Open core companies produce both open source software and source-available proprietary software. OCV companies use the Buyer-Based Open Core framework for determining what’s open source and what’s source-available. The open source project is always free and downloadable without restrictions.
Most companies have a SaaS hosting option and will provide a free, hosted version of their software. This is a separate offering from the open source project. A free tier comes with limitations, usually in the form of consumption, number of users, storage, or some combination of those things. From a business perspective, the goal of the free version is to drive people to upgrade to paid versions.
Pricing has a negative correlation with demand. When the price goes up, the number of customers willing to pay that price will go down. Optimizing pricing strategy is often a consistently evolving consideration for companies. In general, pricing alone should be the primary reason 20% of people are not willing to buy the product.
In its simplest form, the open core pricing model has three tiers: good, better, and best. It’s recommended to use a price-based costing strategy for determining the market for pricing levels.
| Tier | Free (Good) | Premium (Better) | Enterprise (Best) |
|---|---|---|---|
| Potential Buyer | Individual Contributor | Manager/Director | Executive |
| Price | Free ($0) | $$ (e.g. $9) | $$$$ (e.g. $25) |
| Billing | per user/mo billed annually | per user/mo, billed annually |
The “good” tier is free and drives upgrades to a paid version. Even though the “good” tier is free and open source, it is usually a separate offering from the open source self-hosted version of the product. For products that are solely self-hosted, the open source version may be your free tier and upgrades to paid plans will be driven primarily by features. Only offer one free tier.
Avoid free forever plans. The intention of providing a free tier is to let people try out the product. Free tiers should have limitations that drive people to upgrade. Examples of limitations include usage, compute consumption, storage, and/or a number of something (for example: searches, projects, users, etc.)
When the cost of goods is significant, offering them for free is not recommended. Instead, consider providing a generous trial period without requiring credit card information, allowing users to get a good feel for the product. A well-designed trial period can help users understand the value of the product and encourage them to upgrade to paid plans.
Considerations for creating a “good” tier:
The” better” tier includes everything in “good” and introduces source-available paid features targeted toward managers.
Considerations for creating a “better” tier:
The “best” tier is the highest-paid tier that includes everything from “good” and “better” and includes enterprise-specific paid features and support targeted toward executives.
Considerations for creating a “best” tier: