Wes Bush:
Welcome to the Product Led Summit. This is one of the events that I put on twice a year, where we basically try to interview the best practitioners who are leading product-led businesses. One of the reasons why I even reached out here is because you have recently launched a freemium model and it's succeeding.
Wes Bush:
One thing that I think a lot of people who are going to be listening are going to be trying to figure out is how do you really approach that freemium model? And so, Nathan, for everyone who's listening, he's the founder and CEO of ConvertKit, which email marketing company for creators. He's taken it to over 10 million annual recurring revenue.
Wes Bush:
And so, it's made a really big transition over the year. One of the ones I want to focus on for the very first question here is how did you come up with the name ConvertKit?
Nathan Barry:
Yeah, that's good. ConvertKit ... Well first, we're at 22.3 million AR.
Wes Bush:
You need to update your LinkedIn, buddy.
Nathan Barry:
Yes, I should. If anyone wants to tune in, all of metrics are totally live in real time, so you go to convertkit.barometrics.com, and you'd see all of our metrics updated, all the time.
Nathan Barry:
Yeah, one of our team members, even on my site, I think it says 14 million. I need to go update that on my own blog.
Wes Bush:
It's growing too quick. It's a good problem.
Nathan Barry:
Yeah, exactly. The name ConvertKit, I was using ... I've got this friend named Matt, who made a tool called Lean Domain Search. He and I met at Micro Con years ago. He had built it on the side. At the time, he was a captain in the Army when he built Lean Domain Search on the side. It's just this tool where you can plug in a word and it pairs up other words to form available dot coms.
Nathan Barry:
I wrote down a bunch of words about conversions, and subscribers, and email, and all that kind of thing, and started to pair things up. ConvertKit was one that was available. I really wanted to get the dot com ...
Wes Bush:
Yeah.
Nathan Barry:
Seven years ago ... I still think it's important, but seven years ago, it felt really important and I didn't want to be another one of those companies ... I didn't want to be something app dot com, or any of those, because then everybody always refers to it as that.
Wes Bush:
Right.
Nathan Barry:
I'm trying to think of a good example. Cloud app. You know?
Wes Bush:
Yeah.
Nathan Barry:
All these things. I'm like, I'm not ... Anyway. Or, people would always say at the time, Intercom. I use Intercom.io.
Wes Bush:
Yeah.
Nathan Barry:
It took them a long, long time to be known as Intercom, period. Just Intercom. I didn't want that problem, so I ended up with ConvertKit. Now, it's a little more techy than I would like.
Wes Bush:
Okay.
Nathan Barry:
But, you do with it what you can.
Wes Bush:
Yeah, absolutely. The reason I was asking, I thought this was funny, I always, before these interviews, I like to go to the Wayback Machine for a domain to see what it was before, and I was looking at ConvertKit.com 10 years ago. It was actually to help ... It was a kit for people who are new to becoming a Muslim. I was like, "That name makes a ton of sense for a convert kit."
Nathan Barry:
I had no idea about that.
Wes Bush:
It does make sense.
Nathan Barry:
I just bought the domain. It was available. I didn't buy it third-party, or anything. It was just ...
Wes Bush:
Yeah.
Nathan Barry:
Eight dollar GoDaddy registration. People always ask, "What are you converting?"
Nathan Barry:
We're like, "We're converting visitors into fans."
Nathan Barry:
They're like, "Okay. I thought you were selling car parts for a car conversion." You know? Like, are we adding some horsepower? What are we doing?
Nathan Barry:
Yeah, I actually didn't know before us ConvertKit.com had a previous life.
Wes Bush:
Yeah. Usually there's not too much of a story there, but I was like, "That's kind of interesting."
Nathan Barry:
I'll have to share that with the team.
Wes Bush:
Yeah, or check it out on the Wayback Machine. Yeah. I want to dig into this first part. Okay. As you went along this journey and decided one day, okay, I'm going to test out and try this framing model. But before that, you've been around for over seven years now. Have you ever had a free trial model? Was there ever more of a sales process or demo request process to get people into the product in the first place?
Nathan Barry:
You know, we tried a bunch of different things. In the early days, it was just sign up directly. Just pay, no free trial.
Wes Bush:
Okay.
Nathan Barry:
Which is weird. Now that sounds like an odd thing. At the time, it was like, if you want to buy something, just buy it. I tried, really early on, a closed access. Basically, where you would pay ... I called it ConvertKit Academy, where you would pay for ... It was basically six months. It was 300 bucks. The product was 50 bucks a month, so you pay $300, you get six months of ConvertKit, and we do this cohort-based coaching.
Nathan Barry:
We'd get you set up, we'd get your forms going, and a bunch of that, and that worked decently well. It was super early on, though. At some point, we went to a free trial, and then maybe a year or two after that, we went to no credit card required. And then, a year or two after that, we went premium.
Wes Bush:
Interesting. Let's discuss the credit card versus no credit card? What was the difference there? What made you decide let's forego this credit card at the beginning of the journey?
Nathan Barry:
Yeah. We were starting to get better at data, and tracking everything, and paying attention to what works, and we ran it as an AB test split, at one point. You're going to get way more accounts created, and you're going to get a way lower trial conversion rate.
Nathan Barry:
We just said, "Okay." At the end result ... Everyone gets caught up in the little details. It's like, but you still have a visitor to a paid account. Really, a paid account after 90 days conversion rate, and no credit card required came out higher. And so, we went there.
Nathan Barry:
It did result one time ... I'm trying to remember the numbers on this. When you make the switch, there's this period where your revenue goes down? Let me think about this. It's like making a cash to accrual transition, where for that one year, your accounting numbers are all screwed up. I know, because we just made that transition. The IRS are like, "You guys lost however much money last year."
Nathan Barry:
It's like, "Yes, officially, but really, we just switched from cash to accrual, and moved a bunch of stuff around, and we'll pay taxes on it later."
Nathan Barry:
Anyway, do you know what that is? Right? It's required to no credit card required. I just remember there being this time where we had to wait for those accounts to turn out or convert. Anyway, I don't remember.
Wes Bush:
I'm trying to think of what it might have been. I know the conversion rates, they're always going to be very different. Usually if you have the credit card before your technically free trial, the paid is way higher just because you have so much friction at the beginning of that journey.
Wes Bush:
People usually see the conversion rate goes down from free to paid when they remove that credit card. The interesting thing you mentioned there, it sounded like there was a drop in revenue. Was that the case or was that accounting changing?
Nathan Barry:
I wish I could remember. I'd have to dig back, but I remember there being this time of like, was this a bad idea?
Wes Bush:
Yeah.
Nathan Barry:
Our earlier tests showed one thing, and then later, we're like, "What is going on?"
Nathan Barry:
And then you realize, oh okay, it's just this cohort of accounts passing through that time period. I'll have to look it up. Maybe I'll throw it in some show notes.
Wes Bush:
Yeah. When you made that switch, what were you most worried about? Were you like ... You ran the numbers. That's the thing. You took that data-driven approach, you mapped it out, and you had a hunch. Hey, if we remove this one step for that credit card, we expect that there's going to be more revenue at the end of this.
Wes Bush:
What were the hesitations and worries around removing this? It is a big step for a lot of founders.
Nathan Barry:
Yeah. We were worried that a lot of people ... Like the auto-conversion, because that no longer happens before a trial ends, and it just turns into paid, whereas, now a trial ends and it's like, well, see you. Please, come back. We're trying to get some activation there.
Nathan Barry:
We were worried that our activation wasn't high enough of people actually using the product, that when there wasn't money on the line, that they would just drop off, whereas, when they see that charge come through, they'd be like, "Oh, yeah."
Nathan Barry:
Well, they'll either say, "Okay, I should cancel that," or they'll say, "Oh yeah, let me actually implement it because I have that intention."
Nathan Barry:
Basically, without money, we were worried that there'd be too much of a drop off. Right? There's no event and it's just ... You just forget about it.
Nathan Barry:
And then the other side, we were worried about getting so many more trials and keeping up with the support on that. Right?
Wes Bush:
Right.
Nathan Barry:
If you're saying, "Look, it washes out as far as the number of paid accounts." Maybe it's a 5% lift on paid accounts all the way down here. It's like, if they never signed up, you don't have to support them. You know?
Wes Bush:
Yeah.
Nathan Barry:
That ended up being fine, as well. It didn't come where it was like, "Oh, this is a no-brainer. Everybody should go to no credit card required."
Wes Bush:
Yeah.
Nathan Barry:
But for us, it worked out well. And then, there was a little bit of a bump in fraud, but the other thing with fraud is, that you learn pretty quickly in the SaaS world, is that they have no problem putting in credit cards. They will put in credit cards all day, every day because they have unlimited stolen credit cards.
Nathan Barry:
That turned out to be a wash, as well.
Wes Bush:
Okay. You mentioned that fraud went up. Was there a 10, 20, 30% increase in that, or was it not quantifiable just based on gap?
Nathan Barry:
It just meant that we had to ... We have an email sending product. There's two sides of it. There's fraud, as far as payments fraud, either through our affiliate, or credit card testing, or money laundering, any of that, which when I get into SaaS, I did not expect that those ... You will now spend time figuring out how to fight money laundering.
Wes Bush:
Yeah.
Nathan Barry:
I had no idea. Turns out, here we are. And then on the other side, there's the email deliverability, like spam, because we send emails. That definitely increased. Our algorithms had to get a lot better.
Nathan Barry:
I'm trying to think, we didn't have machine learning in place. We were doing a lot more manual heuristics, and flagging accounts that imported large lists, and that kind of thing. There was a lot more human review necessary.
Wes Bush:
Okay.
Nathan Barry:
Not every business has that, but if you send emails of any kind, people will try to figure out how to use it for evil.
Wes Bush:
Yeah, absolutely. When you first had that free trial experience, and over the years, I know it wasn't immediate, where you switched to Freemium, how have you tried to evolve your free trial experience to obviously get more of those users turning into paying customers?
Nathan Barry:
Yeah. The first thing that we did, somewhere in that process, was add a sign up survey.
Wes Bush:
Yep.
Nathan Barry:
Where we ask a handful of questions. We do this before you create your account. There's this concept of user experience called gradual engagement that I'm a huge fan of. Every time someone argues with me, I run a split test, and my split test wins. I'm like, "Ha. I'm vindicated."
Nathan Barry:
Side note, I used to blog a lot about user experience before starting ConvertKit. People were like, "Gradual engagement? What is that?" I'd link to a couple articles that were on some prominent UX blogs. They read it and they're like, "That's a really compelling case. Okay."
Nathan Barry:
Then I was like, "I wrote those. You shouldn't value that any more than ..." I'm pulling in this outside source to win an argument. That's actually just me. Don't ... That's not a valid argument here. Or, not a credible source in addition to my opinion.
Wes Bush:
Yeah.
Nathan Barry:
One thing that we did is, when you signed up, it would ask you, "Are you just getting started?" and we still have this flow. Are you brand new to email marketing or are you migrating from another tool? After that, it would ask the question. If I'm migrating, it says from which one? MailChimp, Active Campaign, et cetera. And then, ask you how many subscribers you have, and then takes you into that flow.
Nathan Barry:
If you're migrating from MailChimp, then when you finish signing up, front and center, it's like, "Put in your MailChimp API key and we'll import all your subscribers." Our most popular integration is with MailChimp.
Wes Bush:
Yeah.
Nathan Barry:
Which is great. If you say, "Hey, I'm brand new," then it says, "Okay. Do you have a website already?"
Nathan Barry:
"Yes." WordPress, Square Space, et cetera, and then, "no," it takes you into the product. What we found at the time, before going freemium, we were getting 8000 free trials, no credit card per month. Those were split ... I'm trying to remember. Maybe 1500 or so were migrating or had used email before, email marketing before, and the other 6500 were saying they were new.
Nathan Barry:
5000 people were saying they were new to email marketing and did not have a website.
Wes Bush:
Okay.
Nathan Barry:
We were like, "Ooh." This is going to be a ... No wonder our conversion rates are so low, because you're like, "Great."
Nathan Barry:
I send them opt-in forms and where should I embed them? People are asking us, 'Should I use Square Space, should I ..." all those questions. It was basically they were too early to need ConvertKit at that point. They needed to do other things first.
Nathan Barry:
Seeing all that data, it made us realize that we should build landing pages product. You don't need a website; you need a landing page and way to capture email subscribers. We spent a year building a landing pages product. That basically took us to the end of 2019. Right then, the very beginning of 2020, we launched and made that free.
Nathan Barry:
It was really that onboarding data that drove those decisions. There's so many people coming in, and so many of them are too much of a beginner to use our product as it exists now. We could have gone up market and ignored those people, but we really ... Our mission is to help creators earn a living, and that includes all those brand-new beginner creators.
Wes Bush:
Yeah, absolutely. That is fantastic that you had understood that there's 5K out of this 8K, they are beginners and they really do need that help, that first step. You can't really even evolve to use all of, I imagine, your products and get the most benefit out of it if you don't have a surviving, engaging list. That is the core currency of any mailing platform.
Wes Bush:
That's good you identified that, but how did you decide ... This is the question we're going to ask people because there's a lot of people who are going to listen and think, "That sounds great for your company, but I have this whatever B2B SaaS company, where it's just like, what are we going to ask people?"
Wes Bush:
How do you decide that question? I think it's a fantastic one for your product, and for everyone, it's going to be a different question, but how do you segment people based on that sign-up experience?
Nathan Barry:
Yeah. We just started to think what questions would make the most sense? One was brainstorming questions and the other was brainstorming on the other side of what can we actually even change about the sign-up experience? What can we even change about the product, based on what we know?
Nathan Barry:
If you know these things but you can't take action on it, then it's like, well okay. If you're like, "It'd be so cool that if we knew this one thing about our customers," but we couldn't put it into practice in any way, then there's no point in asking it.
Nathan Barry:
For example, what email provider you're coming from, we even change our documentation based on that. Whereas, different email tools use different terminology, like broadcasts versus campaigns. For example, a campaign in MailChimp ... Let me see if I'm getting this right. A campaign and a broadcast would be the same thing, whereas in Drip, a campaign would be an automation, like a series of emails that get sent out.
Nathan Barry:
They have campaigns in broadcast, we have sequences and broadcasts. You can even just tweak the language that you use and have a little note of, "To send out your first broadcast ..." Parentheses, which is what MailChimp would refer to as a campaign.
Wes Bush:
Yeah.
Nathan Barry:
Because we know that they came from that.
Wes Bush:
Okay. That's one use case, with the document example, which I love because it ... Everyone's trying to have their own lingo and it can be confusing, especially when a campaign is an email for one company, and a campaign is something totally different for someone else.
