From http://chargify.com/blog/why-we-changed-our-pricing/:
"Grasshopper Group has been supporting Chargify for 15 months, and Chargify is now supporting 3,000 merchants - again, the large majority of whom are paying $0."
And from the linked article:
"We should have shared the data we collected for over a year that demonstrated quite clearly to us that only 0.9% of customers were paying us at all, and that there was a direct correlation between those that did not pay anything and a high volume of support requests."
3000 merchants total * .009 paying = 27 paying merchants
Now, these numbers could be off in several ways, but even if they're off by an order of magnitude (and I doubt they are) - ouch!
So many lessons to be learned from this:
- Freemium's applicability is so over-rated. I couldn't be happier that we've had a (cheap) pay-to-play structure at Spreedly since the beginning. Personally I think freemium should always be a strategy introduced post-profitability, never before.
- It's been said many times, but I'll say it again: the "overnight success" is a myth. Most businesses take 2-5 years to reach any kind of profitability. Selling to startups? Better keep that in mind.
- Capital infusion causes market distortion. Not saying that's a bad thing, but it's worth recognizing. Spreedly noticed a definite drop-off in signups when Chargify came out, and why not - wouldn't you take the free option vs. Spreedly's pay to play? And wasn't that some great marketing they poured a lot of money in to? And yet their free option and their marketing were only possible due to the Grasshopper Group's investment.
- Put that all together and you end up with this: you've got to keep your burn low until you find your product/market fit and your scalable sales model. Or you've got to have a sugar daddy. Or you've got to win the investment lottery. Spreedly is still alive because we've only allowed costs to grow as we're able to handle them - that's the nature of the bootstrapped startup, hard as it can be at times.
One more bit of math: if my numbers above are correct, Spreedly has 6x as many paying customers as Chargify. And we've had zero outside investment. And, painfully, we're still not ramen profitable. But: we have a pivot in the works that will blow the doors off of what we've done to date (and it doesn't involve raising prices on existing customers - promise!). So stay tuned - this space is just starting to get interesting.
Oh, and if you're an angel investor: we'd love to have some capital to use to distort the market in our favor for a change :-)