Why I Will Change My Pricing Model from A Lifetime-Plan to Freemium

In this article, I would like to share with you my thoughts and concerns regarding the decision to make Web Highlights a Freemium application.

In the past weeks, I have decided to change the pricing model of Web Highlights. In my previous posts, I described why I chose the current pay-once-use forever model in the first place. Everyone hates subscriptions, and the hurdle of paying $12.99 once is much lower than committing to a subscription model. Nevertheless, I decided to change the model.

In the future, all users should be able to create unlimited highlights. Every user starts with a 7-day trial to enjoy all features. After the trial, users can continue highlighting, but some features like creating tags, notes, and exports are limited. To enjoy all features, users should pay a yearly amount of $12.99.

Here are the reasons for my decision:

One thing beforehand: Of course, all users who are currently Premium users will continue to use Web Highlights without restrictions forever. If you are not yet a Premium user, do so quickly to secure the Life-Time Premium version before it is no longer available in the next few weeks.

Freemium model brings more users

Once I decided to offer a Freemium version of my product, I got scared. Currently, there are many users who will make a one-time payment to enjoy unlimited highlights. I was wondering:

Will users commit to paying a yearly amount to enjoy all features of the extension?

Honestly, I don’t know yet, and I will address pricing later in this article. But I know two things for certain — I know users will pay for my product, and I also know that some people are uninstalling the extension because they are not willing to pay for it.

Of 1738 users who uninstalled my extension and filled out the survey, 128 thought it was too expensive:

I also know that only around 30 % of users fill out the survey when uninstalling it. This means that from the 10,759 users who uninstalled my extension, I could have held at least 7.4 %. That might have led to 796 more active users.

But what do I gain from users who are not willing to pay for my product?

This is the question I asked myself. After all, each user also means costs for databases and servers. I reached out to a fellow writer on Medium — George Field. George is a Software Engineer and has a lot of experience in building SaaS and is especially specialized in SEO marketing.

George’s articles and e-books fill the gap that exists for many developers — the gap between building a product and marketing it. If you feel addressed, you should not miss his articles.

I shared my concerns to have increasing costs for more users who will eventually never pay a single cent for my extension. He shared two valuable thoughts, that opened my eyes:

1. Every free user might convert into a paying one

The probability is very high that the FREE version will satisfy most users. Nevertheless, every user can decide to buy a premium subscription at any time.

Another significant side effect is that it keeps me motivated to add valuable features. More premium features will make more users willing to pay for a great product.

2. Every user brings value to my product

Currently, I am not considering selling Web Highlights. The app is a matter of the heart for me. I never thought the app would ever have so many users when I started developing it as a student 3 years ago.

Still, I might consider selling it at some point in the future. And if you take this into account in your current marketing strategy, every active user is an added value. My application currently has more than 5,000 active users. I don’t know the current value of my application, but with 50,000 users it will definitely be worth a lot more.

Many users are happy to pay more

My product is great, and I know many users love it as much as I do. I always tried to follow one simple rule:

Build something 100 people love, not something 1 million people kind of like. — Paul Graham

I never focused on getting a million users, and I always try to respond to every user request as good and fast as I can.

And I’ll be honest, the best moments are when users tell me how much my application makes their lives easier. I can still remember clearly when I received this email on a Wednesday evening.

++++++++++ Accessible transcript of the email ++++++++++++

Hello Marius,
I could have said a lot about me but today it’s about you. Here are 5 great things about you :

1. The “Web Highlights” chrome extension is best to have if we consider productivity aspect.Thanks for that. Just thanks, No way !! Kudos to that. I am grateful for that.
2. You’re really into web development.I don’t know why you do it : out of passion / you’re crazy about it / that makes your living but your end-product + thinking + development is solving user’s problems.
3. I have recently graduated out of college, now working as a software engineer and learning web development for my side project. I can gladly tell you that you have figured out your domain / niche area well.
4. You didn’t create Web Highlights as just another side project. You implemented a better freemium model which means you thought about business. I was happy to pay $10 for your contribution. The freemium business model with $10 is not less / more , as per my convenience. It’s just perfect.
5. As I already mentioned, it wasn’t a good-to-have resume project. Your interaction with the user’s comment / queries on chrome extension review tab shows you are available for the users. That’s a good skill that I aspire to imbue in.

