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

http://davidhauser.com/post/1306089659/how-to-break-the-trust-of-your-customers-in-just-one

by mgrouchy • 16 years ago

197 97 16 years ago

davidhauser.com

mgrouchy3• 16 years 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• 16 years ago

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

GBond• 16 years ago

Funny. Just reading the current title I know it would be about Chargify.

patio113• 16 years 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• 16 years 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• 16 years ago

Just remember, 1/2 of the world gets by with an IQ under 100.

mgrouchy3• 16 years 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• 16 years 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• 16 years 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.

Poiesis• 16 years ago

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.

Look, I'm sure they're very nice people, but their extra time is not going to pay for your ramen. They cost more money and pay less money so they cost you money. You may decide that you would like to optimize for lower revenue, but most people would probably disagree.

damoncali2• 16 years ago

I wish I could accept time-as-currency, but I can't. My bank won't cash the checks.

patio113• 16 years ago

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.

greyboy• 16 years ago

While I haven't followed this situation intently, what I don't understand is: why do they have to provide so much support for free users?

I always thought it is rather common to have free users limited to FAQs and articles/tutorials rather than access to 24/7 phone (and other) support.

(please excuse my ignorance here, but I haven't seen this mentioned)

jacquesm5• 16 years ago

Agreed, I don't think they 'owe' the free customers any support, in fact, charging for support would be a great way out of the problem it seems.

On top of that your service should not need that much support to begin with.

jgilliam• 16 years ago

The problem is that if they can't get the service working, then they will never turn into paying customers.

brudgers• 16 years ago

Unlike many other services, Chargify is involved in a financial transaction where there's always a third and fourth party involved (customer's customer and credit card processor).

Self-help timetables are unlikely to be acceptable to the third and fourth parties.Any technical or implementation issue is likely to be high priority for the customer. People tend not to have small payment issues even for nominal amounts.

dminor3• 16 years ago

Maybe, but this section and the TechCrunch bitching really have no place in a supposed mea culpa.

tptacek11• 16 years ago

So you'd prefer ritualized penitence to insight about his business.

necrecious2• 16 years ago

I switched away from Freemium for my company yesterday. Should have done it a while back.

Free users are harder to support, more vocal and less likely to upgrade. Even a token amount of money initially is probably enough to discourage the "pathological" customers and the sunk costs mindset might encourage spending more money with your service.

jacquesm5• 16 years ago

Have you tried to make money on your free users in a different way?

points3• 16 years ago

It's not about "cheap option" at all.

You get fanatical customers everywhere, and they can be good and bad. They've mainly been good in my experience though.

patio113• 16 years ago

Pathological customers are, by definition, bad. I'm not using the term to mean "a synonym of non-paying customers, poor people, or people enthusiastic about the software."

I have heard from many other software developers, and seen in my own life, that charging more money disproportionately chases them away. I had a major decrease in the number I dealt with just when I went from $25 to $30, while sales went up. It is amazing: charge $5 more, see people suddenly have less hard drive failures, virus infestations, and "bad days". (I called you a dishonest SOB thieving from poor defenseless women when I mistyped my password... because I'm having a bad day, you see.) And it wasn't 20% less, it was closer to 80% less.

brc• 16 years ago

My maxim for this is : you want to find customers who value their time over their money.

As soon as you run across a person who values their money more than their time, they'll use up your time and give you no money. And, while they might be nice folks, if you're running a business you have to politely find a way of letting them know you can't do business with them.

xentronium• 16 years ago

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

jdp232• 16 years ago

You're not the only one who felt that :-)

ericb• 16 years 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.

melvinram• 16 years 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.

prawn• 16 years ago

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

smackfu• 16 years ago

Especially since the free users are obviously the ones who will complain loudest when you kill the free option.

benjaminwootton• 16 years 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.

mgrouchy3• 16 years 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• 16 years 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.

jeffepp3• 16 years 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...

DevX1013• 16 years 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.

tptacek11• 16 years ago

But, that and a nickel gets ya...

wccrawford• 16 years ago

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

edanm• 16 years ago

Why do you think so?

DevX1013• 16 years 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"

jacquesm5• 16 years 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.

DevX1013• 16 years 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.

gridspy3• 16 years ago

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

gregpilling• 16 years ago

This matches some of my thinking about services that I have considered using for my own projects. 30 days always seems to short of a time period to try and integrate something into my life. 60 or 90 days would seem like a better time frame to get a user hooked on your service. After 90 days they are either in love with your product, or not using it at all. So cutting them off from free at that point would be a reasonable choice IMHO. If they choose to pay right away, they can have full support. if they are not paying, they can use the community support. It has worked for OSCommerce, Magento, SugarCRM and a whole long list of others.

dh3• 16 years ago

You make some great points and the no support option for free users was something that was and is an option, as I said in the post.

danfitch• 16 years 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• 16 years 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• 16 years 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?

the_unknown• 16 years 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.

rewind• 16 years 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• 16 years 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• 16 years 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.

ntalbott3• 16 years ago

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 :-)

jasonlotito2• 16 years ago

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. =)

ntalbott3• 16 years ago

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.

MicahWedemeyer• 16 years ago

What is the difference between active merchants and global accounts?

I have hard time believing that in the past couple months they could have found >3k people out there looking for a subscription billing solution like this. I think there's definitely a market for it (since I'm part of that market), but I don't think you're talking about millions of potential customers. And even if it is larger than I imagine, it takes time to reach them all.

dh3• 16 years ago

Your comments yesterday are appreciated but the asking for angel investors just seems a bit odd. If you feel investment distorts a market and that is bad, then every market is like this and in your view is bad. Beyond that investment is not a lottery in anyway.

We have built Grasshopper Group over 7 years with NO outside capital at all. I am all for talking with competitors and love many of them, but your view of "sugar daddies" and "investment lottery" is just wrong and makes you look bad.

ntalbott3• 16 years ago

Quoting myself: "Capital infusion causes market distortion. Not saying that's a bad thing, but it's worth recognizing."

If this comes off as an attack on Grasshopper Group - my apologies. I think what ya'll have done is pretty impressive, and I'd like to duplicate it myself. At the same time - Chargify wouldn't have ever gotten into the situation of supporting so many unsustainable free users if it (as a stand-alone product) was bootstrapped. That's all I'm saying. Calling that a "sugar daddy" was probably overly inflammatory.

ryanwanger• 16 years 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.

jdp232• 16 years ago

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

hkuo• 16 years 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• 16 years 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• 16 years 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• 16 years 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• 16 years ago

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

dgreensp• 16 years 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.

jeffepp3• 16 years 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://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• 16 years 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.

jeffepp3• 16 years 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• 16 years 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• 16 years 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?

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

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