In this episode of Startups For The Rest Of Us, Rob talks with Jordan Gal of CartHook about his big move to stop his free trials, move to demos, and increase his prices.
Items mentioned in this episode:
- Bootstrapped Web Podcast
- CartHook Pricing Change Blog Post
- Lincoln Murphy blog post about Qualification
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on this show, we cover topics related to building and growing ambitious yet sustainable startups.
This week’s guest is Jordan Gal. You may know him from BootstrappedWeb. Also, the founder of CartHook. In this episode of Startups for the Rest of Us, I talk with Jordan about what I’ve seen as one of the gutsiest price increases and sales process changes by going up market that I’ve ever seen. The quote that I’m using in the title is, “We went from hundreds of free trials to a few dozen on purpose.” This is Startups for the Rest of Us episode 476.
Welcome to Startups for the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome in building, launching, and growing startups, whether you’ve built your fifth startup or you’re thinking about your first. I’m Rob and today with Jordan Gal, we’re here to share experiences to help you avoid the mistakes we’ve made.
It’s a great conversation today. In fact, often times I say we have many different episode formats. This one is less of an interview and it’s more of me and just letting Jordan go on this topic. He thought about it so deeply with his team. It was their realization of, “Our churn is way too high and we’re just running on this treadmill that is getting faster and faster, and the business doesn’t feel healthy. How do we fix that? It’s not one tactic. It’s not changing, making people email to cancel you. It’s not moving to annual plans. It’s not the little tactics. How do we revamp our entire sales, onboarding, pricing process, and go up market to change the nature of our business?” That’s what we’ll talk about today.
You can tell during the interview that I’m obviously impacted by it. I was impacted from the outside. I’m an angel investor in CartHook. CartHook has raised a small amount of money. It’s still very much in that bootstrap indie-funded mindset. Jordan is super capital efficient. He’s not on the constant churn to raise that Series A to Series B and go there. He hasn’t raised that institutional money that forces him to go after that. He’s very much like a Brennan Dunn […] with the RightMessage.
A lot of the other companies we hear about that are in our MicroConf community, they’re in the Startups for the Rest of Us community, they’ve raised a small amount of money to hit that escape velocity. They’re not looking to unicorn or bust. They’re not looking to be that one billion dollar company, necessarily. Jordan’s in that camp. I love the way he’s meticulous. He really thinks these decisions through. I really enjoyed the conversation today.
To set the stage, if you haven’t heard of Jordan, years ago he ran an ecommerce company, ecommerce business. If I recall, it was with his brother. Maybe his dad. It was like a family member. They sold that. He had a small exit there. Then, he wanted to start a SaaS or a software tools for ecommerce. He wound up starting CartHook. Originally, it was just cart abandonment emails and they’ve since stopped doing that.
They eventually got to the point where CartHook essentially replaces the checkout on Shopify. The headline of CartHook is “Maximize Conversion Rate and Grow Average Order Value Today.” They have a real competitive advantage that’s very much differentiated from a lot of the other products in the ecom space, and he’s got a lot of traction.
As we talked about during the interview, they’re doing several million dollars in ARR, which is a big deal. They’re in the 25-30 employee range. He’s really just been grinding it out for years to get there.
What I like about this conversation is I was getting investor updates and then I saw a blog post where Jordan was talking about increasing prices. That’s always such a dicey proposition. I then started chatting about it. I asked him what the thought process was and how they’ve gotten blowback. They basically led to the conversation that we have here on the podcast today.
Without further ado, let’s dive into the interview with Jordan Gal. Jordan, thank you so much for coming on the show.
Jordan: Rob, thanks very much for having me on.
Rob: It’s great to chat again. There’s a lot that we’re going to dig into today. It’s been a fascinating journey. From the outside, I have an inside seat as an investor in CartHook. I’ve watched this transformation that you’ve taken over the past year or so. I’m really fascinated to begin with that.
The nugget for this episode actually came when I saw you raised prices. You did it so well, you did it so elegantly with (I believe) almost no pushback. I read a blog post, it was a blog post that you put on the CartHook blog, and I was like, “Man, I really want to get you on the show to just talk about what the thought process was there.” There was so much more to it. It wasn’t just a price increase. There’s this whole story that were going to dig into today. You want to kick people off with letting us know where we’re headed today?
Jordan: This is a topic I’m excited to talk about, something that I’m proud of. The best way to get started is to give some context around what these decisions are, what they entail, and why we got to a point of wanting to take these bigger actions.
