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It depends on your cost per user. For example, this model doesn't work well for web analytics companies because they collect a lot of data and need to pay for it. Also, it's important to consider customer acquisition costs.
Ideally, you need to understand what you get in return. For example, Mixpanel and Heap analytics allowed using their services for free in exchange for a badge. That allowed those companies to grow without any marketing budgets.
But sometimes it's healthier to provide services without a free plan:
As to Mixpanel and Heap Analytics, they adjusted their free plans. Now the functionality is significantly limited and they delete historical data. But initially providing more features for free was beneficial for them.
interesting story on baremetrics.
Well I'm working on a premium newsletter so the main costs are increased MailChimp bill. I have an idea for some stunts but might have to constrain how much the free users get. Can always scale back free plans as you say.
Maybe look into something like EmailOctopus and Amazon SES - your costs for a big list would be considerably lower
Yeah, sendgrid is my preferred solution as it's cheaper. Thanks
Or Sendy + Amazon SES
You can try to 'limit' the number of free users by doing an 'invitation to test your product', so you can test if your 'convert ratio from free to paid' is enough to sustain this kind of business model.
Maybe this month you limit invitations to 1K, and see how many converts to paid users before the end of the month or you can just make a quick math if the standard is 3-5% of convert ratio then can I sustain this model with a 3%-5% and still make a profit?
I really respect people who offer a clear free value ( not crippled ) and the paid version is a no-brainer. This is easy to demonstrate when what they're paying for clearly takes more resources to provide and support. A 'free' resource should be enough for a person to try and make sure it works for their use case -- but shouldn't be sufficient as a business resource for a profitable company.
Also remember, that the more you earn, the more you can spend to get customers and keep them happy.