Wes Bush:
What are the other ways outside of that, that you have ... Once you have that segmented data, you understand this person's a beginner, what else changes?
Nathan Barry:
Like I mentioned, pushing them to landing pages. If you don't have a website yet, then we need you to set up a landing page, otherwise you're not going to be successful. If you do have a website and it's on WordPress, then we're pushing you to install the WordPress plug-in and create a form that will go on your site. Right? That's a pretty distinct branch that we're doing.
Nathan Barry:
The other one is based on number of subscribers. If you have over 5000 subscribers, then you've got traction, and we're like, "Hey, we have a concierge migrations process where we'll do the whole switch for you for free."
Nathan Barry:
That just tells us who to reach out to. You can ask for it in a really natural flow, rather than at the very beginning, sending someone down a different process.
Wes Bush:
Okay. Awesome. Over the years, you've learned obviously how to segment this data, which essentially helps you serve them better, whether they're a beginner or not, and give them the resources, and everything else to really figure out how to build their audience.
Wes Bush:
You have freemium. It is plugging away. And then, you decide let's totally change this and let's go with a freemium model. Can you just take us back to what was the first thought there? What made you start thinking freemium, it's a good option, let's go in this direction?
Nathan Barry:
Yeah. Three years prior, starting in late 2016, I started pitching freemium and bringing it up, writing Google docs that had freemium in the title, like ideas and brainstorming, and that kind of thing.
Nathan Barry:
Really, there was a lot of reasons that it wasn't a good fit. We were just trying to keep up with growth, we were trying to get on top of spam and compliance, servers, infrastructure, all of that. It was quite an uphill battle.
Nathan Barry:
The reason that freemium ... Well, one, freemium and product-driven growth have always been the way that I want to go. There's this other model of having a large team, of having sales teams calling everybody, doing tons of outbound, and that's not my style. I want to build the largest company I can with the fewest number of people. I want to serve hundreds of thousands of customers. I want to hit 100 million in revenue, and I want to have a really small team.
Nathan Barry:
For example, we're at over 22 million ARR, and we have a team of 58 people. Whereas, at this point, I think it'd be fairly normal for us to have a team of maybe 100, 110, something like that.
Wes Bush:
Absolutely.
Nathan Barry:
Product-driven growth and freemium are really important to that. The other thing is, I think in our market, we might have the absolute best, all-time example of freemium, and that's MailChimp. Right?
Wes Bush:
Yeah.
Nathan Barry:
They didn't invent the term, or anything like that, but they were one of the first to say, "This is where we're going, this is how to do it," and they went from being a small player in their market to just completely owning the market.
Wes Bush:
For sure.
Nathan Barry:
You and I could list off dozens of email providers that are over 10 million a year in revenue, and then all those together still aren't more than MailChimp.
Nathan Barry:
I actually got a chance to sit down with Ben Chestnut at a conference, the CEO of MailChimp, and asked him about it. He was fantastic, really great guy. He was even ... We were at the Ink Magazine conference for the Ink 5000 event. He had been a speaker there, and we grabbed some time, and we were just sitting in the hotel lobby. At one point, the editor-in-chief of Ink Magazine comes up, and he was like ... Oh, because MailChimp was the cover story, the company of the year.
Wes Bush:
Oh, okay.
Nathan Barry:
He was like, "Hey, Ben. Just wanted to say hi, and I edited your story. You know, all of that. I love what you're doing, all that."
Nathan Barry:
Ben's like, "Do you know Nathan? He's trying to kill my company," with the biggest grin on his face. He's like, "I'm just kidding, but Nathan made a great email company called ConvertKit. You guys should do a story."
Nathan Barry:
He was just so generous with his time, such an incredible person. He was just like ... He's telling this to a competitor, which he knows, but he's like, "Yeah, freemium was the inflection point for us. We went all in on product-driven growth at time when all of our competitors, like Constant Contact and others, were building out sales teams and spending more money on marketing, and we just went the other way."
Nathan Barry:
He was saying, "Even today, if I were you, I would launch a free plan." That's what I already wanted to do, so part of it was just validating my biases. But then we went back and started working on that, and February of last year is when we decided we wanted to have a free plan. Okay, we're going to do this, what do we need to get in place before we do it?
Nathan Barry:
There were a few reasons for that, one being our landing pages product. We knew by the end of the year would be dialed in and we could compete with Lead Pages, and all these other tools. Side note on that, it's really fun when you make your money in another category, to be able to go into this new category, and say, "Hey, your whole business is now free."
Wes Bush:
Yeah.
Nathan Barry:
I don't need to make money on landing pages. I make money on email, and so I can build a really competitive landing page product and not charge a thing for it. It's purely lead gen.
Nathan Barry:
If you're a landing page provider, that's really hard to compete with because you have to make money off of landing pages. The other thing is that we wanted to have it in place before the next recession, and that was a concrete goal because we just looked at the business cycle, and we're like, "Okay, we're 11 years since 2008. I don't know when this is coming, but it's coming soon."
