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How to Break the Trust of Your customers in Just One Day - Lessons Learned

197 points by mgrouchy 16y ago

the_unknown 16y ago
You should also consider the timing of the announcement. This pricing change was made on a Monday morning - people are already grumpy from returning to their regular work week but it also was a "special" Monday as it was a holiday for some. Thanksgiving for all Canadians and Columbus Day I believe for some (all?) Americans. You potentially affected numerous holiday brunches with the timing of your pricing changes. NOTE: I haven't used your company before but it seems like it would be useful so I'll certainly consider it if I'm in need of this type of service in the future.
mgrouchy 16y ago
I should add this is in relation to Chargify's recent pricing change. Can only do so much with an 80 character title.
- revorad 16y ago
  Suggestion: "Lessons learned from Chargify's recent pricing change"
- GBond 16y ago
  Funny. Just reading the current title I know it would be about Chargify.
patio11 16y ago
Over the past year, we discovered that the customer that never paid had the highest support load. Once we made the announcement about the price change, the same applied to complaining about Chargify across multiple public channels. Those customers that were working on a hobby business, or just something they were not investing in significantly, seemed to have the time to tweet all day long, post multiple negative comments on every possible channel available, and shout the loudest. This is exactly what I mean when I talk about pathological customers. You will get to deal with them, too, if you try to be the cheap option in your market.
- Vivtek 16y ago
  Oh hell yes. I ran Despammed.com for years (free spam filtering) and never charged anything for it, not having figured out the ???-profit part. The majority of people were very supportive, and even provided donations that paid my mortgage more than once - but there were enough that were psychos demanding that I take them off my spam mailing list (???) or they'd never pay me again. Seriously. There are a lot of really stupid/weird people out in the world.
  - elblanco 16y ago
    Just remember, 1/2 of the world gets by with an IQ under 100.
- mgrouchy 16y ago
  I think this is essentially true, we made this decision early when we came out of beta to not offer a free plan for exactly this reason. Non-paying customers end up taking up the lions share of your companies resources.
- bdfh42 16y ago
  Correct - the only customers I have had to "sack" have been a couple on a "special low price" deal - they always made greater demands than the regular paying customers and their (non financial) contributions to the process were always inadequate and late.
- buro9 16y ago
  I think you're really pre-judging your customers in a bad way here. You don't have pathological customers, what you have is a large number of people who instead of paying hard currency for a service will trade time as their currency. What this means is that a good number of those who stay on the free side of the freemium model are in fact willing to pay. Just not with cash. What they're willing to do is to spend time to learn your service, to participate in your forums, and in any way that is required to get their free service. When you only expect, want, and cater for the customers who have hard currency you will of course piss off the time-as-a-currency crowd if you've already grabbed them. Then it should come as no surprise when those pissed off people use their time against you. I'm not saying that's a reasonable response. But it's certainly to be expected. The best thing to do is to work out how to use the time-as-a-currency crowd to your advantage. Instead of ditching them in a price-hike, ask them to do something for you. Maybe they have to participate in support forums to help others getting on board in return for the service? Maybe they have to just promote your service on their site? My point is simply that it's naive to ignore this very large set of customers, and even more naive to act in ways that will piss them off if you've already constructed a freemium model that attracted them.
xentronium 16y ago
Am I the only one who felt the whole post has some "free users are jerks" attitude?
- jdp23 16y ago
  You're not the only one who felt that :-)
- ericb 16y ago
  Yes, and instead of seeming purely apologetic, the post comes off as tool-ish. You can see the attitude that lead them to the gaff shine through their mea culpa! I wouldn't go with chargify now on the theory that they will continue to do these things in spite of themselves. Their mental model of how people react is flawed, and the underlying love of their audience is missing, which inevitably leads to more mistakes. As a counterpoint--someone who's got the love, like Peldi of Balsamiq, won't run into these problems continually, and when they do, can recover trust faster.
- bapadna 16y ago
  It sounded like it was written by a slightly more ambitious Randal Graves: This job would be great if it wasn't for the fucking customers. I'm not surprised that his freemium experiment failed. I've often advocated Cheapium to avoid some of the problems he's mentioned, but the way he switched models was JV at best.
- melvinram 16y ago
  In many cases they are. We offer a few free WordPress plugins that get us some very interesting emails. You'd really be surprised at the level of entitlement some people have when you offer something for free. On the other hand, paying clients really respect their time and our time. I'm not saying it's all their fault. It's your responsibility (as someone who chooses freemium as a business model) to make sure you don't allow them to be jerks to you. That means putting limits on how much resources you allocate to supporting them and having clear revenue channels that allow you to make your revenue goals. Still, many freeloaders can be plain jerks at times.
  - 16y ago
benjaminwootton 16y ago
This was visible a mile off. Indeed, ZenDesk did the same recently and it caused a huge uproar. Grandfathering existing customers seems like the only logical path if you really want to hike costs of a subscription.
- mgrouchy 16y ago
  I think the thing here, would be to grandfather paying customers, as they are already paying you and you can determine their expected value to make an educated choice about them.
- Osiris 16y ago
  I'm really surprised by this as well. These mistakes were exactly the same ones that ZenDesk made. Obviously they didn't take the time to learn from that particular fiasco. Had they paid attention to ZenDesk's problems, they would have avoided almost all the problems they had. As a counter example, I signed up for Backupify during their beta. I recently checked their site and saw that their free plan is fairly limited, but my account shows I'm at the premium level, which currently has a monthly fee, though I pay nothing. They grandfathered in my account without even telling me there was a pricing change. In other words, only new customers were affected, not existing customers. There was no uproar because it didn't really affect existing customers.
- jeffepp 16y ago
  agree 100%, it is the only way for customers to "trust" your pricing scheme. Otherwise, it's carte blanche to raise at any time...
DevX101 16y ago
Sounds like he's trying to have his cake and eat it too. Many of these loud obnoxious protesters were probably the same ones who were singing your company's praises early on.
- tptacek 16y ago
  But, that and a nickel gets ya...
  - wccrawford 16y ago
    Viral marketing. Even without the nickel. Don't underestimate the value.
    - tptacek 16y ago
      What's "viral" about giving your stuff away for free and hoping that the freeloaders will end up being a net win? Aren't we just talking about word-of-mouth marketing? Doesn't that work mostly when the words travel among paying mouths? Are you sure you aren't just putting a 2.0-ey spin on a simple problem?
- edanm 16y ago
  Why do you think so?
  - DevX101 16y ago
    There are a subset of people who are just loud. And they like everyone to know. Malcolm Gladwell called them 'mavens'. These are the type of people that when they try a new cool restaurant, want to tell EVERYONE about it. Never piss these people off. They are insanely helpful in getting early traction for your business. But piss them off, and they feel personally offended and make it their personal mission to 'get back at you'. I can't find the thread right now, but there was a guy on reddit who made a post like this. His insurance company screwed him out of a few bucks. He then told the agent he'd tell all his friends to leave their company. The agent laughed it off. This guy went on a vendatta against the company emailed all his friends (A LOT) and ended up costing this company a few hundred thousand dollars a year (at least) in lost revenue. He could have made it worse by naming the company in his thread on reddit, but I guess he called a truce at that point. Find these mavens in your business and treat them well. Even if they're "pathological"
jacquesm 16y ago
Reading that it looks like there will be more lessons to be learned shortly. If any of you ever does something like this and you make a 'bad' move, revert. Simple. Make a step back and think things over for a long time before changing direction again, assuming that you are not about to go out of business buy yourself some time. It takes a long time to build up a reputation you can lose it in a heartbeat. Chargify has made a huge step in the right direction by dropping their price to $40 / month but if they had started out with announcing a $0 to $40 increase that would have been just as a big a problem reputation wise. A contract you made should never be broken like this, especially not retro-actively with the people that signed up under the original terms. New terms apply to new customers, especially such dramatic changes. Of course if you have customers that you can't make any kind of payback on then you will have to do something about them (assuming they're pulling you under). But to change direction 180 degrees from your previous 'pitch' overnight is not good and this new revised plan is still not going to undo the damage. My plan of action would be: - stop the influx of new customers at the 'free' plan by changing the tos: free for 6 months, then pay - measure the effect of that and if it is good reduce the 'free' period - if it is free, no support other than the public documentation + a forum - if you want support you will have to sign up for the paid plan I'm fairly sure that users would overwhelmingly agree that that is a reasonable proposition, and even though in the long run the effect would be much the same the change would be one that you could explain easily. Disclaimer: I've been operating a freemium website for a long time that went through the free to premium step during the .com crash, we solved it by selling our customers new features that were not in the site before and we made sure that the 'free' users pay us back with content. There always is a way out if you look for it hard enough.
- DevX101 16y ago
  I second the "free for ___ months" then pay strategy. If a customer can't see the value in your offering after a few months of using it, they probably never will. On the other hand, if you just charge customers off the bat, there are many people who can't overcome the activation energy of pulling out a credit card and will leave your site. I've come across quite a few services where even if they charged a penny, I'd probably pass just b/c I don't want to give you my credit card without knowing how useful your service really is.
danfitch 16y ago
There is nothing wrong with a company charging for their services. They have to make money somehow. If you are going to make a large change like this set it up with information tell customers give them lead time, and let them easily make the choice. Bottom line if you have a product that is worth it, charge for it.
davidedicillo 16y ago
At the beginning I was upset, because this price increased arrived the day after I decided to integrate Chargify in an service we are building. But I was wrong. If you really think that in 6 months your application for which you need a billing system, can't at least cover the cost of a latte per day... maybe you should stop right now and don't waste your time with it. Do you need more than 6 months because of any reason? Fine, that means you will have to give up your Startbucks habits for a while. If you don't trust your product to ever reach those 50 customers that would make you into a paying customer, why would Chargify?
pvg 16y ago
One lesson-not-learned seems to be 'when taking responsibility for a big cock-up, try to minimize or omit blaming others'. It's perfectly believable that free customers were an unsustainable burden or that the press (and its consumers) love disaster stories. These things are also perfectly fine things to write about. But the timing is awful - do you really want to be calling your customers a bunch of loud whiners with too much time on their hands just days after everyone on the net was calling you ham-handed and tone-deaf in customer-relations matters?
rewind 16y ago
These mistakes are so obvious that I'm starting to believe that some of these companies do it on purpose so they can get a tonne of PR, make things right, then look like the "hey, we fucked up because we're human but we fixed it quickly because we love our customers" companies that we hear about all the time these days.
ia 16y ago
This post looks like posturing to me. It's saturated with thinly-veiled animosity toward the free users. I'm sure he's sorry it all happened, but it's not clear he actually feels bad about any free users left in the lurch. The internet is a social place, and good will may as well be a form of currency. There have been lots of times that liking a company has pushed me into paying customer mode, when I would have otherwise been a "freeloader".
cullenking 16y ago
First off, I had high hopes for chargify as I had chatted with Lance on a few occasions and he comes off as a great guy. But David here comes off as a total ass. He literally stated that only 99.1% of their users are free users, and then proceeded to rip on free users like crazy. I can understand the pain of servicing free users. I have 10+ messages/questions a day from free users and they often are rude or incredulous. That doesn't mean I can say "all you people who bug tested our software, reported deficiencies and helped ensure our service doesn't suck, go take a hike!". Just because you got your use out of the free customers (their time dealing with your buggy early release software) doesn't mean you can jettison them. You have to ease them into a new pricing system, stop future people from being free, etc.
ntalbott 16y ago
So lets do some math: From http://chargify.com/blog/why-we-changed-our-pricing/ 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 :-)
- jasonlotito 16y ago
ryanwanger 16y ago
I thought it was a good post, and didn't come across poorly at all (though the comments seem to differ). Perhaps it's because I didn't follow any of this yesterday, so this is the first I am reading of it.
jdp23 16y ago
Alternate title: how to get to HN front page three times in a week.
hkuo 16y ago
The value of free users is the potential word-of-mouth that can reach other users who could potentially become paying users. Isn't that the point of offering and supporting a free service?
scottyallen 16y ago
To paraphrase what I think are his main points: - Our free customers are really bad for our business. They complain a lot in really visible ways, they make up a lot of our support burden, and they never end up paying us anyway. - Once we figured this out, we decided we don't want them as customers. - We gave all our free customers an option to start to paying. Those that aren't willing to pay we don't care about. - OMG!!1! What a shit storm this created. All those free customers that we don't care about sure complain a lot when you screw them, way more than they used to. This really sucks, and makes us look really bad. Oh, and fuck you tech crunch for covering Square and not us, and then kicking us when we're down. - Boy, I really wish we'd sugar coated getting rid of all those pesky free customers so they didn't complain so damn much. I see a lot of remorse for the outcome and lack of sugar coating, but not a lot of remorse for the actual underlying action. When you build something people rely on, and then take it away from your most vocal userbase, what exactly do you expect the outcome to be?
dangrossman 16y ago
Regarding nobody using Freemium... couldn't it be that those merchants running freemium services only send Chargify their paid user information? There's no reason they can't. You could have 10,000 free users and only tell Chargify about your 50 paying users when they've upgraded and you need to start managing subscriptions for them.
podman 16y ago
I totally understand the move to get rid of the free plan but I still see no explanation for doubling the price of the 50-500 user plan.
dylanz 16y ago
I thought this was going to be about todays Mint.com episode: http://satisfaction.mint.com/mint/topics/why_did_you_receive_blank_emails_from_stage_mini_mint_com_late_tuesday_night http://satisfaction.mint.com/mint/topics/why_did_you_receive...
dgreensp 16y ago
This story repeats every month with a different company. I haven't been following Chargify, but my first thought on seeing this headline was "don't tell me they didn't grandfather their existing customers". Sure enough, wading through a huge mea culpa about not communicating well enough, there it is.
jeffepp 16y ago
What David seems to forget is the following: 1) Free customers DO PAY for Chargify, just not to them directly. It cost us several days of development time + testing to integrate with them. 2) You lost trust because you weren't fair. Change the prices and grandfather existing users. If the free customers fail, you will not need to support them for that long. Your pricing policy is = "you pay X/mo. until we raise it" This post reaffirms my choice to leave Chargify and investigate the alternatives: http://recurly.com http://recurly.com http://spreedly.com http://spreedly.com, http://cheddargetter.com http://cheddargetter.com & http://FreshBooks.com http://FreshBooks.com For the record, I understand why they are raising prices, I cannot understand how anyone could trust them again.
- 0x44 16y ago
  The cost of development/testing is the same for customers that pay as it is for those who do not. Additionally, that cost is one you'd use no matter the processor you'd use, so your first point seems a bit disingenuous.
  - jeffepp 16y ago
    True. When the prices are substantially raised you are forced to 1) pay the price or 2) re-integrate. So the cost in the my first point is actually doubled.
skmurphy 16y ago
Another approach to 'grandfathering' is to announce an "end of life" for a service and give customers notice of, for example, a year. Chargify might have been better served to "end of life" their free service, making it available to current customers for another year and closing it to new customers.
rradu 16y ago
This mistake and subsequent lesson learned has been documented time and time again--why do companies still have the oversight to alienate customers like this?

197 points by mgrouchy 16y ago

You should also consider the timing of the announcement. This pricing change was made on a Monday morning - people are already grumpy from returning to their regular work week but it also was a "special" Monday as it was a holiday for some. Thanksgiving for all Canadians and Columbus Day I believe for some (all?) Americans. You potentially affected numerous holiday brunches with the timing of your pricing changes. NOTE: I haven't used your company before but it seems like it would be useful so I'll certainly consider it if I'm in need of this type of service in the future.

mgrouchy 16y ago

I should add this is in relation to Chargify's recent pricing change. Can only do so much with an 80 character title.

revorad 16y ago
Suggestion: "Lessons learned from Chargify's recent pricing change"
GBond 16y ago
Funny. Just reading the current title I know it would be about Chargify.

patio11 16y ago

Over the past year, we discovered that the customer that never paid had the highest support load. Once we made the announcement about the price change, the same applied to complaining about Chargify across multiple public channels. Those customers that were working on a hobby business, or just something they were not investing in significantly, seemed to have the time to tweet all day long, post multiple negative comments on every possible channel available, and shout the loudest. This is exactly what I mean when I talk about pathological customers. You will get to deal with them, too, if you try to be the cheap option in your market.

Vivtek 16y ago
Oh hell yes. I ran Despammed.com for years (free spam filtering) and never charged anything for it, not having figured out the ???-profit part. The majority of people were very supportive, and even provided donations that paid my mortgage more than once - but there were enough that were psychos demanding that I take them off my spam mailing list (???) or they'd never pay me again. Seriously. There are a lot of really stupid/weird people out in the world.
- elblanco 16y ago
  Just remember, 1/2 of the world gets by with an IQ under 100.
mgrouchy 16y ago
I think this is essentially true, we made this decision early when we came out of beta to not offer a free plan for exactly this reason. Non-paying customers end up taking up the lions share of your companies resources.
bdfh42 16y ago
Correct - the only customers I have had to "sack" have been a couple on a "special low price" deal - they always made greater demands than the regular paying customers and their (non financial) contributions to the process were always inadequate and late.
buro9 16y ago
I think you're really pre-judging your customers in a bad way here. You don't have pathological customers, what you have is a large number of people who instead of paying hard currency for a service will trade time as their currency. What this means is that a good number of those who stay on the free side of the freemium model are in fact willing to pay. Just not with cash. What they're willing to do is to spend time to learn your service, to participate in your forums, and in any way that is required to get their free service. When you only expect, want, and cater for the customers who have hard currency you will of course piss off the time-as-a-currency crowd if you've already grabbed them. Then it should come as no surprise when those pissed off people use their time against you. I'm not saying that's a reasonable response. But it's certainly to be expected. The best thing to do is to work out how to use the time-as-a-currency crowd to your advantage. Instead of ditching them in a price-hike, ask them to do something for you. Maybe they have to participate in support forums to help others getting on board in return for the service? Maybe they have to just promote your service on their site? My point is simply that it's naive to ignore this very large set of customers, and even more naive to act in ways that will piss them off if you've already constructed a freemium model that attracted them.

xentronium 16y ago

Am I the only one who felt the whole post has some "free users are jerks" attitude?

jdp23 16y ago
You're not the only one who felt that :-)
ericb 16y ago
Yes, and instead of seeming purely apologetic, the post comes off as tool-ish. You can see the attitude that lead them to the gaff shine through their mea culpa! I wouldn't go with chargify now on the theory that they will continue to do these things in spite of themselves. Their mental model of how people react is flawed, and the underlying love of their audience is missing, which inevitably leads to more mistakes. As a counterpoint--someone who's got the love, like Peldi of Balsamiq, won't run into these problems continually, and when they do, can recover trust faster.
bapadna 16y ago
It sounded like it was written by a slightly more ambitious Randal Graves: This job would be great if it wasn't for the fucking customers. I'm not surprised that his freemium experiment failed. I've often advocated Cheapium to avoid some of the problems he's mentioned, but the way he switched models was JV at best.
melvinram 16y ago
In many cases they are. We offer a few free WordPress plugins that get us some very interesting emails. You'd really be surprised at the level of entitlement some people have when you offer something for free. On the other hand, paying clients really respect their time and our time. I'm not saying it's all their fault. It's your responsibility (as someone who chooses freemium as a business model) to make sure you don't allow them to be jerks to you. That means putting limits on how much resources you allocate to supporting them and having clear revenue channels that allow you to make your revenue goals. Still, many freeloaders can be plain jerks at times.
- 16y ago

benjaminwootton 16y ago

This was visible a mile off. Indeed, ZenDesk did the same recently and it caused a huge uproar. Grandfathering existing customers seems like the only logical path if you really want to hike costs of a subscription.

mgrouchy 16y ago
I think the thing here, would be to grandfather paying customers, as they are already paying you and you can determine their expected value to make an educated choice about them.
Osiris 16y ago
I'm really surprised by this as well. These mistakes were exactly the same ones that ZenDesk made. Obviously they didn't take the time to learn from that particular fiasco. Had they paid attention to ZenDesk's problems, they would have avoided almost all the problems they had. As a counter example, I signed up for Backupify during their beta. I recently checked their site and saw that their free plan is fairly limited, but my account shows I'm at the premium level, which currently has a monthly fee, though I pay nothing. They grandfathered in my account without even telling me there was a pricing change. In other words, only new customers were affected, not existing customers. There was no uproar because it didn't really affect existing customers.
jeffepp 16y ago
agree 100%, it is the only way for customers to "trust" your pricing scheme. Otherwise, it's carte blanche to raise at any time...

DevX101 16y ago

Sounds like he's trying to have his cake and eat it too. Many of these loud obnoxious protesters were probably the same ones who were singing your company's praises early on.

tptacek 16y ago
But, that and a nickel gets ya...
- wccrawford 16y ago
  Viral marketing. Even without the nickel. Don't underestimate the value.
  - tptacek 16y ago
    What's "viral" about giving your stuff away for free and hoping that the freeloaders will end up being a net win? Aren't we just talking about word-of-mouth marketing? Doesn't that work mostly when the words travel among paying mouths? Are you sure you aren't just putting a 2.0-ey spin on a simple problem?
edanm 16y ago
Why do you think so?
- DevX101 16y ago
  There are a subset of people who are just loud. And they like everyone to know. Malcolm Gladwell called them 'mavens'. These are the type of people that when they try a new cool restaurant, want to tell EVERYONE about it. Never piss these people off. They are insanely helpful in getting early traction for your business. But piss them off, and they feel personally offended and make it their personal mission to 'get back at you'. I can't find the thread right now, but there was a guy on reddit who made a post like this. His insurance company screwed him out of a few bucks. He then told the agent he'd tell all his friends to leave their company. The agent laughed it off. This guy went on a vendatta against the company emailed all his friends (A LOT) and ended up costing this company a few hundred thousand dollars a year (at least) in lost revenue. He could have made it worse by naming the company in his thread on reddit, but I guess he called a truce at that point. Find these mavens in your business and treat them well. Even if they're "pathological"

jacquesm 16y ago

Reading that it looks like there will be more lessons to be learned shortly. If any of you ever does something like this and you make a 'bad' move, revert. Simple. Make a step back and think things over for a long time before changing direction again, assuming that you are not about to go out of business buy yourself some time. It takes a long time to build up a reputation you can lose it in a heartbeat. Chargify has made a huge step in the right direction by dropping their price to $40 / month but if they had started out with announcing a $0 to $40 increase that would have been just as a big a problem reputation wise. A contract you made should never be broken like this, especially not retro-actively with the people that signed up under the original terms. New terms apply to new customers, especially such dramatic changes. Of course if you have customers that you can't make any kind of payback on then you will have to do something about them (assuming they're pulling you under). But to change direction 180 degrees from your previous 'pitch' overnight is not good and this new revised plan is still not going to undo the damage. My plan of action would be: - stop the influx of new customers at the 'free' plan by changing the tos: free for 6 months, then pay - measure the effect of that and if it is good reduce the 'free' period - if it is free, no support other than the public documentation + a forum - if you want support you will have to sign up for the paid plan I'm fairly sure that users would overwhelmingly agree that that is a reasonable proposition, and even though in the long run the effect would be much the same the change would be one that you could explain easily. Disclaimer: I've been operating a freemium website for a long time that went through the free to premium step during the .com crash, we solved it by selling our customers new features that were not in the site before and we made sure that the 'free' users pay us back with content. There always is a way out if you look for it hard enough.

DevX101 16y ago
I second the "free for ___ months" then pay strategy. If a customer can't see the value in your offering after a few months of using it, they probably never will. On the other hand, if you just charge customers off the bat, there are many people who can't overcome the activation energy of pulling out a credit card and will leave your site. I've come across quite a few services where even if they charged a penny, I'd probably pass just b/c I don't want to give you my credit card without knowing how useful your service really is.

danfitch 16y ago

There is nothing wrong with a company charging for their services. They have to make money somehow. If you are going to make a large change like this set it up with information tell customers give them lead time, and let them easily make the choice. Bottom line if you have a product that is worth it, charge for it.

davidedicillo 16y ago

At the beginning I was upset, because this price increased arrived the day after I decided to integrate Chargify in an service we are building. But I was wrong. If you really think that in 6 months your application for which you need a billing system, can't at least cover the cost of a latte per day... maybe you should stop right now and don't waste your time with it. Do you need more than 6 months because of any reason? Fine, that means you will have to give up your Startbucks habits for a while. If you don't trust your product to ever reach those 50 customers that would make you into a paying customer, why would Chargify?

pvg 16y ago

One lesson-not-learned seems to be 'when taking responsibility for a big cock-up, try to minimize or omit blaming others'. It's perfectly believable that free customers were an unsustainable burden or that the press (and its consumers) love disaster stories. These things are also perfectly fine things to write about. But the timing is awful - do you really want to be calling your customers a bunch of loud whiners with too much time on their hands just days after everyone on the net was calling you ham-handed and tone-deaf in customer-relations matters?

rewind 16y ago

These mistakes are so obvious that I'm starting to believe that some of these companies do it on purpose so they can get a tonne of PR, make things right, then look like the "hey, we fucked up because we're human but we fixed it quickly because we love our customers" companies that we hear about all the time these days.

ia 16y ago

This post looks like posturing to me. It's saturated with thinly-veiled animosity toward the free users. I'm sure he's sorry it all happened, but it's not clear he actually feels bad about any free users left in the lurch. The internet is a social place, and good will may as well be a form of currency. There have been lots of times that liking a company has pushed me into paying customer mode, when I would have otherwise been a "freeloader".

