Behind Slack’s Success: 🔥 The Fair Billing Policy 🔥

The SaaS CMO Pro Newsletter

Aug 22, 2024

Hey folks, today I want to dive into a topic that’s close to my heart—the Slack Fair Billing policy. This concept, which gives credits or refunds for inactive users, was a crucial part of our product-led growth (PLG) strategy at Slack. Let’s break down why this approach was so impactful and why I think more AI and SaaS companies should consider adopting it.

🎯 The Origins of the Fair Billing Policy

When I joined Slack as the original CMO, we were a small team of about 50 people, and we were all about creating a product that people genuinely loved to use. The Fair Billing policy was one of those decisions that aligned perfectly with our mission. In the early days of SaaS and on-prem software, customers often got stuck in long-term contracts, paying for users regardless if they used the product or not. We flipped the script on that by only charging for active users. It just seemed like the fair thing to do, hence the name.

💡 Why It Worked: The Customer Experience

At its core, the Fair Billing policy was about creating positive experiences for our users. With most software, you pay by seat regardless if the user actually uses the product. But with Slack, we’d automatically credit your account for that inactive user. It wasn’t always a huge amount of money, but it was a gesture that showed we were on the customer’s side. This small act of fairness built immense goodwill and became a key driver of our growth.

🔗 Aligning Incentives: Users and Slack on the Same Page

One of the most powerful outcomes of the Fair Billing policy was how it aligned our internal goals with those of our users. At Slack, we realized early on that we wouldn’t succeed unless people were actively using our product. Unlike traditional enterprise software, where the focus was often on making a sale regardless of usage, our approach meant that if users weren’t engaging with Slack, we weren’t making money. This alignment pushed us to continuously improve the product, make onboarding easier, and reduce friction at every turn. When your success is directly tied to your customer’s success, everyone wins.

💵 The future of pricing

It will be real interesting to see where pricing goes for SaaS and AI companies. The space has already seen a good amount of movement to UBP (usage based pricing). UBP philosophically is very similar to the fair billing policy. You basically are only charged for what you use.

I think, though, AI tools have a chance to embrace an even friendlier customer pricing strategy which would be outcome based pricing. I.e. the company doesn’t get paid until a specific agreed upon outcome is achieved. For example, you get a cut of every new deal that your new AI sales tool helped close. Or you get 10% of the cost savings that your AI customer service tool claims it will yield.

💬 Let’s Talk Pricing and Packaging

Pricing and packaging have always fascinated me, especially when they’re used as tools for creating better customer experiences. The Fair Billing policy wasn’t just a pricing decision; it was a strategic move that reinforced our commitment to putting users first.

I’d love to hear from you—has your company embraced a similar approach? How do you think pricing strategies can drive growth? Drop your thoughts in the comments. I read every single one.

SaaS CMO Pro - Bill Macaitis

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