How to use Loss aversion to grow your SaaS

You can considerably improve your sales if you learn to use loss aversion efficiently. Here's how to do it



In April 2014 Pieter Levels, now well-known founder of Nomad List and Rebase.co launched Go Fucking Do it - a tool where you pledge money to achieve your goals. The idea was crazy simple: just set your goal publicly, name your pledge (can be anything, no limits) and the timeframe (for ex. stop drinking coffee completely in a month). Then stick to achieving your goal. If you fail, the money goes to Pieter. According to Pieter Levels, in 1 month the website received $30K pledges. He’s got an offer to buy the service for $45K (remind you, it was almost 10 years ago when startup prices were much less than today!) and was reached out by a fund managing $200M of venture money.

Why did everyone suddenly get so excited?

Because somewhere deep down most of us know for certain: loss aversion is one of the most (if not the most) powerful techniques to make someone do something.





How does Loss Aversion work in real life?

I found out about the Loss aversion principle for the first time when I was a first-time Mom. My 2 yo started to socialize actively on the playgrounds and I noticed (just like all parents do eventually) that they wanted only toys that belonged to other kids. Absolutely the same truck or a shovel that was successfully ignored back at home for months was magically turning into the most desirable toy ever as soon as some other kid brought it over to play in the sandbox. I was puzzled by this and started digging.

Turned out that behind this childish behavior was loss aversion.


What I also found out is that this principle never actually leave out subconscious brain and kicks off every time we are faced the possibility of losing something that we think belongs or should belong to us. I also stumbled upon absolutely brilliant field research on loss aversion run by Uri Gneezy and John A.List that they later describe in their book The Why Axis.

Scientists ran a series of experiments that proved that loss aversion works much better than rewarding when it comes down to motivating someone to stick to a specific behavior. For example, they studied over 1000 American school kids and found out that handing them $50 bills before the test with the promise to take it away if they fail guaranteed considerable improvement in tests results. While promising the same $50 if they get better results had almost zero impact on the behavior.

(still use these brilliant findings as a 2nd time mom now to motivate my kids to do homework or clean their bedroom😅)


Loss aversion kicks off every time we are face the possibility of losing something that we think belongs or should belong to us

What is the impact of using Loss Aversion on business metrics

But aside from being a mom, I was also an entrepreneur. And was busily building my retail startup that eventually grew into a $4M annual revenue business. Obviously, I was prompted to test loss aversion in my line of work as well.

I implemented practices that is actually used in sales all over the world:

  • I instructed my sales personnel in experimental store to hand over to a customer every item they were discussing with them (as soon as a customer asks “what goes well with this sauce” — offer the bottle to the customer and keep on talking while they are holding it).

  • I launched a marketing campaign for an online store when I informed selected customers that we have placed 1000 points on their loyalty card account and that they can use them by visiting our store or by placing an online order by the end of the month.

  • At a new store opening I distributed coupons for 500 points that could be used in this specific store to pay for a second purchase.


Most of initiatives worked amazingly well.

  • In 3 weeks the sales in the experimental store were 20% better than in all other stores. Obviously, the practice was rolled out in all the stores.

  • 60% of 1000 coupons distributed online were activated within 30 days resulting in +25% boost of online store MotoMo revenue.

  • coupons distributed at the opening did not work so well (I suspect because many people just lost them) but still almost 30% of them were activated, increasing the number of sales in a particular store.

I personally have no doubt that loss aversion works with physical goods. The example of Go fucking do it proves that it can work in digital world as well — especially, if you build products that leverage this principle in order to change consumer behavior (for example, productivity tools, self-motivation tools, online gyms etc.).


But can this principle be used more widely, for example on the landing pages to prompt purchasing decisions? Or — what every SaaS founder hopes to achieve — reduce churn?



How to use Loss Aversion in SaaS: KatLinks case study

Katlinks.io is a SEO-improvement tool for SaaS founders. It offers the core functionality of “big players” like Ahrefs for 10% of their pricing.

 

Disclaimer I'm not saying Roberto Robles, a founder of KatLinks is using all these “tricks” and “hacks” to “influence” your brain. They came up with these specific UI and UX elements, as well as workflows, because multiple tests and experiments have shown that these things work better than others. My goal here is to explain why exactly they work. Because the reasons why these landing page elements have proven to be efficient have to do with the way the human mind functions. Therefore, you can take these reasons and apply them to your use case. This way, you will be copying the “why” not the “how” part.
 

There are several UI/UX elements where loss aversion can be tracked on KatLinks landing page.



Loss aversion in the website copy

If you’re not in a specific industry that is fully based on risk aversion (like cybersecurity) using hints on the loss aversion in your landing page copy can prove to be very powerful. Look at how Katlinks.io copy highlights the losses they can help you avoid if you use the tool (”weakness in your product”, “gaps in your backlinks” — 😬 who would want to have these gaps and weaknesses?! our first instinct is to get rid of them ASAP).