cullenking 16y ago

First off, I had high hopes for chargify as I had chatted with Lance on a few occasions and he comes off as a great guy. But David here comes off as a total ass. He literally stated that only 99.1% of their users are free users, and then proceeded to rip on free users like crazy. I can understand the pain of servicing free users. I have 10+ messages/questions a day from free users and they often are rude or incredulous. That doesn't mean I can say "all you people who bug tested our software, reported deficiencies and helped ensure our service doesn't suck, go take a hike!". Just because you got your use out of the free customers (their time dealing with your buggy early release software) doesn't mean you can jettison them. You have to ease them into a new pricing system, stop future people from being free, etc.

ntalbott 16y ago

So lets do some math: From http://chargify.com/blog/why-we-changed-our-pricing/ 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 :-)

jasonlotito 16y ago

ryanwanger 16y ago

I thought it was a good post, and didn't come across poorly at all (though the comments seem to differ). Perhaps it's because I didn't follow any of this yesterday, so this is the first I am reading of it.

jdp23 16y ago

Alternate title: how to get to HN front page three times in a week.

hkuo 16y ago

The value of free users is the potential word-of-mouth that can reach other users who could potentially become paying users. Isn't that the point of offering and supporting a free service?

scottyallen 16y ago

To paraphrase what I think are his main points: - Our free customers are really bad for our business. They complain a lot in really visible ways, they make up a lot of our support burden, and they never end up paying us anyway. - Once we figured this out, we decided we don't want them as customers. - We gave all our free customers an option to start to paying. Those that aren't willing to pay we don't care about. - OMG!!1! What a shit storm this created. All those free customers that we don't care about sure complain a lot when you screw them, way more than they used to. This really sucks, and makes us look really bad. Oh, and fuck you tech crunch for covering Square and not us, and then kicking us when we're down. - Boy, I really wish we'd sugar coated getting rid of all those pesky free customers so they didn't complain so damn much. I see a lot of remorse for the outcome and lack of sugar coating, but not a lot of remorse for the actual underlying action. When you build something people rely on, and then take it away from your most vocal userbase, what exactly do you expect the outcome to be?

dangrossman 16y ago

Regarding nobody using Freemium... couldn't it be that those merchants running freemium services only send Chargify their paid user information? There's no reason they can't. You could have 10,000 free users and only tell Chargify about your 50 paying users when they've upgraded and you need to start managing subscriptions for them.

podman 16y ago

I totally understand the move to get rid of the free plan but I still see no explanation for doubling the price of the 50-500 user plan.

dylanz 16y ago

I thought this was going to be about todays Mint.com episode: http://satisfaction.mint.com/mint/topics/why_did_you_receive_blank_emails_from_stage_mini_mint_com_late_tuesday_night http://satisfaction.mint.com/mint/topics/why_did_you_receive...

dgreensp 16y ago

This story repeats every month with a different company. I haven't been following Chargify, but my first thought on seeing this headline was "don't tell me they didn't grandfather their existing customers". Sure enough, wading through a huge mea culpa about not communicating well enough, there it is.

jeffepp 16y ago

What David seems to forget is the following: 1) Free customers DO PAY for Chargify, just not to them directly. It cost us several days of development time + testing to integrate with them. 2) You lost trust because you weren't fair. Change the prices and grandfather existing users. If the free customers fail, you will not need to support them for that long. Your pricing policy is = "you pay X/mo. until we raise it" This post reaffirms my choice to leave Chargify and investigate the alternatives: http://recurly.com http://recurly.com http://spreedly.com http://spreedly.com, http://cheddargetter.com http://cheddargetter.com & http://FreshBooks.com http://FreshBooks.com For the record, I understand why they are raising prices, I cannot understand how anyone could trust them again.

0x44 16y ago
The cost of development/testing is the same for customers that pay as it is for those who do not. Additionally, that cost is one you'd use no matter the processor you'd use, so your first point seems a bit disingenuous.
- jeffepp 16y ago
  True. When the prices are substantially raised you are forced to 1) pay the price or 2) re-integrate. So the cost in the my first point is actually doubled.

skmurphy 16y ago

Another approach to 'grandfathering' is to announce an "end of life" for a service and give customers notice of, for example, a year. Chargify might have been better served to "end of life" their free service, making it available to current customers for another year and closing it to new customers.

rradu 16y ago

This mistake and subsequent lesson learned has been documented time and time again--why do companies still have the oversight to alienate customers like this?