Home/Blog & News/Article

Slack’s Fair Billing Policy Kickstarted the Era of Modern Seat Management

5 min read

Patrick Rafferty

Co-founder of UserHub

Slack kicked off the era of product led growth (PLG) in 2015, and the $28bn acquisition by Salesforce in 2021 was one of the largest in SaaS history.

Key Takeaways:

  • Slack’s Fair Billing Policy gained recognition by charging customers Per Active Users
  • Slack also introduced End User Led licensing, which accelerated in-account seat growth and created conditions for product-led growth
  • Fair Billing Policy was a calculated trade-off designed to accommodate customer billing administrators, who were accustomed to exercising total control over seat provisioning
  • Few SaaS companies have copied Per Active User pricing; many subsequent SaaS companies have replicated and improved upon Slack’s approach to Seat Management

‍Slack kicked off the era of product-led growth (PLG) in 2014. One of the cornerstone choices critical to Slack’s growth narrative was their groundbreaking approach to billing automation. The Slack Fair Billing Policy was one of the first SaaS billing policies to become a branded asset and perhaps the most recognizable billing policy in B2B SaaS.

vendr viral quote
How it works: Slack marks a user as dormant after 14 days of inactivity and proactively provides a credit back to the account. In effect, this automates seat down sell and proration, which prunes the invoice of any shelf-ware.

In June 2023, Slack updated the Fair Billing Policy by changing the user inactivity period from 14 days to a less generous 28 days. It's a good occasion to reflect on the Slack Fair Billing Policy and why we believe it marked a consequential moment in Modern Seat Management.

Their approach to Per User Pricing contained two major departures from the standard seat-based models which were common in 2014 era SaaS:

  • Unique pricing: Slack charged only for Active Users (e.g., The Fair Billing Policy)
  • End-User Led Licensing: Slack empowered end-users to provision licenses for themselves and for their peers, which unlocked bottoms-up growth (what other PLG SaaS companies have replicated)

It is no coincidence these two aspects emerged together. In fact, what goes unnoticed is that Slack Active User Pricing was designed to accommodate customer billing administrators, as End User Led Licensing decreased the default level of cost control typically provided to admins. This re-imagination of Per User model was necessary to unlock Slack’s in-company network effect and in turn their prolific “bottoms-up” growth motion.

Why Slack Re-Imagined the Per User Model

The origin of the Slack Fair Billing policy was not rooted in altruism. In a 2015 interview with Business Insider, Stewart Butterfield, the CEO & Founder of Slack, recounted the backstory behind the policy:

What they found was a huge flaw in its billing system: Of the 800 people signed up under the WalmartLabs’ account, 400 were inactive users — meaning WalmartLabs would have to either pay for those 400 people not using it, or manually deactivate each one of them.

How did WalmartLab's Slack Account get into a state where it was over-provisioned by 400 extra seats?

This was happening because Slack allows anyone with a company email address to find groups associated with that company and sign up...So what Butterfield and his team came up with is something called a “fair billing policy,” where Slack would scan every single account every night, and make pro-rated refunds every ten days for all the inactive accounts found.

The explanation above glosses over the significance of a critical choice Slack made, which is equally important, if not more important, than the Fair Billing Policy that followed. The strength of Slack's value proposition is tied to the percentage of onboarded team members. This means Slack has a cold start problem within each target customer. If Slack had simply mimicked the approach to user management and member onboarding used by a company like Salesforce, the user billing admins would act as gatekeepers, modulating which team members could become actual users. Such an approach creates a much higher friction onboarding experience for end-users and would have significantly dampened Slack's consumer-like virality. So, Slack incorporated End User Led Licensing. End-users could become paying users without the assistance of the billing admin, which marked a departure from customary user licensing behaviors….

The Devils in the Defaults: End-User Led Licensing

To double-click on the explanation above, Slack was driving high seat counts due to the unorthodox licensing defaults it layered onto its Account Management system. The table below highlights a few of the unique licensing defaults:

end-user led licensing

First, in a major departure from the first generation of seat-based billers, all members, not just billing admins, could (and still can) invite other users:

slack permission defaults

Second, as mentioned, Slack default settings allowed any would-be user to join an organization - via auto-join with allowed email domains - without the permission of the billing admin.

slack join workspace

This approach is increasingly common, as companies like Notion build this in by default. Last, dormant users can reactivate a seat without having to be re-invited by a billing admin.

Fair Billing Policy emerged as a concession to billing admins to counterbalance rising seat counts - who were accustomed to exercising total control over the seat quantity (and therefore the bill). So, the policy was a necessary adaptation as Slack was the first company to give greater seat control to end-users.

What was the lasting impact of Slack's approach to billing?

Since its release in 2014, delighted customers have publicly praised Slack (see Why Slack’s Recent Refund of Just $2.07 Went Viral). Many predicted this pricing policy would soon become the new standard and would be replicated by other seat-based billers. Now, almost a decade later, SaaS thought leaders are asking why Slack's approach to Seat Monetization has not become standard.

saastr fair billing

Very few Subscription SaaS companies have copied Per Active User pricing. Instead, role-based pricing has become more common amongst seat-based billers, where customers are only billed for users with access to critical features. This is the case with Canva Maker Billing, who only charges for Document Makers, or Figma, who only bills customers for Design Editors. While the Per Active User pricing approach did not catch on, Slack's Seat Management Model did lead to the rise of end user led licensing, which unlocked product-led growth:

end-user led licensing companies

The Beginning of Modern Seat Monetization

Slack showed how much room existed to innovate around Per User pricing, as Slack minimized the friction to drive seat growth by empowering end-users while staying in the good graces of billing admins. This forward-thinking approach inspired the next wave of seat billers, who reimagined seat management to suit their products.

At UserHub, we are making it easy to quickly design and launch the ideal seat model for your product.

Turn users intorevenue
$

Subscribe to monthly product updates

© 2024 UserHub

Integrations

    UserHub & Auth0UserHub & Stripe BillingUserHub & Google CloudUserHub & FirebaseUserHub & Custom Auth

Resources