Nathan Barry:
We want two things: One, when someone hits hard times, an individual creator, it needs to cut expenses. We want to be able to keep them on our platform. We don't want them to switch to MailChimp's free plan, or something else. We want them to stay with us, even if they're not paying. That way, later, they'll reactivate on our platform and we'll still maintain that revenue.
Nathan Barry:
And then, in a downturn, so many people will start a new creative venture, that we wanted to make sure that they started it on ConvertKit. That was the goal. We launched the free plan January 1, 2020. We cut it a little closer than I would want to the next ... Certainly didn't expect a pandemic.
Wes Bush:
Yeah, I know.
Nathan Barry:
As that was starting, we were like, "Whoa, that came sooner than we thought." You know? But, we were in a really good position. We started to see really great growth on our free plan.
Wes Bush:
Okay. You mentioned there was a few things you were hoping to have in place. What were those?
Nathan Barry:
Spam and compliance. Right? You open up the floodgates and we wanted a dedicated team there. We had two engineers, deliverability expert, and then a fraud and payments expert. They had the chance to dial in all our machine learning for content, and subject find analysis, and all of that kind of stuff.
Nathan Barry:
You get weird things, where people realize that you're carefully analyzing all the text. Then, they're cramming all the spammy text inside of images, and you're like, "Come on, computers can read images just fine."
Nathan Barry:
You know? It is this cat and mouse game. Customer support would be another big one of needing a scalable solution to ... We didn't want to promise customer support to free users.
Wes Bush:
Yeah.
Nathan Barry:
In fact, we specifically say, "Join the free plan. It's community support."
Wes Bush:
Yep.
Nathan Barry:
In the five months that we've had our free plan, we've actually been providing customer support to everybody on the free plan because we want to see if we can use it as a conversion and activation.
Wes Bush:
Have you found that to be the case?
Nathan Barry:
To an extent. The jury's still out on it. But we're handling 17,000 support tickets a month now.
Wes Bush:
Okay.
Nathan Barry:
And so, getting a system in place to dial that in was ... We wanted to make sure we had that, as well.
Wes Bush:
Yeah, that came [crosstalk 00:26:49]. Okay. There's 17,000 support requests. How does your team really treat those support quests? I know this year, [inaudible 00:26:57], and they try and treat support requests like ... Not like bugs, like why do these people have to reach out in the first place, let's solve it from the root, and then just try to eliminate all those requests, if possible.
Wes Bush:
Obviously, you're never going to get to ground zero, but how do you approach that from a support stance?
Nathan Barry:
Yeah. We don't quite have the same ... Maybe that same strictness that Atlassian has. I think that's a fantastic strategy, we just probably don't have that level of discipline. We also have more of a beginner customer base, to a lot of extent. Right? Someone just getting started.
Nathan Barry:
We have all kinds of professional creators as well, like Tim Ferris, and Tim McGraw, and Gretchen Rubin, and all these other people, but we have a lot of beginners coming in. We've just accepted that we're going to be answering all the support requests, but basically our technical support team goes through and produces a report every month of if we fix these five things, it will eliminate 600 support tickets from last month.
Nathan Barry:
And then, as a product team, we go through and knock those off.
Wes Bush:
Okay. Interesting. You made the switch to freemium at, I would argue, the ideal time. What has been the result, versus free trial, versus freemium? Can you tell us some of the biggest differences, especially maybe what didn't change as well, would be kind of interesting to see if maybe the support wasn't as big as you thought it'd be, and what were some of the results even from a revenue perspective, too?
Nathan Barry:
Yeah. Our biggest fear was that we would lose a whole bunch of MRR.
Wes Bush:
Yep.
Nathan Barry:
I actually remember, a long time ago, Drip made this switch, another one of our competitors, to freemium. They actually just went and downgraded everybody. They wrote a blog post about how we lost 25,000 in MRR because we launched our free plan.
Nathan Barry:
If we had done that, it would cost us 250,000 in MRR. That was all of my monthly profit that I could spend on promoting a free plan. I'm like, I'm not going to do that. You know? And so, there were differences. Right? I guess it helped to map out what we did for our free plan over time.
Nathan Barry:
First on the free plan, we did just landing pages.
Wes Bush:
Right.
Nathan Barry:
Which might have ... It didn't backfire, but it didn't come across as compelling because we weren't known for landing pages; we were known for email. And so, it worked in that it really pushed that angle and a lot of people started to know us for landing pages. Now, if you see the volume of landing pages being created every month, and all of that, it's substantial.
Nathan Barry:
But then, it took some of the launch benefit away. You'd be like, "ConvertKit launches a free plan." Oh, but it's just landing pages? What it did, is that really limited our downgrades and our contraction. We had to play around with it, and so we rolled that out. We quickly followed it up with a referral model, where if you invited a friend, then you could unlock sending a broadcast to 100 people, and then for every additional friend you referred, you could send to another 100, up to 1000. 1000 subscribers.
Nathan Barry:
We wanted to play with that drop-box style referral system. In mid March, we made the change so that everyone got 500 subscribers by default. It's free for up ... Broadcasts, segmenting, and all of that, free for up to 500 subscribers. That really holds back premium support and our whole automations product.
Wes Bush:
That's a good number for that 5K out of 8K, if they're just starting out. Like hey, let's get this going.
Nathan Barry:
Yep. And then, actually June 1st, we, made the change, so it's now 1000 subscribers for free. That was, what, a week and a half ago, two weeks ago? We haven't promoted that yet because of the political climate and all that's going on right now.
Wes Bush:
Yeah.
Nathan Barry:
We'll be promoting that soon. For context, that's where we're at. That's how we space it over time, because we didn't want to see a huge contraction in amount. We didn't want to lose hundreds of thousands of MRR.
Wes Bush:
Yep.
Nathan Barry:
We watched how many people were downgrading and what was going on. At each stage, we got more and more people downgrading as we made the free option more valuable, but we lost 45,000 total in MRR. By the time we bumped up those plan limits, we could have lost 480,000 in MRR.
Wes Bush:
Wow.
Nathan Barry:
The contraction was way ... Surprising things. Contraction was way lower than I expected, significantly lower.
Wes Bush:
Yeah.
Nathan Barry:
I really ... I didn't know if it would work, but I really wanted to try the invite a friend, Drop Box style, something.
Wes Bush:
Yeah.
Nathan Barry:
A bunch of smart people were like, "You should try it, but it's not going to work."
Nathan Barry:
Unfortunately, they were right. And then as we bumped up our limits, went to 500 subscribers just included for everybody, and then 1000, then it's just not as valuable anymore.
Wes Bush:
Right.
Nathan Barry:
People still do it, they like it, but that was not a big driver of accounts. At one point, it was driving 10% of our volume. Now, it's less than that. I'm trying to think what other surprising factors ... Oh, free to paid. We had no idea what to expect.
Wes Bush:
Yeah.
Nathan Barry:
I had seen numbers, I read everything I could about freemium, and I was calling up Heaton Shaw, and Patrick Campbell, and other friends, and was like, "Teach me. What do you know?"
Nathan Barry:
I'd seen everything from Google Drive being at half a percent free to paid, to someone who was citing- I don't know if this is true or not. Somebody was saying Spotify is at 28% free to paid. I don't know. It worked for me. I signed up for Spotify. I'm like, "I'll just use the free thing," and then not very long later, I was somehow paying for it.
Wes Bush:
Yeah.
Nathan Barry:
That seemed wildly high, but I knew that depending on product, it could be a huge range.
Nathan Barry:
And so, I didn't know what to expect. I put down three percent in our spreadsheets. If we can get to three percent ...
Wes Bush:
That's fair.
Nathan Barry:
Free to paid. How's that number sit for you? Is that low, high? What do you think? If you were making my spreadsheets, what number would you put down?
Wes Bush:
Yeah, I would actually go around two or three. That's conservative, which is good.
Nathan Barry:
Yeah. It ended up being between four and a half and five.
Wes Bush:
Nice.
Nathan Barry:
That surprised me. I was like, "Ooh, okay. That'll work."
Wes Bush:
Surprise.
Nathan Barry:
And then, there's a lot of things that we could improve, and go from there. If we're getting into mistakes, one that I realized, our upgrade screen gave you a 14 day trial. If you upgrade to a paid account, you got to try all the paid features for free for 14 days, but if you put in your credit card ... Right? I've been using ConvertKit for free for either 10 minutes or three months, or however long, and I want to try automations and integrations, and so I can upgrade if I have my credit card.
Nathan Barry:
None of the copy said that. All the copy implied that you were signing up, that you would pay right away. It was the worst of both worlds.
Wes Bush:
Yeah.
Nathan Barry:
There was a lot of things like that where some of our dynamics that existed before, you're like, "In this new world, that doesn't make any sense."
Nathan Barry:
[crosstalk 00:35:12] A decent number of those things. There's just an endless amount of stuff to optimize. I guess the last thing, and then I'll let you ask another question, would be just to move some numbers in there.
Wes Bush:
Yeah, definitely.
Nathan Barry:
We started out between 200 and 400 free accounts a day, is what we started to get to. That got up to maybe the 300, 400 free accounts a day.
Wes Bush:
Okay.
Nathan Barry:
And we were running trials at the same time, so still some traffic was going through free trials. On March 20th, we made the switch to go from 100 subscribers for free, to 500. We immediately saw a huge lift. Part of it was because we pointed all of our traffic to go towards the free plan, but a lot of it was just the perception of everything changed.
Nathan Barry:
We started to get between 800 and 1000 free accounts a day.
Wes Bush:
Awesome.
Nathan Barry:
We've stayed at that number. We've been running this for five months now, and we have 91,000 free accounts. And then, we're sitting at ... If you look total at 3.5% conversion rate to paid, but if you exclude everybody's who signed up in the last 30 days, then it jumps up to more like a 4.5 to 5% conversion to paid.
Wes Bush:
Awesome. That is a nice, small city you've got there of free using.
Nathan Barry:
Yeah, it is. That's on top of the 30,000 paid users that we have.
Wes Bush:
Yeah. In my book on product-led growth, one of the things I mentioned is this whole relationship between your pricing model and cost drive position model is like this arranged marriage where you're trying to make it work for them, so you're giving away a lot more for free, your cost drive position model gets the better end of the deal. They're loving it, more people are signing up, whereas your pricing model sometimes might, if you give everything away for free, you're obviously not making money, how as a CEO do you balance that?
Wes Bush:
There is a middle ground that I believe is the best of both worlds, you can make it work, but finding for a lot of companies can be really challenging. It does sound like when you first launched, it might have been more weighted on the revenue model, the pricing model, because there was the 100 subscribers for free, and then you upped the cost driver position model side of things.
Wes Bush:
You saw there's a better line here, maybe 1000, we'll try it again. How do you manage that, because a lot of people are struggling to figure out what do I give away for free? What should I put behind maybe another trial? Let's hear your thoughts on that?
Nathan Barry:
Yeah. The first thing is that we knew we could incrementally work in to whatever we wanted.
Wes Bush:
Yep.
Nathan Barry:
That's the path that we wanted to make. I didn't want to break a successful, established business. A lot of people, if they start with free, you have nothing to lose. You're in search of a business model, you're trying to figure out what you're going to do. It's like, if it doesn't work, then a business doing 1000 in MRR would die.
Nathan Barry:
At this point, I could kill a business doing millions in MRR, and that's not good. Let's not break anything. We went into it incrementally, which in hindsight, we didn't need to do because it worked out, but I would still do it again because you can get to some really great numbers. It only took us five months to get to a really compelling free plan and to do it with confidence.
Wes Bush:
Right.
Nathan Barry:
That's the first thing. I'm trying to think of what other things that I would say. The biggest thing is that we knew ... As you're playing in that balance, it's really a revenue ... I'm trying ... How would I think about this? A revenue versus a landing grab. Can you get as many users as possible and dominate the market or are you trying to optimize your revenue, your efficiency, and your profit?
Wes Bush:
Yeah.
Nathan Barry:
We obviously cared about that balance, but we knew that if we had to go wrong in one direction, we wanted to go wrong in making it too compelling, getting too many free users.
Wes Bush:
Right.
Nathan Barry:
I'm going to look really quick and see if I can pull this up because there were a couple of frameworks of how we thought about it.
Wes Bush:
Okay.
Nathan Barry:
I think I can pull it up and ...
Wes Bush:
Yeah, no, that'd be super helpful just to see ...
Nathan Barry:
[crosstalk 00:39:42] Really quick. Maybe I can't. Let's see. Yeah. Well, I'll browse it really quickly and see if I can find that. The idea ... [inaudible 00:39:56]. Ah, I think I've got it ... That I want to talk about.
Nathan Barry:
Okay, how we looked at it is, there's two equations. One is the attractiveness to ... Let me close that so I can see it better. Okay. It's like the attractiveness, which is how much traffic can you get to the free plan, and then the other side is the conversions.
Nathan Barry:
Actually, are you going to be sharing ... Is it audio or are you sharing the video, as well?
Wes Bush:
It's going to be video too, so feel free to share your screen.
Nathan Barry:
Here, if you turn on screen sharing ...
Wes Bush:
I thought it was on, but ...
Nathan Barry:
Now it is.
Wes Bush:
Okay. There you go.
Nathan Barry:
Okay. If we look at this, this is how ... A framework of how we looked at it. We tend to put things into quadrants or how you frame the conversation.
Wes Bush:
Yep.
Nathan Barry:
This is ... What's the most attractive plan? If we said all the features are free for 5000 subscribers, that would be very attractive. And then if we're like, looking at conversions, what's going to get us the highest free to paid conversion rate? If we give away everything, that's very low on the conversion rate, and very high on the attractive. We've got tons of people, but nobody's paying us money.
Nathan Barry:
We say, "Hey, free is 100 subscribers, a limited feature set." Right? We might get high conversions but a low attractiveness. We start to map things out in those terms.
Wes Bush:
Okay.
Nathan Barry:
When we're looking at ... Another way that we might put it, when we're thinking what should be on the free plan itself, we would look at should we go based on usage? That'd be 100 subscribers, 500, 1000, 5000, I don't know. We threw an unlimited on there. Could we make a business model work if we were giving away unlimited subscribers?
Wes Bush:
Yep.
Nathan Barry:
The other's on the feature side. Low to high. If we're going ... We could say up to 500 subscribers, but there's no limitations on the features, and there's automations, and it includes support, all of that. Really trying to see what's going to get people to upgrade.
Wes Bush:
Right.
Nathan Barry:
What we found is that ... Basically what we came to is that on the attractiveness side, a high number of subscribers, we went with 1000, is pretty attractive. A lot of people will make that decision to sign up even though they're not going to hit 1000 for a very long time.
Wes Bush:
Okay.