What I need to do is to ask everyone to go back with me for about a year. The history of our checkout product, 2017, is when we came out with it. It was very difficult, technically. It was just one challenge after another. Then, we released a version two where we made a lot of big fixes. That’s when we start to hit traction.
2018 was our big year of growth, where we 3X revenue and got to multiple millions in ARR. That was this wild ride. It was fun. I look back on that year very fondly. That’s how I always want to feel.
The holidays in ecommerce are always big, obviously. Black Friday, Cyber Monday, and then the holidays. The end of 2018 for us was gangbusters. Then, January–February 2019 comes around. We start to be able to catch our breath, really look at the company, and analyze how things are going. There was one number that stood out that was a problem. It was an obvious problem and something that could not be ignored. That was churn.
In January–February 2019, we’re cruising at 12%-14% monthly churn. Ecommerce itself has high churn. There’s a reason Shopify does not disclose their churn rate because it’s much higher than other software companies. It’s partly the nature of ecommerce, the nature of the market, whatever else. Still, 12%-14% monthly is unsustainable.
On first glance, it looks like the company’s a washing machine. It’s just bringing people in, spitting them out, and that’s not going to work out for the long-term. When we started to really analyze it more deeply, what we realized is that the situation was not nearly as bad as 12%-14% looked. What was happening was that we were attracting a top tier of merchants that really fit with our product. What they were selling, the way the company was set up in terms of the number of people, how technically savvy they were, all these characteristics from revenue point of view, cultural point of view, product point of view, and so on. We really lined up with this nicely. Those customers were sticking around for the longer-term.
The issue was that we were also attracting this lower-end merchant that did not fit with our business. It didn’t fit with the software, sophistication level required, pricing, all that. That large chunk was not staying. Those customers were coming in, doing a free trial, either leaving before the free trial ended, or paying once or twice, then leaving after that. There was a real bifurcation in these two populations.
The challenge was, how do we improve the health of our business, overall? We had a few goals. Why don’t I list out a few of the goals that we came up with when we start to tackle this? We wanted to do things like take more control of our business. A lot of it felt like we were not in control. We just had a ton of word of mouth. It was just a bunch of incoming demand. That did not feel like we were really controlling who was walking into the system. We obviously needed to reduce churn significantly.
At the same time, we also wanted to increase our pricing to align with the value we provide. We hadn’t changed our pricing since we launched and we were significantly better than we had launched. Overall, the saying that we came up with was “fewer, more qualified merchants.” That was our goal. To work with fewer merchants that were much better fit and much bigger overall. Those were the goals.
The way we did it was changing two big things. We changed our pricing and we changed our process. You started off this conversation talking about a pricing change. From the outside, it really looks like a pricing change. In reality, it’s more of a process change like a sales process, like how we bring people onboard. The pricing change served that larger process change.
Rob: Yeah, that makes a lot of sense. I have a couple of questions for you. You used this phrase, “To take control of our business.” You touched on that a little bit, but is it that you’re controlling who comes through the gate such that you only deal with customers that you deemed are nice or that are qualified? Or is it taking control? Are there any other aspects to that?
Jordan: There are a lot of different aspects to it. What’s happened over the past years as I have gone further away from the frontlines and from the customer interactions, is I have become shielded from the kinetic activity, actually talking and rubbing up against customers on a daily basis. I don’t feel that nearly as much as when I started to.
The anecdote I give was I had a conversation with our support team. I asked them, “What percentage of your work is for people who are in trial that won’t convert or people that have converted but are only going to stick around for a month or two?” They looked at me and said, “Probably 80%.” To me that sounded horrible. I’m setting up my employees to run on a treadmill at a very high rate of speed and looking at them saying, “How do we increase the speed?” That’s not a recipe for a happy employee.
What I mean by taking control over our business, it wasn’t just like this external-facing, “We only want to work with big merchants.” It was also, “This feels like a mess internally.” We’re doing an enormous amount of work for people that don’t fit. The reason we’re doing it is because they just walked in the door on their own and create a free trial. All of a sudden, we are forced to engage with them. It’s definitely unexpected that one of the biggest problems in our business is how to limit the number of people using the product. That’s not what I expected. I expected, how do I beg people to use our product and make them successful with it? That was a reality.
Rob: Yeah. You’re in a unique position, for sure, to be able to do this. There is no model for this. I’ve heard of apps going up market or changing. Drip went from generally as […] to focus on ecommerce. Obviously, that drove some people away in terms of that pivot or that focusing. There’s a model for that.
While you are going up market, you did it in a different way. You didn’t just raised prices. As you said, pricing is one piece of it. That’s where Ifind this whole decision and process super gutsy. It feels risky to me hearing about it. Did it feel that risky to you upfront? Were you just like, “No, I know this is going to work”? Or were you like, “Oh my gosh, this could completely tank a lot of things”?
Jordan: There was definitely a lot of fear. We’ll get into a bit of the math around what helped me overcome the fear was just being very objective in the math and saying, “No. This isn’t going to work out. Even if it’s not very successful, it’s still going to work out on the math and finances.” All of this comes back to the finances. If we had raised $8 million in a Series A, we would be trying to gather as much of the market as possible. That’s not what we’re doing. We raised a little bit of money. We want a healthy, profitable company.
If you want healthy and profitable, then you need to live within your means. The reality of our situation, just taking on as many customers as possible, was not leading to that outcome. It had churn way too high. The amount of work that was happening internally was too high for customers that didn’t make sense. That’s what helped us come to the conclusion of, “Okay, I’m going to take a risk, and we’re going to gather the forces. Let’s get into what we did.”
Rob: Jordan, I want to interrupt you real quickly. When you say it wasn’t working for you, I know that CartHook is doing several million in ARR. It was working to a certain extent, but was it really the churn? That double digit churn that wasn’t working for you?
Jordan: Yes. It’s all relative. Yes, I really shouldn’t be complaining. It is working to a degree because the revenue is where it is and all these. That’s from the outside perspective. From the inside perspective, sitting in my shoes, I have to acknowledge what’s good and what’s bad. Just because I can say we’re at several million in ARR does not mean everything is good. I was fine with that. A lot of this role is holding two things in your head at the same time that are completely in conflict with one another. That’s just the way it is.
The truth is, it wasn’t working for us in a sense that I didn’t like the way the future looked. There’s a straightforward formula that everyone can Google. I don’t remember exactly what it is. It basically tells you what your maximum revenue is. Given your growth and your churn, this is the maximum that you will reach. It will not go beyond that because that’s how math works. You will get to a point where a 12% of your revenue equals the amount of growth your getting, and then you’ll stay there forever, mathematically.
I looked at that and that wasn’t that far off on the horizon based on where we were currently. We still had room. We still had another 100+ MRR to get to that point but I felt that we need to move on this now before we hit that and then all of a sudden everything hits a wall. That’s what led into it.
Now, let’s get to the first big part of the decision. The first big part of the decision was on July 1st, 2019. We are doing two big things. We are shutting down the ability to create a self-serve free trial and we are changing pricing. Two massive things at the same time. A lot of complexity came out of that because when you do that, you don’t want to just do it quietly and not say anything. You do have to acknowledge it with your existing customers because they’re going to ask, “Hey. I noticed you changed your pricing. Does that mean that my price is going to change?” There’s a lot of communication with the existing customer base that went along with the changes that were intended for the non-existing customer base.
Rob: Yeah. I find that’s a good moment where, certainly, if you are going to raise prices on your existing customers, whether you grandfather them 6 months or 12 months or whether you don’t—there’s a whole conversation; we’ll probably going to get into around that—or if you’re not going to raise on them at all, it’s still a good time to get in touch. If you’re not going to raise on them right now or in the future, then you’ll let them know that. “Hey folks, we just raised the prices. We’re not going to do that for you. We’re going to grandfather you for now.” It’s a nice way.
If you aren’t going to grandfather them, it’s a perfect time to get in touch and say, “Hey, by the way, we’re going to grandfather you for a certain amount of time, but then change it up later and here’s why,” and give the whole defense or the reasoning behind it.
Jordan: That’s right. Now, for our situation, we did want to raise prices on existing customers. That’s a complicated thing because people are not used to that.
Rob: Yeah. I was going to ask. There is obviously a debate in the SaaS space. Every founder has their own opinions about it. It’s like, “I heard people say…” You know I’m not a fan of absolutes, right? So I hate it when you say, “You should always grandfather. You should never grandfather. You should blah-blah-blah.” I don’t think that’s the correct way to think about pretty much any of this.
I think there’s something in between and there’s a spectrum. I’ve often thought, “Hey. There are reasons to not grandfather, especially if you can communicate those reasons well in a letter, a blog post, or an email to your audience. If it makes sense to them and if it’s the right thing for your business, then these are the times when I would think about doing it.
I know that had been a hard decision. Grandfather for a period of time is what you ended up doing. Talk me through that.
Jordan: Yes, it was a hard decision and an easy decision at the same time. The math of it was very straightforward, that we would be foolish not to change pricing on existing customers. Here’s why. When we started the business, we didn’t have a full understanding of exactly how our business work from a financial metrics point of view. We thought we were on the software business, where we license our software to people to pay a monthly subscription fee to have access to the software. It’s a traditional SaaS.
The reason we thought that was because that’s what we had in our hands at that time. “Here’s the software. You can use it.” What we didn’t realize was the significance of the payment processing that we would be doing. We do significant payment processing. Hundreds of millions of dollars annually. We did not factor that into the business model. That resulted in our very heavily underutilizing our GMV (Gross Merchandise Value), the total amount of money being processed into our system. We were not monetizing our GMV.
If you look at, for example, Shopify, at scale, they make 50% of their money, $400 million annually around monetizing their GMV. That’s somewhere around $28 billion worth of GMV in total. They’re out over a basis a point. Over 1% of their GMV turns into revenue for them. $400 milion on $20 billion is 1.2 or so basis points.
We were well below that. Our pricing was 0.1%, a tenth of a percent. Shopify was making 10X what we were making on a monetizing GMV perspective. We didn’t realize that when we first started the business. Where we ended up was grandfathering pricing for existing customers on the subscription fee. If you pay $100 a month, $300 a month, $400 a month, or whatever that is, that will stay that way forever. On the GMV that you’re processing through our system, we move it up from 0.1% to our new pricing of 0.5%. It is a 5X but still very much in line with our competition, with Shopify, and with the market overall.
What we had to back it up was our software had just gotten so much better. It’s tough to describe how much better—how bad it was to begin with and how much better it is now. What we did is we put ourselves in their shoes and we said, “If I were a merchant and I had been with CartHook for a year, I had been around when it sucked, now it’s better and I’m happier, but I stuck with you guys this way, how would we want to be treated in that situation?”
What we decided to do was write that blog post that you alluded to earlier, that we should link up, because that was a very complicated blog post to write, and then make a promise that we thought was fair. That promise was, this is the new pricing for everybody, for new merchants. You will be grandfathered into your subscription price forever but your transaction fees will go up. However, we will let you go through the entire holiday, Black Friday season of 2019, and the price increase will only go into effect in January of 2020.
Basically saying, we’re not going to be bastards and raise the prices right before the holidays to maximize the amount of money we can make off you and you have no choice because you’re already using the system. We said, “No. We’re going to forego that revenue because that’s the right thing to do. But we will be raising it after the holiday’s over in January.” That makes sense?
Rob: Absolutely does. The thing I’m fascinated to hear is how did it go over? How many positive, negative comments? What was your sense of what your customer base responded with?
Jordan: The truth is we’re in the middle of it now. We’re halfway through. We sent out an initial email in July. Two weeks ago, we sent out another email. What we sent in July along with the blog post was, “Between now and January 2020, we have six months to earn that price increase in your eyes. Here’s what we’re planning on adding to the product and this is part of the justification of the price going up.”
What we’ve been very conscious of internally and from a product and prioritization point of view is that’s coming due. We will need to send an email to all those existing customers telling them that the price is going up next month and, “This is what we promised you and this is what we’ve accomplished.” We have an internal list of, “These are the things that are worth noting in that email that we can say these are significant improvements and significant additions that helped to justify the price increase.”
When we first sent it out in July, we heard nothing. Just no negative reactions. A few emails about clarification, a few questions, and then all good. That tells me that it went over pretty well and that a lot of people didn’t read it. That’s the reality of it.
Now, things are ramping up. We communicated again two weeks ago saying, “Hey, just as a reminder. In January 2020, your pricing is going to change. We will get back in touch in December before that happens to make sure that you are fully aware.” That communication started to cause a little bit more of a pushback. A lot of it was our fault because we communicated what the pricing change was. What we really should have done is personalize it.
“Last month, you did X and paid Y. In January, if you do the same X, then your pricing will be Z.” We should have laid that out more specifically and we didn’t. Because we didn’t, people started doing math themselves. If you do the math emotionally, you’ll get the wrong answer. We had a lot of emails back and forth just clarifying, “Look, it’s not going up 10X. Here’s the change for you.”
On the positive side, what it has also done is it has armed us with a bargaining chip with larger merchants. If you’re a large merchant and you’re processing $2 million a month in our system, and you don’t want to go from 0.1% to 0.5%, then let’s have a conversation to make sure you don’t go all the way up to 0.5%. Let’s set something up that makes sense, maybe get you in a 12 month contract. Let’s partner on this and do it the right way.
It has helped us get a lot of our larger merchants talking about pricing and moving toward annual contracts in order to lock down a predictable cost for them as opposed to something that’s variable.
Rob: There’s a number of things that I won’t even pull out of that because it’s the right way to think about it. It’s very smart, but one of the things you said was, “Let’s think about it from their perspective.” I imagined that that sentence, that phrase was uttered many, many times in your office when you were trying to make this decision. You thought it through. You and your team thought it through to the extent of some people could say if they were your customer, it would be a little outrageous. I could come out and say, “You 5X-ed my pricing. Even though technically I know I’m still grandfathered in the monthly, but 0.1 to 0.5 is a 5X. I’m going to come on and be outraged.” The fact that people didn’t do that indicates that you had (a) a case. You had justification. And (b) you communicated that in a way that made people feel comfortable. You weren’t screwing them.
Jordan: Yeah. It was not abstract. It was very real. It was, “How is […] from Native Deodorant going to react to this exact email that we’re about to send?” We’ve gotten to know these people over time. We worked for them in a long time. How is this specific person at this company going to take this? Are they going to go write to the Facebook page? Are they going to email us? Are they going to ask us for clarification? Are they going to want to get on the call?
Everything in that communication was based around real reactions. It was a lot of, “We’re here to talk about this. Here’s a Calend.ly link to set up a call with somebody if you want to talk about it.” It was thought through that way.
Rob: That’s the power of being a founder or a CEO who’s in touch with your customer base. Even at several million ARR and at 25-30 employees, you still know a bunch of customers by name. Not only do you know them by name, you know how they’re probably going to react to an email. You think it through deep. The best founders, best CEO that I see doing this, doing hard things and not pissing their customer base off, are the ones who are in touch with them. That’s a big key to this.
Jordan: Yeah and that’s gotten harder. I would say that it shifted away from my responsibility being super aware with these specific merchants, their personalities and relationships, and more just understanding that that’s important. And then, looking at my success team and saying, “Okay. Let’s think about these people. What’s your opinion on how’s this person is going to react?” Just knowing that that is a key thing to keep in mind is now more important than actually knowing and understanding the relationships themselves.
The conversations we’re having internally here is I’m asking my leadership, the people who are in these communications, in these difficult email threads of, “Does this make sense?” “Should I leave?” “You guys are being greedy.” These really difficult email conversations. What I have to do is I have to ask them to put two hats on. “Here’s your empathy hat for when you’re talking to people and we wanted the right thing by them.”
Then, I’m also going to ask you to switch hats, come to the conference room with me, and look at the spreadsheet that says, “When we make these changes, if 30% of our customers leave, and that still results to adding $100,000 to MRR, can you acknowledge that? Do you think 30% of our customers are really going to leave?” The answer is no. Can you carry both those things at the same time? Can you be very empathetic to people and make sure we’re doing right by them?
At the same time, acknowledging if someone leaves, we have to be able to accept that because the math will work out for us. That sets us up to be a healthier company, hire the people we need, and then get a bigger office that we need. We have to have that as part of the goal. It’s not just about what the customers want. It’s also about our business. It’s both together.
Rob: And that makes a lot of sense. That’s a big reason that you did have success with this. What’s next?
Jordan: That’s really the pricing change. Our existing customers, we had to communicate with them. That’s not done, but it’s going in the right direction. Now, the bigger change is the process. Making the switch from self-serve free trials to an application process with demos was the harder call. That was the scarier thing because we started getting good, we started getting to the hundreds of free trials every month. Then, you’re taking that flow of potential revenue and you literally just shut it down 100%. We took a faucet that was all the way opened and we closed it all the way. Now, people could not create a free trial unless we sent them a link to create a free trial. We shut the faucet all the way down.
We went from hundreds of free trials a month to a few dozen. That’s where it got scary because if you think about the nature of churn, it carries on for a few months. If we have this messy washing machine of merchants that don’t fit and only pay for one or two or three months, then they leave, when you shut down free trials, you are now going to hurt yourself both ways. You’re not going to be getting new customers and the customers from the past 90 days are still going to be churning.
