for you in the later chapters.
Free Trials
Free Trials are probably the OG or product-led growth. Trials have been around for millennia.
As you probably already know or can guess, a free trial allows users (restricted or unrestricted) access to your product for a limited period. Typically done as either 7, 14 or 30 day trials.
But free trials are more complex than just a timebox.
For example, you can have a trial based on time or usage - e.g. 14 days vs free until you reach x number of emails.
There are also opt-in vs opt-out trials.
An opt-in trial is where users must opt-in to a paid account at the end of the trial period.
Whereas users in an opt-out trial will be automatically rolled onto a paid account at the end of the trial.
Opt-in trials often make for quicker and easier onboarding as users don’t need to provide any payment details, but typically result in a lower conversion at the end of the trial period.
Opt-out of course have a higher conversion rate but lower initial aquisition.
A word of caution.
Opt-out trials can be a dark-ux pattern when misused.
Don’t try to make a quick buck by taking advantage of users who forget to opt-out before the end of the trial period.
However, there are times when taking a payment method upfront makes sense.
For example, if your product is critical to your users, like Stripe can be for small businesses.
Then, you might want to secure that payment method upfront so there’s no disruption to their service. You’d hate for a user to forget to put their payment method in and lose a day of business because they couldn’t accept payments.
Reverse Trials
Free Trials can be used with freemium. It’s not an either-or.
If you do decide to combine them, you have two options:
Freemium -> Free Trial -> Paid
Free Trial -> (Freemium) -> Paid
The latter is known as a reverse trial.
I first heard this concept from Elena Verna. If you’re interested in learning more, she wrote a great post on Amplitude that explains it. It’s a worthy read, as I won’t do the topic justice here.
Trial vs Freemium vs Reverse Trial. Credit: Amplitude & Elena Verna.Sandbox
A sandbox is where you have a dummy version of your product for users to experience.
Sandboxes are common for enterprise-type products that require high levels of integration or costly set ups.
Due to their high costs and the time required, freemium and free trial models don’t work.
Sandboxes become the next best alternative. Often set up with dummy data, where users can register and experience the product themselves before making a buying decision.
When I co-founded the Association of Product Professionals, which has since closed, we used Chargify (now rebranded to Maxio). When we engaged them, they provided us with a sandbox.
This makes sense as they’re a billing product. The only way to use their product (outside of a sandbox) was to connect everything and start billing our customers - not something I’d advise doing!
Today, I’m sure they still use sandboxes, but in addition, on their website, they have an interactive walkthrough of the product (see below). This is a great way to experience the product without logging into a sandbox or signing up - a neat alternative!
Screen recording of Maxio interactive product walkthrough, from their website 2024Proxies
Last, we have proxies. Some would call these free products or free offerings.
The idea is to provide something other than the core product for free that provides value.
This value turns into goodwill, but it can also be a way to preview the core product - e.g., “This was so good, and it was free. I can imagine what that paid product must be like then!”
ConvertKit does this by allowing users to create unlimited landing pages for free.
This makes sense for ConvertKit as their target customers are content creators.
…and what do content creators need?
Landing pages!
I love thist strategy because when you think about the use cases for landing pages - e.g. to announce new products, waitlists or events - they typically include capturing leads through email addresses.
This is perfect for ConvertKit as an email marketing tool as they can then say, “Hey, we have all these tools to help you communicate and sell products to those emails that you just captured - want to try them?” and just like that, we’ve gone from a landing page to a paying ConvertKit customer.
You could also argue content businesses (media companies, training providers, etc) use content in this way. E.g. If I watch your videos and read your content, I get an insight into the quality of your products. I may then be more likely to convert in the future.
Monetization
Pricing Based on Features
The first and most common strategy is to price based on features.
For freemium products, pricing based on features only works if there is enough value in the base features to stand alone.
A common mistake is to cut users off too early. They’re unable to fully value the product even as a free user, let alone consider paying.
Canva is a good example of pricing based on features.
Canva allows you to create unlimited designs (within a storage limit) but gate features like custom sizes, premium fonts and templates, etc.
These limitations don’t stop you from experiencing the benefits of creating designs in Canva. In many cases, they’re just a slight inconvenience, and you may have to forgo that nice font and pick a free but slightly less appealing one.
Credit: Screenshot Feb 2024 of Canva’s Pricing PageBeing able to produce several different types of designs is critical to Canva’s success.
The longer someone uses Canva, the more likely their design needs become more complex.
For example, a cafe owner might only need an Instagram image to start. This turns into multiple Instagram images and then perhaps into a new menu, and before you know it, they’re trying to shoot video reels.
Eventually, they’ll hit a point where their needs extend beyond the free version. The more value they have gotten until that point, the more likely they will be to convert.
