SaaS Pricing Microplans
Microplans can boost consumer saas adoption and conversion
Note: The pricing model discussed here applies only to Consumer SaaS.
Today, consumer SaaS pricing is influenced by enterprise SaaS, ruining the party for individual or infrequent consumers. In this post, I propose a new type of plan - the Micro Plan, to improve customer value and revenue.
Early commitment dilemma
Thanks to the AI Boom, many AI-first applications are entering the market on a freemium model. Many users continue using the free tier of services, such as ChatGPT, Claude, etc., without switching or trying the premium offerings. Their hesitation to try out premium offerings stems from the relatively high cost (PPP dependent) of recurring (often monthly) paid subscriptions—most consumer SaaS range between $15 and $25/month. In most developing countries, this is equivalent to a household's energy and mobility (cellphone, fuel) bill.
One might argue that SaaS companies offer a free trial period when new users sign up. This free trial is meant for new users to evaluate premium features, but there is a catch. More often than not, the trial period gets over without the user investing time evaluating the features. I have found myself in this situation more often than I can recall. The user is left wondering whether they should commit to a recurring monthly plan. This leads to fewer users exploring premium offerings, eventually leading to fewer users converting to premium plans.
If users can experience the premium service for a short duration after the free trial ends, they may be inclined to convert to paid memberships. Let’s call these “Micro Plans.” This post will cover various aspects of a good Micro plan and its second-order effects.
Salient Attributes of a Micro Plan
There are two crucial aspects of a Mirco Plan:-
Plan cost should be minuscule with a lower unit of purchase (duration or quantity).
Quick pay with a few clicks or taps.
Fractional Cost
The electric motor was fully exploited as its size shrank. Today, a regular household has more than 30 of them. Similarly, breaking down the cost of the payment plans into fractions of the monthly plan gives users many benefits, such as no fear of lock-in and no significant amount to pay to start with.
For example, let’s say ChatGPT decides to offer a 2-day or 3-day plan with all premium features. The plan could be priced at (monthly plan cost/30) x 1.2. This means the daily cost of the premium feature in the Micro Plan is 20% higher than that of the monthly plan. This aligns with the philosophy that annual plans are cheaper than monthly plans, giving users incentives to upgrade to the next higher plan.
A not-so-obvious benefit is psychological. With Micro Plans, users have the psychological advantage of controlled spending. For example, my father used UPI payments for transfers of less than INR 2000 ($25). He believes he won’t lose much if a payment goes wrong. Now, slowly, he is getting comfortable with more significant sums for transfers.
Starting small with minimal commitment also builds trust. This is where small purchases vs. subscriptions are essential. When buying a subscription, users consider many factors before making the purchase.
One criticism this approach is bound to attract is that users will pay to use the service for short durations but will not upgrade to the monthly plans, leading to unpredictability of revenue.
That’s not necessarily bad if one examines it closely and thinks outside the box of regular SaaS pricing. Let’s say a user uses the micro plan 6-10 days a month. They end up paying $0.8/day, or $4.8 to $8. With Micro Plans, the users save money while getting used to the service and gradually starting to use the services frequently. As the frequency increases, users could be prompted that their usage is higher and that the monthly plan is a better alternative based on usage and cost optimisations. This gradual approach will create new customers in a more value-driven approach.
The second criticism this approach is bound to attract is that adding another micro plan to the already existing three-tiered SaaS pricing model leads to too many options. This is a reasonably valid criticism. The more options there are, the more confusion the buyer will have. It’s a friction vs. freedom tradeoff, and most users would align towards freedom; that’s my hypothesis. In my opinion, the pros outweigh the cons, but I might be biased. I encourage readers to share their views in the comments section.
Quick Pay
Imagine a user is using a free service tier and suddenly feels the urge to use the premium service. Suppose the micro plan purchase takes more than a few taps. The user might get frustrated or distracted, leading to a poor experience.
For this reason, the purchase journey (not just for micro plans) should be a few taps/clicks away. I recently used a service to pay for a recurring service using Stripe Link. It is one of the most beautiful payment products I've seen. The entire process was entering OTP to approve payments. Another great example is UPI in India. UPI payments are made by scanning a QR code and entering a 4-digit PIN to authorise payments.
Thanks to ever-improving digital infrastructure, payment systems have innovated to reach a point where payment dropoffs are no longer a big issue. At least in India, the payment success rate of UPI is staggeringly high, standing at 99.2%.
Gamification
Micropayments enable Micro Plans. These micropayments have already been massively successful in gaming, where users spend a lot of money on in-game purchases. These digital artefacts can be as low as 10 cents and as high as $50 or more. Games have figured out this strategy well. The player starts by making small purchases early in the game. As they progress, i.e., achieve higher proficiency and involvement in the game, they get comfortable making more significant purchases.
Examples
Listing some services where micro plans can prove effective :
A video editing service like veed.io - a micro plan to edit 3 videos, valid for 5 days.
Visuals from text services like napkin.ai - a micro plan to create 3 visuals, valid for 5 days.
ChatGPT, Claude, Cursor - AI tools, coding help - a micro plan valid for 3 days.
Consider experimenting with micropayments in your SaaS offerings to cater to your users' diverse needs. Share your thoughts or experiences in the comments below to help shape the future of consumer SaaS pricing.