
How to Break the Trust of Your customers in Just One Day - Lessons Learned - mgrouchy
http://davidhauser.com/post/1306089659/how-to-break-the-trust-of-your-customers-in-just-one
======
ntalbott
So lets do some math:

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 :-)

~~~
jasonlotito
I'm fairly certain that 3000 merchants are active merchants, and 0.9% is out
of global accounts, including inactive merchants. I could be wrong, however.
=)

~~~
ntalbott
Perhaps - I have no internal knowledge of Chargify's numbers beyond what
they've posted publicly. Even if they have 30000 global accounts, though, and
it's 0.9% out of that - makes me think twice about freemium.

~~~
jasonlotito
No doubt. My experience in the processing world jives with what they are
saying though. The biggest problems are the smallest customers, usually the
ones that aren't earning you anything. Granted, keep in mind that they are
focused on B2B. I think they could have handled it better, but I think they
made the right call.

------
patio11
_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.

~~~
buro9
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.

~~~
patio11
_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._

This is the exact opposite of my experience. Pathological customers use the
service less, spend less time reading the words on the screen, spend less time
exploring or reading the documentation and more time asking me questions (in,
often, the rudest possible fashions), ask me questions like (I kid you not)
"It says that every card will be different. Does that mean every card will be
the same? Cuz that would suck.", etc etc.

~~~
jackowayed
You're both right.

Patrick, I'm sure you get lots of awful customers. You're targeting not-very-
technical people, and when you do lots of SEO/AdWords to get as many people in
the door as possible, you'll bring in a lot of good customers and a lot of bad
customers.

But I don't think Chargify has that many. Of course they had a few, but for
the most part, I doubt that those free customers suck; they just aren't making
money _yet_.

But a lot of companies that don't know if they'll ever make $49/month when
they start writing their payment code turn into valuable customers.

You need to look no farther than Bingo Card Creator. Would you have been
comfortable locking yourself in to paying $49/month so that you could save
time writing payment logic when you first started? I doubt it. But today, a
billing system that enticed you with a free plan would be extremely happy that
that got you to sign up.

The real issue I see for Chargify is that I don't know what their target
market is now. They basically have to get new apps, since existing apps will
already have something that works. But now they're limiting themselves to new
apps with owners that are confident in their success. You're not going to pay
$50/month for billing on something that you're just hoping will bring you a
few hundred dollars a month, even though some of those apps turn into many
thousands a month.

~~~
lukevdp
" But now they're limiting themselves to new apps with owners that are
confident in their success. You're not going to pay $50/month for billing on
something that you're just hoping will bring you a few hundred dollars a
month"

I agree fully. And the first plan is actually $99 month, not $50. $99 as the
cheapest option is really pushing it in my opinion.

They are offering existing customers are $39 plan, which I think is fair
enough for a starting business for the support you need when you're getting
setup. I don't understand why they don't just offer this plan to the public as
well though.

~~~
gridspy
I think chargify could get a long way with a $5-10/mo 10 customers max plan.
Just enough for developers to get their feet wet, with a nice paywall to keep
out the non-serious.

------
jacquesm
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
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.

~~~
gridspy
Chargify customers are strongly locked in because Chargify stores CC data.

~~~
dh
Chargify does not store the CCs it is stored with the gateway so you can use
that data again. This is said a number of times on the site.

~~~
gridspy
Useful to know. Thanks for the clarification.

------
pvg
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?

------
scottyallen
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?

------
cullenking
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.

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

~~~
melvinram
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.

~~~
prawn
There should be a "This is free, stop and think about that" equivalent to
LMGTFY that you (and others) can use as a response.

~~~
tezza
Just to work with your theme, perhaps I could suggest:

    
    
      LRMGFY ? 
    

The endearingly sensitive _Low Rent Motherfucker Go Fuck Yourself_ ? I don't
think that'd get too many happy Tweeters.

------
davidedicillo
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?

------
ia
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".

------
jeffepp
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://spreedly.com>,
<http://cheddargetter.com> & <http://FreshBooks.com>

For the record, I understand why they are raising prices, I cannot understand
how anyone could trust them again.

~~~
0x44
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
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.

------
DevX101
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
But, that and a nickel gets ya...

~~~
wccrawford
Viral marketing. Even without the nickel. Don't underestimate the value.

~~~
tptacek
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?

------
dangrossman
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.

------
skmurphy
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.

------
benjaminwootton
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.

~~~
Osiris
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.

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

~~~
revorad
Suggestion: "Lessons learned from Chargify's recent pricing change"

------
jdp23
Alternate title: how to get to HN front page three times in a week.

------
rewind
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.

------
danfitch
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.

------
the_unknown
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.

------
ryanwanger
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.

------
dgreensp
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.

------
dylanz
I thought this was going to be about todays Mint.com episode:
[http://satisfaction.mint.com/mint/topics/why_did_you_receive...](http://satisfaction.mint.com/mint/topics/why_did_you_receive_blank_emails_from_stage_mini_mint_com_late_tuesday_night)

------
hkuo
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?

------
rradu
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?

------
podman
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.