Canva, like many, leverages both a freemium and free trial model. They allow users to try their premium plans for 14 days (just enough time for you to do at least 1 or 2 of those more complex tasks) whilst still offering a free version.
Users can bounce between the two as and when their needs change.
Other examples of products that price based on features are Veed, Linkedin, and Convertkit.
ConvertKit allows users with less than 1,000 subscribers to create and schedule emails, but more advanced functionality like automation and sequences are restricted.
Credit: Screenshot Feb 2024 of ConvertKit’s Pricing PageThis is fine because, much like Canva, most users have a simple use case to start.
In this case, it’s creating and scheduling emails.
Over time, as their needs become more complex, they will likely need one of these more advanced features, creating that inflection point to convert into a paying customer.
What I really like about products like Canva and ConverKit are that their premium accounts are more palatable to their users.
Since they target content creators and small businesses there’s often a correlation between their user’s success and their product.
Consider someone who started using ConvertKit with 100 subscribers and no revenue and has since grown to thousands of subscribers and making enough revenue to cover the costs of a premium account becomes an easy sell.
Their success has been a direct result of your free offering.
It becomes a no-brainer to pay, say, $30 a month when you’re product has helped them make (or save) thousands!
Pricing Based on Usage
Your second option is to price based on usage.
In fact, depending on your product, it can be the ONLY viable strategy.
Imagine if Miro let you create infinite boards for free or if Dropbox gave you infinite storage?
If they did, both products would struggle with the costs of hosting all that data.
Going back to Canva, while their main monetization strategy is to price based on features, Canva still needs to limit usage to some degree to not end up with a huge storage bill!
Therefore, pricing based on usage is necessary for products with usage-based costs.
Box limits storage
Buffer limits posts/connected accounts
Slack limits your history and storage
Linear limits # of issues and file size
I’m going to zoom into Linear’s pricing here because I think they’ve done a few clever things with how they’ve chosen the limit usage.
Credit: Screenshot, 2024 Feb of Linear’s Pricing Page.So Linear caps both file upload size and storage.
I’d assume it's primarily because of cost reasons (I don’t want all those free users to be uploading 1TB files!), but I’d bet their main lever is on limiting the number of issues to 250.
Now 250 is an interesting number.
You could say, well you only need to be able to create a handful, say 10, to try the product.
But… would that be enough to really get value from the product?
Sure, it’s enough to experience it, but it’s definitely not enough to allow teams to run a few sprints or experience the full end-to-end development lifecycle.
Now, 250 tickets, on the other hand, should be for most teams.
In fact, it’s probably enough for a team to use Linear for some time.
With 250 and unlimited archives, you should be able to run a single product team for months - perhaps indefinitely.
This does two things:
it allows teams to not only try the product but to use it for an extended period of time. This helps the team to fully experience Linear first before upgrading.
the longer a team uses Linear, the more sticky it becomes. This helps Linear become a critical tool in the team’s tech stack.
It can be tempting to force users to upgrade early, but sometimes all that does is lead to a low conversion rate.
Linear are playing the long game.
They’re happy for teams to use their product for some time because they know that the longer they use it the higher the probability they will convert to a paid version in the future.
This is why limiting tickets is so clever.
Imagine a startup. They would be able to survive with only 250 issues for a good amount of time, but as the product grows and the complexity increases (with bugs, support tickets, new feature development, etc.) 250 might start to become a limiting factor.
Now, add on the fact that the startup has grown.
They’ve gone from one team to multiple teams.
Now, the number of issues they have has naturally increased, too.
That 250 limit will be reached sooner or later, so long as the company is growing.
Which leverages a similar tactic to Canva and ConvertKit - the companies growth and success has in part come from using Linear. Upgrading now becomes a no-brainer.
Another scenario is a larger company looking to switch tools.
They’re likely to have a pilot team where 250 would be sufficient. But as soon as they want to scale Linear across multiple teams they will need to upgrade.
What a great way to price your product!
Bannerbear does a usage based trial by giving your 30 API Credits | Credit: Screenshot Feb 2024, Bannerbear pricing pageBannerbear does something different again. They have a usage-based free trial, which is based on credits.
Whilst introducing credits is technically more difficult than simply restricting the ‘number of uses’ or ‘time,’ it can give greater flexibility to you users, especially for a product where one thing could cost 1 credit and another action 5.
Again, this is where the context of your product comes into play.
As we’ll get into the next chapter you need to understand the user journeys, use cases, their needs, and if you can tie pricing to the success you bring then it will become an easier sell.
Using Both
Of course, there’s no reason why you can’t leverage both. Many products do.