Examples of Loss Aversion. KatLinks ex 1

 


Loss aversion in the product features


I’ve already mentioned the examples of the products and tools where loss aversion is a core feature. But can you think of ways to add it as maybe an additional benefit? Just like Katlinks.io does. For example, can you highlight how your product can help users get something that their competitors already have? By doing so you will be triggering that childhood sandbox instinct “I want this truck/a shovel/a bucket” and prompt website visitors to consider the purchase more closely.


Examples of Loss Aversion. KatLinks ex 2

 

Loss aversion in Free Trials


Probably every SaaS founder starts with considering the following: free trial, freemium (free plan) or none of those? I won’t go deep here into the upsides and downsides of these options, but you have to understand that in the context of the Loss aversion concept Free trial is an ultimate form of loss aversion. If you manage to:

  • activate your user through a relevant onboarding process that would allow them fully feel the value of your product

  • prompt the user to store in your app some valuable data point, content or insights that they would be interested in using in future

— there’s almost no way this user will cancel after a free trial period (if they stick with their JTBD and remain within the same role). The loss of losing valuable data and insights will be too much (this is also sometimes referred as the “pain of transition” in product marketing but the nature of this pain is the same loss aversion).


Therefore, the choice between the freemium and a free trial for your specific product comes down to you answering yourself the questions:

— Can I activate users efficiently with the existing workflows?

— How many converted users can I activate?

— Do my users create valuable assets in my app or get valuable insights that they definitely want to keep because they help them achieve the goals they currently have and which they will lose if they cancel the subscription?


If you have positive answers to all those questions — go ahead with a free trial, just like Katlinks.io does.

Why does the free trial make sense for them?

Katlinks.io targets SaaS founders that already have revenue and who want to leverage SEO as a growth tool. Their JTBD — rank better on Google for specific keywords. They can’t afford super expensive tools like Ahrefs or Semruh.

As soon as they create an account, they start getting valuable insights: were the pages links get broken, what keywords they can try to rank for, backlinks opportunities (where on the internet they are mentioned but the backlink is not provided, what their current rank is, the progress, etc.). As long as they remain serious about SEO, as soon as they work on SEO-task regularly and get results, the idea of losing the results and the data would be too painful to cancel.


Examples of Loss Aversion. KatLinks ex 3

 

There’s a widely spread belief that time limits increase loss aversion. There are practical proofs to this theory (for example, time limits works great for Life-time deals with increasing pricing — Read how it was done by Arnaud Belinga and Breakcold.io )
However, scientific research and statistical data doesn’t support it. For now, a general agreement is that — time pressure increases risk aversion for gains and risk taking for losses but has no impact on loss aversion So if you’re planning on using shorter trial period to boost loss aversion effect it’s very unlikely that you’ll get the desired result.

 


Loss Aversion & Pain of payment reduction


As I mentioned, the concepts of loss aversion and the pain of payment are closely related. Every customer evaluates the gains of having a product against the pain of paying for it. If you switch their attention to the loss vs pain framework (losing data and insights vs paying $15/month) it will reduce the pain of payment considerably. Another way of reducing the pain of payment is quantifying the losses. It would kick of the framing effect and make the “hidden brain” of the visitor focus on the following numbers while evaluating the deal:


700 credits for $14 — is it a good deal or a bad deal?


If you can quantify the gains and losses in $ or other units that are valued by your audience the most (like Kyle Gawley does it on Gravity landing page) — perfect. If you can’t (which is pretty hard to do for SEO) use generic units like credits. I believe the idea of using credits for SEO initially belonged to Ahrefs but Katlinks.io added another creative twist to it.


Examples of Loss Aversion. KatLinks ex 4

 

How can you use loss aversion effect to grow your SaaS


Let’s cap up what UI/UX elements can trigger the loss aversion effect:

  1. Focusing your copy on the weaknesses of the status quo (ex. your “website weaknesses”, “mistakes you’re making daily”, “unhealthy choices you make” etc.)

  2. Workflows and/or features that bring loss to user’s attention (ex. displaying the competitor’s current position against the user’s position)

  3. Free trial but only if you can craft it in a way that will result in loss aversion (if you manage to activate users and prompt them to start creating valuable assets within your app) — If your users don’t have to create assets consider the possibility of PRE-depositing assets, credits or virtual money on their accounts as soon as they register. Giving up even $10 is much (much!!!) harder than bringing yourself to gain the same amount. This technique is widely used now by multiple bitcoin exchanges, and crypto projects — they attract users by depositing a fraction of some crypto currency on their accounts.


Other things to consider:








 


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