It was like, “Alright guys, our revenue is about to go down. Everyone be okay with it. We’re going to keep calm. We’ve had this amazing run of growth. Everything’s going up. Now, we are purposely just going to chop off 10%-50% of our revenue over a 90 day span and we’re just going to be okay with that.” That expectation setting was super important so nobody freak out because I saw what was going to happen. We’re going to go from a few hundred to a few dozen and then the churn is going to continue on.
Rob: That’s really important to point out that, (a) you called that out to your team in advance, but (b) most people who have never run an app, where you have big waves of customers coming in and a lot of trials, if you shut that off, it’s exactly what you said. It’s like this huge wave. The churn is going to crash but it never crashes because your trials bolster it. It just keeps going up, and up, and up. But the moment I’ve had a couple apps where we had hiccups, whether it was suddenly Google downgraded us, the ads stopped working, whatever it is, our trials plummeted.
It wasn’t just, “Oh. We didn’t grow that month because we didn’t have as many trials.” It is devastating because oftentimes, your first 60 or first 90 day churn is way, way higher than your 90 day to infinity day churn. That’s the part that just crashes. If you don’t keep that constant influx top of funnel, it can be devastating. Like you said, 10%-15%, 20%-30%, I’ve seen with smaller apps. It’s painful if you’re not aware, if you don’t look at the math in advance.
Jordan: Yes. This […] back to what you’ve mentioned a few minutes ago, where I should be happy because things are going well. I knew internally that this is what was happening, that the trials were just keeping it afloat. The trial’s just kept overwhelming the churn. If anything happened at all to the trials coming in, then we’ll be exposed. Making this move was like, “Let’s do that on our terms instead of someone else’s terms.”
It’s also why we did it in the middle of the year, July 1st, literally right in the middle of the year, well in advance of the holidays so that we would have our act together now. That’s what happened. We completely stopped free trials and the churn kept going for 90 days. That hurt, but the benefits were amazing and immediate.
July 1st comes in and we just shut it down. You can’t see a free trial on our site. It’s apply for a demo. That terminology was super important to me. It was not “request” a demo, it was “apply.” It was a position of power. This is really good. You’ve heard about it. You’ve heard about the success people have with it. If you want it, you need to apply. We soft pedaled it on the site.
We’re not like, “Apply here to see if you’re good enough for us.” That sucks. That’s not good positioning. It was really, “Apply to see if we’re a fit.” People are like, “That’s […]. You’re basically just saying that we’re not good enough if you only want to work with successful merchants. We’re up and coming. You don’t want to work with us because we’re not big enough. That’s not cool.” In reality, it was much closer to, “Let’s make sure we’re a fit.” Think about all the things we’ve been talking about. It’s not just, “Do you make enough money?”
I read Lincoln Murphy’s blog post about qualification. He had a great write-up about the different types of qualification, where it’s strategic, cultural, financial, all these different things that are in line. We have some merchants that makes $1,000,000 a month, but we absolutely cannot stand working with them. That has now become a factor in the qualification.
Now, we have an actual pipeline. That sales process that was happening inside the product and a few interactions with support is now happening with people, with an application that people fill out, then every morning the success team comes in and either denies or accepts the application. Right now, we’re denying roughly 50% of the applications. We’re just saying, “It does not make sense for you to work with us. Here’s a link to our competitor that might make more sense for you.” We literally linked to the competitor in that rejection email.
Rob: That’s crazy. It’s such an unorthodox approach. It’s the Velvet Rope Policy. It’s just letting in exactly who you want. As we’ve said, it’s a luxury. Most apps needs all the trials they can get. You hit a certain point where that made sense, but I do think that more companies should think about doing this once they hit that point.
Jordan: When I spoke to other founders about this, I got the sense that people were like, “Can you do that? Is that okay?” To me it felt like, “That’s what I think we should do. It felt very strange to be like a slave to the fact that people want to use it, therefore we have no choice but to let them. What? That doesn’t make sense.”
Rob: I’ll tell you what, it’s way better to do it upfront than to let people in. Whether it’s just people aren’t qualified or they’re the toxic types of customers that you can identify pretty early on that you’re like, “Oh boy. This person’s never going to be happy with anything. They’re just going to rag on my staff the whole time. They’re going to Twitter the moment we don’t answer their email in four minutes.” If you can get them upfront, identify them that way, and not have to fire customers who’ve been with you for two or three months who are a pain in the ass (which all of us have to do, it sucks), for that alone, this is pretty valuable.
