At Less Annoying CRM, we want to offer our customers as much value as possible. That means having the best product at the lowest price possible. In our case, that price is $15/user/month. That’s on the very low end of the CRM pricing scale, but there are a few products that are either completely free, or “freemium” which means they have a limited free tier with premium features offered as an upgrade. In this post, I want to explain why we decided not to have a free plan, and why free CRMs might actually be a bad thing for their customers.
Note: These points apply to pretty much all software, but since this is a blog about CRMs, that’s what I’m going to focus on.
What’s wrong with being completely free
While it’s common for customers to want free software, there are actually some very simple reasons why this isn’t good for the customer in the long run. If a CRM is free, then that means that either (a) the CRM company isn’t making any money or (b) the CRM company is making money by monetizing their customers’ data in shady ways.
If the CRM company isn’t making any money...
Then that means they don’t have a sustainable business model. It might be nice to get a free CRM in the short term, but there’s no way it can last. Anyone who works at a small business knows that if you don’t make any money, you don’t really have a business. Do you want to trust your most valuable data to a company that doesn’t have a source of revenue?
If the CRM company is making money, just not from you…
Then that means you aren’t the customer, you’re the product. Someone else is paying the CRM company, and chances are that means your data is being monetized. This isn’t common practice in the CRM industry for obvious reasons, but if you’re considering a free CRM, you should make absolutely sure that you understand their business model so that you don’t end up trusting the wrong provider.
What’s wrong with freemium?
This is a much more interesting conversation. The “totally free” options we describe above are complete non-starters for most CRM customers, but freemium seems more tempting. After all, the freemium model lets customers use the CRM indefinitely for free, and if they get enough value out of it that they want the additional features, then they can start paying. Seems like a win-win, right?
But it’s not that simple. According to the Harvard Business Review, most freemium companies only get about 2% to 5% of their users to convert to the paid plan. That means that 95%+ of their users aren’t actually paying customers. This introduces some potential problems.
Problem #1 - Customer Service
At LACRM, we offer top-notch support to all of our customers (and free trials). We can afford to do this because the $15/month we get from our customers is enough to hire a great support team. However, if we were a freemium company, we’d have the same amount of revenue but 20 times as many users to support. That’s completely unviable.
Because of this, freemium companies are basically forced to take a self-service model. Customers come to their sites and have to figure out the software on their own. This normally applies even to customers who are willing to pay because during the initial free trial, it’s impossible to separate the future free users from the future paying users.
Problem #2 - Paying customers end up subsidizing free usersEven ignoring the customer service side of things, there are real costs associated with hosting a CRM. Each additional user means that the CRM company needs to pay more for servers, storage, backups, and more. If only one in twenty users is actually paying for the service, then that means each real customer is paying for way more than their fair share.
To see an example of this, do a Google search for CRMs and compare the paid tiers for freemium products with the base rate for companies like LACRM. pretty much across the board, freemium products are actually more expensive once you start paying.
At the end of the day, every small business will need to decide for themselves how much they want to spend on their CRM. But if you’re making the decision, keep in mind that value is about more than price, and “free” CRMs can actually end up costing a lot more in the long run. Choosing a CRM provider is a major commitment, and it’s important to be sure that your interests are aligned with those of your provider.