The gist: a simple way to boost conversion
Add a usage paywall to your free and paid plans
👋 Hi, I’m Kyle from OpenView and welcome to my newsletter, Growth Unhinged. Every week I explore the playbooks behind the fastest growing startups. Join 15,000+ founders, investors and practitioners for an unorthodox take on how to scale faster.
Welcome back to the second edition of The Gist by Growth Unhinged, real-world growth tactics you can actually use. (You can catch up on the first edition here.)
The Gist is my attempt to get to the point — highlighting concrete ways to grow faster 🚀 and do more with less 🤑. It’s a break from my regular long-form newsletter, delivered during Growth Unhinged off-weeks.
Today I’ll cover a simple experiment that could help you make more money from both your free and paid plans. Let’s dive in.
The gist
Add a usage paywall to your free and/or entry-level paid plans
Why you should care
Usage paywalls create a compelling event for users to graduate to the next tier after they’ve experienced value from your product. Users get to experience a taste of your premium features – which drives engagement, stickiness, and habit formation – yet still have a clear reason to pay more over time.
Usage paywalls drive notoriously high conversion rates among folks who encounter them. Why? Users already know the value of your product, they have an incredibly clear reason for paying, and this added friction creates urgency to finally pull out the credit card.
Tell me more
When you hear the word paywall, you might immediately jump to media examples like the New York Times’ infamous 20 article per month limit, introduced back in March 2011. Fascinatingly, they’ve since switched to a more dynamic paywall approach that leverages machine learning, which they detailed in this piece.
But usage-based paywalls aren’t only for media companies.
In fact, they’re becoming increasingly commonplace – and effective – for PLG companies. Some examples include:
Zoom’s 40-minute meeting duration limit for free users
Miro’s limit of 3 editable boards in its free plan
Slack’s 90-day limit of searchable messages in its free plan
These usage-based paywalls don’t need to stop with your free plans. They can be a fantastic way to accelerate expansion among your heavy user customers. For inspiration, look at SurveyMonkey (now Momentive), which added response limits to its survey software platform.
Each self-serve plan now has a cap on the number of survey responses. For monthly plans, that's a monthly cap. For annual plans, it's an annual cap giving folks more flexibility in their consumption.
Every additional response will cost $0.80, BUT users are only charged if they want to view these responses; otherwise they'll be deleted after 60 days.
Even though this decision may cost me personally, I'm still a fan. Here's why:
🤼♂️ Competitive positioning: Other survey companies like Qualtrics and Typeform already have response limits and have trained the market to expect them. SurveyMonkey (Momentive) was leaving $$ on the table without them.
🤑 Willingness-to-pay: When someone is getting 10,000+ responses, they're usually a pro market researcher and may be paying >>> $0.80 per response through panels or respondent incentives. Charging per-response allows SurveyMonkey to capture a portion of this research budget.
👩💻 Price after value: Other ways of charging for SurveyMonkey - like # of users or # of surveys - get in the way of customers adopting the product and making it sticky within their orgs. By charging per-response viewed, SurveyMonkey waits to monetize until after the customer is seeing value (i.e. they've successfully deployed surveys and are ready to analyze them).
📈 Land-and-expand: Introducing usage limits allows SurveyMonkey to stay affordable for new customers while still expanding existing customers with high switching costs. In its earnings call before the announcement, SurveyMonkey claimed "100%+ organizational domain net revenue retention." It's always good to be 100%+, but top-tier public SaaS companies are now seeing 120%+ (Qualtrics is 120%).
There are two main strategic considerations when picking your usage paywall:
What’s the right usage metric? (Keep in mind that there can be more than one.)
Where should I draw the line?
Lauryn Isford, Head of Growth at Airtable, recommends starting with the 80:20 rule when designing your usage-based paywall (she elaborated on this rule in our interview last June). The paywall should impact 20% of engaged users while 80% should be fine with the plan they have.
“If you are trying to figure out ‘how much value’ to give away for free, draw a line on feature usage where roughly 80% of users will stick to the plan they have and 20% will want to upgrade. You can first look at the adoption of your core features today, see which ones are broadly used, and start to draw lines from there.” - Lauryn Isford, Airtable
Some other quick tips from my perspective:
Design the paywall to create some friction, but still give the customer a workaround. You need to create enough friction so that the customer actually follows through with an upgrade. But you don’t want to create so much friction that they become a detractor or stop using the product entirely. That’s where Zoom’s 40 minute limit is so brilliant. Sure, you could easily spin up a new Zoom link when you hit the paywall. But you’d hate to be in that position during an important customer or prospect meeting (#awkward).
Look for a metric that grows over time. You don’t want the customer to hit their paywall on day one. It should happen after someone has had enough time to see value in the product. That’s why many of these paywalls are tied to a total quantity of activity during a month or a total volume of storage.
Your costs can be a factor, but they shouldn’t be the main factor. Instead, focus on customers’ perceived value and the context of your customers’ use cases.
What else you should know
Head over to the Substack Chat for a lively discussion about the top PLG-oriented KPIs you should be tracking.
Cloudflare announced a 25% price increase, its first one in twelve years (🤯). The rationale: increasing their pace of innovation and accelerating network expansion. To soften the blow, they’re adding an annual plan and giving existing customers until May 14th to stay at the current price. Read their full announcement.
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I recently started subscribing to Business Brainstorms by Jakob Greenfeld. Over 10,000 readers love this free weekly 3-minute report that’s packed with under-the-radar trends, business ideas, and actionable frameworks. Subscribe for free.
Who else is a tad skeptical about ChatGPT being the future of writing? I’ve been somewhat… underwhelmed. Sure, it can generate SEO-oriented content quickly and cheaply — and more PLG companies should absolutely leverage that — but it’s not (yet) a substitute for original ideas and quality writing.
I’ll say it: Product Qualified Accounts (PQAs) are >>> Product Qualified Leads (PQLs). Spoiler: not everyone agrees with me. Jump into the debate.
Super stuff as always Kyle. (This was in my inbox).