Thanks again for your contribution, hard-time development days and multiple late night sleeps. I not only appreciate that but also admire it.

Bye. Take Care. Lots of love from India.

++++++++ End of accessible transcript of the email ++++++++++++

I must say that this email overwhelmed me. Such emails make me motivated a thousand times more than any single notification of payment received. Again, a big thank you for this great email — If people would express their gratitude more often in this world like this, there were fewer problems.

...Now I’ve drifted a bit :D

What I actually wanted to say is that if users love the application, then they are usually willing to pay for it. By providing a life-time plan for $12.99, I am missing out on money from users who would be happy to pay more.

"One mistake many startups make is offering a “top-tier” unlimited plan" — Des Traynor

A user with extremely heavy usage for years pays the same price as someone who uses it for 3 months and stops using it.

In doing so, with the freemium version, I might have lost the user with less utility after a year. But the user who uses my app regularly and loves it would have loved to pay more over years.

“The types of customers who use your unlimited plans are the ones who are happy to pay far more than you’re already charging […]” - Des Traynor

$12.99 per year is a fair price

Let’s get back to pricing. As mentioned, I don’t know yet whether users will also pay for functionalities like creating tags, adding notes, and exporting highlights. The big question is: Are users willing to pay for those features too when highlighting is not limited?

I reached out to a friend of mine, who I turn to most times when I need a second opinion on my app or articles. Martin Thissen is a Data Scientist who always has helpful tips at the ready. If you are interested in Data Engineering and Deep Learning, check out his articles. You can learn a lot from him.

I pitched him a few different pricing models and shared my concerns about losing paying customers. Summarized, he said:

"Never make decisions based on your gut, look at the data". —Martin Thissen

He told me that a fundamental task in his professional field is not to decide based on gut feelings. And honestly, that was exactly what I was trying to do. I love the tag and notes feature of my application, so I assumed users would love them too and therefore pay for it. But I never looked at the actual data — so I did.

Here are my findings:

Currently, users created 193,207 highlights with the extension. Of these, 7% (14,446) contain tags to better structure the highlights.

But since I’m most interested in knowing which features are the most valuable, I looked specifically at the Premium users’ highlights.

Premium users are more likely to create tags, which was a promising revealing.

I also looked at how often the notes feature is used. Here I must consider that the feature is only been available since June 2022.

From all highlights since June 2022, 5,565 contain notes and from all premium highlights, 1,438. It shows that users take notes quite regularly. Still, I don’t see any difference in usage between premium and free users.

In conclusion, I am positive about the data exploration. Most users use the tags and notes functionality, so hopefully many users will pay for it as well. Unfortunately, I don’t have any data about the export functionality, as I am not tracking it.

My gut feeling must be sufficient for now. At least until I track it, which I should.

Subscription models bring financial security

There is a reason subscription models have become popular in recent decades. Having a recurring revenue stream provides financial stability.

And I’d be lying if I didn’t decide from a financial perspective as well. While I was able to take advantage of many free plans for servers and databases in the early years, I now have recurring costs that need to be covered.

Unfortunately, some providers I use, such as Heroku, no longer offer their free plans. This has also increased my costs. Below, I summarize my ongoing monthly costs:

I have always tried to keep my costs as low as possible. I think that I have comparatively very low costs. Still, I need at least three paying users every month to cover the recurring costs. Currently, that’s no problem. But what if growth stops and there are rarely new users installing the extension? A recurring income stream would protect me from this risk.

But, the freemium model also comes with downsides in terms of costs. For example, if users can make unlimited highlights soon, I expect higher costs for the database. And at some point with increasing traffic of the application I need to have a better server infrastructure.

Still, with a reliable yearly income stream, I am much better off and prepared for the future.

Final Thoughts

End users hate subscriptions and it was a very hard and long decision I had to make. However, I am confident that users who love my application will be happy to pay an annual amount for my application. Also, all users are able to do unlimited highlights, which will hopefully convince even more people to use Web Highlights.

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