How freemium nearly caused our business to implode

11/10/15 • 11 min

Founder’s Journey: Building a Startup from the Ground Up

Three months ago, we introduced a Free plan...and it nearly brought Baremetrics to its knees. Let’s take a look at what we did, how it affected our business and how it was ultimately a failure.

When I first built and launched Baremetrics over two years ago, I charged from day 1. No free plan and no trial. You signed up with a credit card and were charged real actual money. Not happy? No sweat, we had a 60 day money back guarantee.

We kept this setup for almost two years and grew the business from $0 to over $30k/mo in revenue using it. Then we decided to shake things up.

Our free plan setup

In August, we launched a totally free plan. No time limits and no limits on the number of customers (which was a major segmenting factor for the paid plans). The only limit was on the feature set.

Want full historical metrics? Upgrade, please. Want powerful tools to dig deeper in to your metrics? You’ll need to upgrade for that. Want to automatically collect on failed charges? You guessed it: upgrade.

We didn’t require a credit card until you were ready to upgrade. There was essentially zero commitment to actually doing anything other than signing up.

The results

We launched the Free plan on August 18 via a slightly atypical manner: Beardmetrics. The results of our Beardmetrics marketing experiment is content for another post, but ultimately we didn’t actually make a huge “BAREMETRICS NOW HAS A FREE PLAN!” announcement. We sent out an email to 7,000 people and tweeted to a few thousand more as a way to create some buzz around Baremetrics. We then attempted to convert as many people as possible by making it super easy/fast to sign up.

Over the course of 11 weeks, over 1,000 free accounts were created. To be clear, that wasn’t 1,000 “potential paying customers”. We’re still geared strongly towards “subscription” companies. That means a company needs to have subscription revenue and, more specifically, has to be using Stripe’s Subscription API.

So, of the 1,000 accounts, 461 were actually eligible to even think about becoming a paying customer.

Of the 461 eligible paying customers, 53 actually upgraded.

53 as a % of 461 = 11.5%

Our Free-to-Pay conversion rate over the course of almost 3 months was just over 11%, and with an ARPU of $90, that meant nearly $5000 in new MRR.

Honestly, that’s pretty amazing. The average B2B conversion rate is around 3-5%...so we were killing that. But as these things go, it wasn’t quite that simple.

When free started breaking down

We were adding over a dozen new accounts a day, but that’s about where the fun stopped.

Quickly, we started coming up against a lot of performance and database issues. Within a few weeks our “free” customers were outnumbering our “paying” customers and the amount of data were both storing and processing had doubled.

Because we have to pull down and store your entire data set from Stripe and then generate the metrics for every single day for every single plan on your account (and store that as well), there’s just simple a crap ton of data processing that happens.

We had over two years to slowly work our way up to the amount of data we were processing before the free plan. We then found ourselves needing to double the processable load in a matter of days. Needless to say, it didn’t work out in our favor.

We were dealing with day-after-day and week-after-week of progressively more complex server and performance issues as we just kept piling on the new free accounts.

In addition, the number of customers we were supporting tripled. We found ourselves spread really thin, unable to provide the same responsiveness as before. And on top of that, our regular support load was increased due to the aforementioned server issues.

Then, to make matters worse, we were so focused on putting out server fires, we found ourselves making zero progress on the product itself.

To say the issues were compounding would be an understatement.

Calling it what it was: failure

The net result of those compounded issues led to what was at the heart of our free plan failure: churn.

We started losing customers left and right because day after day they were experiencing down time, delayed data and inaccurate metrics, which is absolutely never okay. On top of that their support experience was less-than-ideal and the product itself was becoming stagnant and buggy.

We lost nearly 60 customers during the 11 weeks we had our free plan, doubling our revenue churn and resulting in a net loss of customers. Our free plan was causing our business to slowly implode.

When free doesn’t make sense

People talk a lot about how the support load for free customers is one of the main negative factors ...

Three months ago, we introduced a Free plan...and it nearly brought Baremetrics to its knees. Let’s take a look at what we did, how it affected our business and how it was ultimately a failure.

We kept this setup for almost two years and grew the business from $0 to over $30k/mo in revenue using it. Then we decided to shake things up.

Our free plan setup

In August, we launched a totally free plan. No time limits and no limits on the number of customers (which was a major segmenting factor for the paid plans). The only limit was on the feature set.

We didn’t require a credit card until you were ready to upgrade. There was essentially zero commitment to actually doing anything other than signing up.

The results

So, of the 1,000 accounts, 461 were actually eligible to even think about becoming a paying customer.

Of the 461 eligible paying customers, 53 actually upgraded.

53 as a % of 461 = 11.5%

Our Free-to-Pay conversion rate over the course of almost 3 months was just over 11%, and with an ARPU of $90, that meant nearly $5000 in new MRR.

Honestly, that’s pretty amazing. The average B2B conversion rate is around 3-5%...so we were killing that. But as these things go, it wasn’t quite that simple.

When free started breaking down

We were adding over a dozen new accounts a day, but that’s about where the fun stopped.

We were dealing with day-after-day and week-after-week of progressively more complex server and performance issues as we just kept piling on the new free accounts.

Then, to make matters worse, we were so focused on putting out server fires, we found ourselves making zero progress on the product itself.

To say the issues were compounding would be an understatement.

Calling it what it was: failure

The net result of those compounded issues led to what was at the heart of our free plan failure: churn.

When free doesn’t make sense

People talk a lot about how the support load for free customers is one of the main negative factors ...

Previous Episode

How to use customer feedback to drive your business

While customer feedback is crucial to your startup, it’s also something most founders have a love/hate relationship with. How do you decide if feedback is valuable or not? How do you keep complaints from dragging you down? Where do you draw the line on letting feedback steer your company?

We’ll take a look at answers to those questions, along with a story and announcement about how customer feedback is directly changing a core part of Baremetrics.

Types of feedback

There are two types of feedback you should be collecting: solicited and unsolicited.

With “solicited” feedback, you’re actively going out and asking questions of your customers. You’re sending surveys, emails, and in-app messages. This type of feedback happens in more predictable intervals as you’re the one initiating it.

NPS surveys have been the most consistent way for us to get regular feedback. In addition to those, we send a series of lifecycle emails to onboard customers (and collect feedback about their experience) as well as product research messages via Intercom’s in-app messaging feature.

“Unsolicited” feedback is what you’ll receive most of the time. It’s the random emails, help desk tickets and tweets that come in at completely erratic times.

Both types of feedback are valuable, but how you collect and take action on the feedback is even more important.

How to organize feedback

If you just read feedback and never act on it, you’ve wasted everyone’s time. There isn’t one “right” or “best” way to organize it. The key is to just do it and do it consistently.

We have two places we organize the feedback we receive.

Asana

We use Asana for project management, but any list-making or project management tool (Trello, Basecamp, etc.) will do the trick here.

We have a Product Ideas project in Asana that we add items to as customers’ (or our team) suggest things. Then, we can add comments to those items as necessary and prioritize them based on the number of requests we receive or the business value they’ll add.

Intercom

Intercom is great for understanding the context in which feedback was given. Was it the result of a bug? Were they frustrated when they sent in the request? How did we leave the conversation with them?

When doing product research, we’ll tag messages that customers send in, so it’s easy to find them all later. We also will tag customers for beta features so we can automatically message the correct segment of users when we start beta testing something.

Many points of feedback in Asana end up linking back to conversations in Intercom, so there’s a decent amount of overlap.

How to decide what feedback is valuable

You’ve got all of this feedback, but how do you decide what to do with it? Between our “Product Ideas” board, thousands of Intercom messages and innumerable Twitter conversations, figuring out what’s actually important can be difficult.

“Value” is a relative term, especially when it comes to new businesses. Your metrics for success, or what you need to get to the next goal in your business is highly unique to your stage of business.

While the answer to what is “valuable” may be relative, the need for establishing what the next milestone or success metrics you need are not, as that’s how you determine what feedback is valuable. It’s easy to let the vocal minority pull you in the wrong direction, but happens much less frequently when you know what you’re shooting for.

Once you’ve solidified what the next steps are that your business needs to take, determining how to value feedback becomes very simple and takes very little time to decide if you should ignore or give weight to a customer’s feedback.

Maybe what you need more than anything is profitability, so doing anything that delays that is bad feedback. Maybe you need users more than money, so any feature that slows down signups is likely a bad move. You get the idea.

Let’s take a look at a real world example here...

How we changed Baremetrics based on feedback

When I built the first version of Baremetrics, my goals were simplistic. I just wanted simple revenue metrics for the business I was running at the time. It solved my problems, and then I came to find out it solved problems for quite a few other businesses as well.

The foundation of nearly all of our metrics came down to two things: Monthly Recurring Revenue (MRR) and Customers (namely if they were “active” or not).

For the past year and half of our existence, we based these metrics on “charges”. Internally ...

Next Episode

How we generated a $14,000 influx of cash in 7 days

When you’re building a business, cash is king. Cash lets you do things like hiring and customer acquisition, and the more of it you’ve got at any given time, the faster (theoretically) you can grow. We recently tried something that got us an extra $14,000 in cash in seven days. Let’s take a look at how we did it.

So, what’s great about subscription businesses is the relative stability. You get a steady-ish stream of revenue that slowly increases over time and is much less susceptible to the whims of other business models that are based on one-off payments.

But what can be slightly frustrating is the “slowly” part. Many times, those customers will be paying you every single month for years, yet you have to patiently wait for that money to trickle in. Or do you?

What if you could get the benefits of a pile of cash and the stability of knowing your customer will be around for longer than a month? Well, my friend, you can, thanks to one thing: annual subscriptions. They’re the magical unicorn of the SaaS world.

There’s a catch, though. The way most companies approach annual plans is to just slap it on their pricing page and hope the customer picks it over the monthly option, maybe enticing them with a little discount.

That’s the passive way to make yourself feel good about “doing something” but I guarantee you’re leaving money on the table.

The annual upsell

Instead of thinking of your annual plan as just a different payment option, think of it as a feature to upsell. “Sell” is the operative part of that word. It requires a little bit of work, but if you do it right, it will pay off.

For nearly two years we’ve been prompting users, via email, to switch to annual a few months in to their subscription. Unfortunately the results were always a bit dismal, with the average conversion rate to annual being around 4.75%.

On the surface that looks like it’d potentially work just fine. It highlights the benefits and makes it a quick, self-serve “click the link and be done!” switch. But it always felt a bit too salesy, so I decided to try something a bit more personal and informal.

How’d this puppy perform? The conversion rate on this email is 11%...a whopping 131% increase! It generated over $14,000 in revenue in the first seven days. That’s the stuff you write home about!

There are a number of things different about this email.

A 3-month discount, instead of 2
Manual process — No one-click, self-serve switch process
Personal — Doesn’t include automated “here’s how much you’d save” info
Urgency — “We’re testing this out and only offering it to a subset of customers” (which is true, we don’t offer this to lower paying plans)

The open rates were basically the same between the two emails, so subject line didn’t seem to matter. Ultimately, the combination of urgency, personal touch, and a bit larger discount pushed this one over the edge.

I do think the additional discount played a role in increased conversion, but from talking with other founders, most tests point to the size of the discount actually not being that big of a deal.

Future testing

The problem with this format is that it’s not really repeatable over the life of the customer. I suppose you could send it to them once a year, but then the “urgency” factor gets lost.

Testing out a series of these emails is certainly worth our time, as is testing out the size of the discount itself (number of months, percentage discounts, etc).

What are some things you’ve tried to increase annual subscriptions? Any formats you’ve found work really well?