As mentioned, Canva does this by limiting cloud storage and AI usage (assuming because AI calls are expensive, Chat GPT-4 charges per use, and the costs can add up fast!) and Miro limits a few features but mostly usage.
You need to work out what works for your product.
How do I choose which Pricing Strategy to use?
Having done this more than once now. There's no easy answer.
You have to test different pricing models, pay attention to usage, and do discovery.
But to make this more actionable, here’s the thought process that I go through.
Starting with my constraints.
Determining Your Constraints
Choosing a product-led growth approach means that you’re taking on a cost to serve free users (which will become part of your customer acquisition costs (CAC) for paid users)
This means breaking down the unit economics is important.
For example, a freemium product that costs $20 per 100 free users (per month) with a 1% conversion rate to a paid account means that it’s costing $20 a month to get one paid customer - and that’s just operating expenses, we haven’t even taking into account other factors like churn and additional acquisition costs.
So the first step is to look at how all your costs break down.
E.g. Does my product have a usage-based cost that I might want to restrict to make sure that the cost to serve doesn’t skyrocket and make this product unviable?
Other constraints might be the complexity of your product.
Wes Bush recently published a great example of this when he shared a story about when he worked at Vidyard.
You can read the full story here, but to give you the tldr version:
Vidyard originally had a 30-day free trial, but conversion at the end of the trial was poor.
As Wes shares;
“To experience the value of the product as a video hosting analytics platform, users need to accomplish these major steps:
1. Sign up
2. Create & upload a video
3. Embed the video on your site
4. Send traffic to that page
5. Review analytics on the video
It doesn’t look like a ton of steps, but....
Did you already have a video ready to upload when you signed up?
Probably not.
Uploading a video is a big ask.
That one ask was our free trial killer.” - Where the Freemium Business Model Thrives and Dies, Wes Bush
And there laid the problem.
30 days wasn’t enough time to fully experience the product. Time to value (TTV) was too long and difficult. Most customers were giving up before the end of the trial.
Wes shares a further story where, at the end of the year, they launched a free Chrome extension instead.
The idea was to make creating and uploading videos as easy as possible.
In this case, the TTV was less than a minute, and the success speaks for itself; “Within the next year, this product acquired more than 100k users and has since been used by millions.”
The article is a worthy read, Wes goes into further detail on what I’m about to cover next too, which is understanding your users behavior.
Understanding User Behavior
As Wes shares, they learned the hard way the pitfalls of not fully appreciating their user journey.
This brings me to the second consideration when determining your product-led growth pricing approach = understanding your user journeys and use cases.
Your free offering needs to stand alone.
This isn’t hard when you have a free trial, but you still need to understand your user journey to determine an appropriate trial period/approach.
The key here is to a) find use cases that can standalone, and b) to ensure you’re not cutting your users off too soon.
For example, a free trial doesn’t make sense for Linear.
Once you consider how long it takes most development teams to go through the full development lifecycle, few teams will go from idea to production in less than a month.
And for the teams shipping every week, a 30-day trial means, best case, they get 4 releases done.
On the other hand, pricing based on 250 issues means that a team can get 20+ end-to-end uses out of Linear.
Give it enough time and Linear will soon become an integral part of the team’s day-to-day workflow.
Regardless of which pricing strategy you choose, understanding your user journeys is critical to ensure your users can reach a point of significant value and you’re not cutting them off too early.
Of course, this needs to work within your constraints, why I start there.
So some actions:
Define your user journeys (if you haven’t already).
Review them and assess what use cases might be independent and valuable enough to be free.
Overlay the time it takes users to complete the journey - does it allow for a reasonable trial period or not?
Assess your Features
Now that you understand your user journeys, the next consideration is to asses your features.
To achieve this, I’ve often run a Job-to-be-done (JTBD) survey or Kano Analysis.
Both are great tools for helping you determine what features are table stakes vs what might be something people are willing to pay for.
I won’t go into the details of how to conduct both (I think this post is already long enough), but I’ve added links above.
If you have an existing product, you can also look at your current usage data - what features are being used the most vs not and why?
However, be careful not to base your decisions on current usage alone.
There may be features that are seldom used but are still table-stacks. An obvious example of this would be something like changing your password. You may not do that very often, but imagine being asked to pay for that feature? I don’t think your users would appreciate that!
Just to give you an example of how you can use this as an input into deciding what to price on vs not.
Imagine you did a Kano Analysis. If you did you would have likely categorized your features into one of 4 categories:
Threshold features: features that are must-haves. These are core features and are expected to be there (e.g., forgot password).
Performance features: desired features that your users want to have. The more you give them/improve, the more satisfied they are (e.g. storage, the more storage the better)
Delighters: features that are not necessary but increase the experience when included (e.g., free merch when you sign up).