Jordan: Yes. We call them category four. We have category one, the best of the best direct-to-consumer brands that we recognize. We’d love to work with them, absolutely get them in, let’s give them the white-glove treatment. We have a category two that are a good fit. We have category three that are not quite there yet, it’s on the bubble. It’s the success team’s call whether or not they should come in or not. And we have category four that are jerks. It doesn’t matter how much revenue they make. If they’re just going to make us miserable, they just don’t get in.
Rob: Yeah. Isn’t that a hurricane category one?
Jordan: Yes. Think about what this has done internally. A few things that it has done. First is establish an actual sales pipeline that we can optimize. What we did there is first, we took a stab at what we think the pipeline actually looks like. Think about the different stages. We get a demo whether they get approved. They get the link to set-up a time to talk. Then, they get the link to sign up after that. Then, they create a free trial. Then, they’re launched and have a processed revenue. And then, they’re into the conversion piece of it.
Before, we didn’t have those steps. It was just a free trial and then hope the product does its job. Now, what we did is we set up the pipeline and those steps. We have in HubSpot, but I got a good recommendation from someone (I can’t remember exactly who) to put it up on the wall. I’ve got a bunch of index cards, we’ve got a bunch of markers, and we’ve got these tacky stuff that sticks to the wall. We created the categories as columns on our wall. Each prospect got an index card with their name on it and we would physically move the index card from stage to stage. It was just mimicking HubSpot. You would move in the HubSpot, you’d go to the wall, and you’d move it from one column to the next.
What that did is it showed the entire company in visual, physical format, what was happening with our sales pipeline, instead of just, “I don’t know. We have a few hundred trials.” The second thing it did is it was a dead obvious way to see where the friction was. The friction is the columns that have the most people, pretty simple. What it tells us is that stage in the pipeline is where we have a lot of friction, and that’s where we need to get the communications and marketing teams to create content.
Now, what does the success team need in order to help merchants get from that column to the next column and then start creating content, videos, support docs, to help people through that, so that the success team could provide those and the merchants can also get on their own?
We did it for three months or so. We’ve since taken it down. It’s no longer useful as it was in the beginning. At first, we made the switch. It just had this amazing impact. I have a bell on my desk. When someone became a paying customer, I would hit the bell. It was like this visceral experience for people. We’re not a company that just answers emails. We’re doing something specific. We’re finding people, identifying who the right people are, moving through this pipeline, and getting them to success.
Rob: I love that idea, the visual nature of it. Just seeing cards, it must be obvious visually and just be an amazing queue for you guys. That’s really cool.
Jordan: Yeah. They were just a very large vertical stack of prospects that didn’t go from, let’s say, approved but didn’t schedule the actual appointment to do the demo. Okay, we need to be better at that. An obvious one was also like they’ve created a trial, but they’re not processing revenue yet. They need to get over the hump of actually using the product.
One thing I did mentioned earlier on the pricing is that not only did we remove self-served free trials but we removed free trials entirely. We asked for the first $500 upfront at the time of sign-up that we have a 30-day money back guarantee instead of the free trial. It’s all toward the same type of positioning of, “Let’s make sure that you’re a good fit. Once we know that you’re a good fit, then you commit to us. We’re committing to you. You commit to us. Let’s do this together.”
Rob: Yeah. When you look at large, enterprise companies, let’s say HubSpot or Salesforce or something, they get a bad rap for being enterprises. They’re a pain in the ass to deal with, they’re too expensive, and their sales process sucks. You’re moving somewhere between self-serve and what they do. It sounds like there is less friction. Is your pricing public on your website?
Jordan: Yes, it is.
Rob: So the pricing’s public, that’s a difference. They tend to hide it behind a thing, then it’s a negotiation, blah-blah-blah. The difference is there. You put up the velvet rope. You’ve gone upmarket. They’re typically not free trials with these really expensive enterprise plans. It typically all annual. I don’t think you’re there yet, but my guess is you’ll be moving there because there’s a lot of reasons to do that. Both predictability with the merchant but also predictability for you. You are taking that step towards the upmarket playbook, right?
Jordan: Yeah. The results, if you think about internally, going from hundreds of free trials to a few dozen, what we’ve been able to do is give love to the right merchants. We’ve told our support team, “Guys, we’re no longer doing things. It’s not about crushing tickets. You could take your time. You can spend 45 minutes on an email as long as on the other end the person goes, ‘Wow. That was everything I needed and you took your time. I feel great about it.’”