Nathan Barry:
But then actually a lot of people are upgrading well before they hit that limit because they want the automations, and the integrations, and support. That was really the balance that we found between getting a lot of people in the door and getting a good solid conversion rate.
Wes Bush:
Okay. No, thanks so much for sharing that. I love all those graphs. What is the program you used to make all those graphs? I love it.
Nathan Barry:
This is actually just Figma. I'm a designer by trade. Figma is the best design tool.
Wes Bush:
Yes. That's your hammer.
Nathan Barry:
Yes, exactly. We ran our last board meeting ... That was actually from our last board meeting.
Wes Bush:
Okay.
Nathan Barry:
Whiteboard. I ran it in Figma. One of my board members was like, "Only you would do this, run a board meeting."
Nathan Barry:
It's [inaudible 00:43:13] collaboration. Right? Everyone can see the changes in real time and ... Anyway.
Wes Bush:
That's great.
Nathan Barry:
[crosstalk 00:43:19]
Wes Bush:
Awesome. Well, Nathan, I know we're coming to the end of this conversation. Is there anything else, any words of wisdom for anyone who is considering right now, I'm planning on making the switch to freemium, maybe what should I look out for, what should I keep in mind as I do make this transition? People, after listening to this, they're going to make this transition. If there's any thing you would recommend, they're going to be eating it up.
Nathan Barry:
Yeah. The first that I would say is I made this transition when I had a working business model.
Wes Bush:
Yep.
Nathan Barry:
Be really careful of making it before you have a business model that's tried, and true, and tested. In software, we have these different camps. There's the Bootstraps of the world, that's just like "No, we're just here to make money, our business makes sense." And you've got the VC world, where they're just like, "Throw whatever amount of money at it so we find a business model. Sure, we'll spend $5 to make $1 until figure this out."
Nathan Barry:
Each camp disses on each other and makes ... The Bootstrap people are like, "Well, at least my business model works," and then the VC crew is like, "Have fun with your lifestyle business," or whatever these camps say to each other.
Nathan Barry:
What I realized is we've taken this Bootstrap path the whole time and now we're in this position where we have a business model that's tried and true; it's gotten us over 20 million ARR. We've got the brand, we've got the influence, we've got the stability, we have cash now. Now, even though we've come up through this Bootstrap community, why don't we take some of these blitz-scaling ideas and say, "What if, instead of doing that with VC money, we just did that with our own money?"
Wes Bush:
Right.
Nathan Barry:
And so, we didn't go free in search of a business model, or to attract as many users as possible, and try to figure out how to make money. We had a tried and true business model, and then said, "Now that this works, let's use free for awareness, and let's just go about it deliberately and not break something that works."
Nathan Barry:
That's the biggest thing. I would say that I think if you're going to struggle with free, the people who will struggle the most are either ones who are less on the product-driven growth side, where the product's actually not that good, and you're making up for it with sales team, account managers, or just founder hustle.
Nathan Barry:
And then, anyone who is just getting started and doesn't have product market fit yet. I can only speak to my own experience, but I would figure out my business model, and who the ideal customer is, and all of that from paid users before ever considering going free.
Wes Bush:
Absolutely. That is fantastic feedback, because I have seen the other side of it too, where companies, they go too early in this place of freemium, and they do get burned. I know it might be a competitor, but Rob Walling, the CEO of Drip, had this quote, "Freemium is like a samurai sword. If you don't know what you're doing, you could easily cut your arm off."
Wes Bush:
So, be warned. [inaudible 00:46:28] and it can hurt you, too.
Nathan Barry:
Oh, for sure. That's why we took a very, very deliberate path about it because I didn't want to ... I don't know what the phrase would be. Kill the golden goose? Just don't ... If something's working, don't screw it up.
Wes Bush:
Yeah. I like the way you've approached it too, because it's not like you went all in, everything is free, crazy freemium model for that cost drive position, but you scaled it. You started at that 100, moved to 500, moved to 1000. As you could vet the system itself, see how it's converting, and really play around with it a bit more as you can run those tests, because it's not set it and forget it, like anything in business.
Wes Bush:
Thank you so much for sharing your insights on this transition to freemium. This has been a really fun chat. I love how open and humble you are when it comes to just sharing everything. I love your Figma board meeting deck. That's pretty smart.
Wes Bush:
Obviously, we will include the link to ConvertKit and everything else, but where can people find out more about you and your journey? I know you blog a lot.
Nathan Barry:
Yeah, so just nathanbarry.com. I've got blog posts going all the way back to what I call the web app challenge, when I started ConvertKit. There is a blog post announcing that, and then I've blogged all the way along from 2000, to 5000 MRR, to 50, to 100, to ... Trying to get profitable, and how we run our profit sharing plan, and running a remote team, and how we grew through direct sales.
Nathan Barry:
I just blogged all the way along, and so you can find them all in the archives there.
Wes Bush:
Awesome. Well, I'll make sure to include that, as well. Thank you so much for coming on. It's been a blast.
Nathan Barry:
Yeah. Thanks for having me.