Indifferent features: features that your users consider to be unimportant (e.g. the font)
Reverse features: features that have the ability to give a negative experience (e.g., using the wrong colors and therefore making something impossible to read.)
The Kano Model. Credit Qualtrics for the pic. You can read their article on the Kano Model here.Typically, threshold features will need to be included in your free version.
Delighters are nice to have. You could decide to sprinkle a few of these into both the free and paid versions, but they’re not the thing that will cause your users to upgrade (nice but not essential).
Where you want to focus is typically on your performance features.
Since having some of the performance features work by increasing value the more you give, they are often ideal features to consider price on.
Combine this with your users journys and you want to look for features that can stand alone but will have a high probability for customers to eventually need more of.
For example, with Miro, a board can stand alone, but eventually users will need more boards.
Hope that makes this more actionable for you.
‘Test & Adjust’
Ok this ended up being a long post - but I felt like there was a lot of ground worth covering.
Of course, this is still scratching the surface of this topic. There are still ways to test your pricing model (yes, you should test this!).
There’s also assessing price.
Thankfully, on the latter, whilst doing my final edits, I saw that the amazing Kristen Berman did a guest post on Lenny’s Newsletter on this topic. It’s a worthy read: ‘The ultimate guide to willingness-to-pay’.
You’re also not going to get your pricing model ‘right’ straight away.
And it will need revisiting over time as things change.
Just to tell a quick story on this. Sten Pittet, co-founder of Tability, has openly talked about how Tability’s pricing model changed over the years.
In 2020, they changed from a per-user based pricing to fixed packages.
Why?
The problem they were facing was their chosen pricing mode was creating a barrier to adoption.
Since they charged per user, the more users a company added the more it cost them.
Now, for certain products, this sense, but for Tability, it didn’t at the time. They were an OKR tool, and visibility was core to their value.
“For companies to find value in Tability, for collaborative goals to work, for OKRs to work, the entire org (not just the leadership team or senior management) needs complete transparency.” - How Moving Away from Per-User Pricing Helped us 4X our Growth
Charging per user meant that customers were only giving limited people access rather than the whole team which was not good for their value prop.
“Our current pricing is user-based, and the more we think about it, the less it makes sense for us. Tability is built to promote visibility and transparency, but $7/user/month makes it hard for customers to put their whole team on it. As a result, it makes it difficult for people to keep track of the top priorities. They need to rely on others for that.
We believe that Tability works best when everyone can have access, and we will be changing our pricing model to reflect that.” - Announcing changes to our pricing, Sten Pittet 2020
And the results speak for themselves, this change helped them 4x their growth!
“It worked! Quadrupled our revenue growth rate in no time. As it removed the cost friction that forced companies to debate and question who should have access” - How Moving Away from Per-User Pricing Helped us 4X our Growth
But they’ve changed again, they’ve gone back - yes that’s right!
And this is the point.
Your pricing shouldn’t be static.
You need to experiment and test what works.
I find most people I work with are too afraid to touch pricing. Since it impacts their customer's wallets, they’re fearful of making any changes.
And whilst yes, at times, pricing changes might end up costing your customers more, there are also times when it might save them money, or provide added value that they’re happy to pay for.
If you are making a pricing change, as a general principle, be transparent and upfront about why.
You’ll be surprised how few customers will complain when you explain why, so long as it’s reasonable.
Like this notification, I got about a price increase from my son’s Occupational Therapist towards the end of last year.
It’s a decent email. They clearly breakdown:
Why: NDIS (government set pricing) hasn’t changed in 5 years and we’re finding it hard to give the value that you deserve within that price point.
Value: we can provide a higher level of service, including [list].
Give back: To counterbalance, we’re also only billing for 30 mins or more calls/meetings.
The giveback is a nice touch.
It shows compromise, that it’s not all take.
Anyway, I’m making this post longer at this point.
I could write a whole ebook on this, and perhaps I will someday.
I’ll hit the eject button now. I hope you get a lot from this post.
Happy pricing! 🙌
P.s. Writing this post has energised me to getting to the pricing course for Product Pathways - let’s see - I still need to put the finishing touches on the Product Strategy course and I was planning to do Product Discovery next, but maybe this is the one after? Let me know if you would be keen to see this course next!
Need help with growing your product or business? I can help in 4 ways:
Level up your craft with self-paced deep dive courses, FREE events and videos on YouTube, templates, and guides on Product Pathways.
1:1 Coaching/Mentoring: I help product people and founders overcome challenges through 1-hour virtual sessions.
Consulting and Advisory: I help companies drive better results by building effective product practices.
Private Workshops and Training: I run practical workshops and training courses for product teams globally. Get in touch to talk about your unique training needs.