The fewer, more qualified merchants is the theme. We’re much common internally. Our support staff finish things up by 11, then they’re doing support docs, they’re helping testing on the product team, and everyone’s happier. People who are jerks, no one feels the need to like, “Hey, I guess I can’t turn down money because it’s not my business.” Now, they’re empowered. If this person sucks, tell them to get lost. People are more empowered. They’re happier. Our monthly churn went from 12%. It continued on for those few months. Five or so months later, we’re at 5% monthly churn.
Rob: Oh, man. Wow. That’s crazy. That’s such a testament. On the podcast and in the whole MicroConf community, what’s funny is before we started talking about this, let’s say in 2010, there wasn’t just this common knowledge on a lot of things that we talked about. Lower price products have higher churn. The customers are more of a pain in the ass. We all know that now. You know that if you’re selling a $10 product, everybody’s price sensitive. Your churn is through the roof. They want all the features. It’s just known now.
Then, there’s the next step up of $50 price point average revenue per customer or $100 average revenue per customer. You guys were at such a high volume that even those numbers didn’t make sense anymore. It just didn’t make sense to service them because they were such a small portion. They were huge portion in your customer base, in your trial base, very small portion of your actual revenue. Now, we can only bother or we should only focus on $500 to $2000 a month average revenue per user.
That’s the step. It’s obviously very deliberate and I’m just struck by the impact. It’s not one thing. It rippled through the entire business in mostly positive ways, it sounds like. The fact that you support people now have the ticket, the ticket volume is whatever it is, a tenth of what it used to be, is just phenomenal.
Jordan: Yeah. The way we look at it is that we really made a healthier company. The growth in 2019 was nothing nearly 3X of the previous year. But now, we’re in a position to grow in a much healthier way.
Going back to the faucet analogy, now that we’ve tightened it up all the way, fully controlled everything, now that we have our systems in place, we understand who the right matches are, the systems are better, the people are happier, now we can start to open up a little bit on our terms, and grow faster but in our way. An example is when someone’s a category three, they’re qualified but they’re not one or two, we send them a recorded version of the demo. Now, we can open that growth back up, but on our terms and under control. If we don’t like the way that’s going, we’re just going to shut that back down.
Rob: We talked a lot about the positives. Was there a major negative repercussions to this?
Jordan: Just finances.
Rob: That’s short-term.
Jordan: Yeah. The short-term financial hit that hurt is just a stressful thing. We did that with what I felt was enough money in the bank, that we wouldn’t get to the point where I felt like I have to go raise more money. I wanted to get through this in a way that we come out to the other side.
Really, if you think about all the way back, the decision to increase prices on existing customers and that kicking in January, what we really needed to do was just get through this six month period. The increased pricing on that GMV that is coming on the door already is going to overwhelm all of the negative impact of it. Then, we’ll be in a position where we are much more profitable and much happier at the same time. Just six months of pain but all towards putting ourselves to a good spot in 2020.
Rob: Yeah, and that’s playing long ball. You have a long-term mindset. You’re not churning and burning, “Oh, how can I maximize revenue now to raise the next round? Or have an exit?” or whatever it is. You’re thinking, “If I’m going to run this company for years, what is the healthiest company? What company do we all want to work for? What’s best really for the customers that are the best fit? What’s best?” The six months of pain, I’m sure, has sucked but you’re basically coming out on the other side of that. I hope January is truly an amazing month for you.
Jordan: Yeah. Thank you, man. I appreciate the ability to talk through the whole thing. I’m actually writing a blog post about this. I’ll let you know when that’s out.
Rob: Sounds cool.
Jordan: I know it’s all unique to each individual business, but the big lesson I hope people get from it is that you don’t have to play by what you think are established rules. You should do what you think is best for your business.
Rob: Love it. We will link up the price increase blog post that you talked about. I have that link right here. I googled Lincoln Murphy’s blog post about qualification and hopefully it’s the same one. We will also link that up. If you get your post published before this goes live, we can throw that in there as well.
If folks want to keep up with what you’re up to, they can go to @jordangal on Twitter and carthook.com is your app. Any other places they should keep their eye on?
Jordan: Yeah. I also do a podcast with my good friend, Brian Castle, called BootstrappedWeb. Those are the three places: Twitter, CartHook, and BootstrappedWeb.
Rob: Sounds great. Thanks again for coming on.
Jordan: My pleasure. Thank you.
Rob: Thanks again to Jordan for coming on the show. Also, I should call out episode 452 of this podcast. Just a few months ago, Jordan came on and answered listener questions with me. If you’re interested to hear more of his thought process, go back and listen to 452. You can hear his take on several listeners questions.
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