Freemium at MailChimp: A year later (“Treasures from a Forgotten Attic”)

Our “library of utilities” has accumulated a number of materials that are more than 3 years old, but their relevance has not only not diminished during this time, but, on the contrary, has grown significantly. And we decided to share them with you, united by the common name “Treasures from the Forgotten Attic”. This article will be the first in a series of publications.

Choosing a business model for a startup is not an easy step. Sometimes the magic of numbers can be misleading: the number of users will always be greater than the number of paying customers, so startups choose the most attractive numbers as a guide. Therefore, they often follow the Freemium model in order to then make efforts to monetize the audience. Therein lies the trap. We invite you to get acquainted with the article co-founder MailChimp Ben , who tells how his company has introduced Freemium, but not at the beginning, but at the peak. Although the article was written in 2010, and even published in Russian in an abbreviated version, we decided to share it in full, because it not only did not lose relevance, but even became more useful due to the more widely distributed mailing technology of the past years. . And of course, it can be useful for startups, who are increasingly paying attention to the freemium model. The story is from the first person.

On September 1, 2009, we announced that MailChimp is switching to freemium mode. At that time, we had 85,000 users. A year later, we had more than 450,000 customers. We increased the user base five times in one year.

What helped us make this tremendous breakthrough? Simply, earlier this month, we actually doubled the maximum number of subscribers that a company using the freemium rate could have from 500 to 1000 people. On average, we had about 30,000 customers per month (that is, about 1,000 per day), but after we increased the freemium plan this month, the number of new users per month more than doubled - more than up to 2000 per day.
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What else has increased significantly during this time is the number of lunches to which I was invited. It seems that entrepreneurs and investors simply crave to understand why freemium is so wildly popular. As a rule, they think that freemium can be a panacea for all their problems. Perhaps this is true, but you need to be careful and attentive so as not to kill yourself with your own weapon ...

Many are discussing the success of MailChimp associated with the freemium plan, but it’s scary that some entrepreneurs want to completely copy our model. This is scary because they have no idea about our work history, do not know what motivated us at one time or another, etc. Recently, I came across an article: “Why are free rates ineffective?”. Among others, they positively mention MailChimp, however, as the discussion in the comments shows, people really need an explanation of what prompted us to use freemium. So, let's begin…
First, here are the statistics:

Yes, I know that you are reading this article only for specific numbers. No problem:
• Every month 30,000 new and 4,000 paying customers are added to us.
• Since the introduction of the freemium plan 12 months ago, the number of paying users has increased by more than 150%, and profits have increased by more than 650%.
• Profit increased mainly due to lower costs for attracting users. It decreased by 8% in the last quarter alone and was less than $ 100 per new customer.
• We send about 700 million emails per month.

“Yes, but you don't have big customers, right?”

This may surprise someone, but the introduction of the freemium plan has not turned our entire client base into “very small business” users with extremely small needs. In fact, we have seen that the number of large customers has grown. Much.

In April 2010, we made some calculations and found out that 12% of paying customers on their mailing lists have more than 10,000 subscribers.


12% of users on the lists have more than 10,000 subscribers.
However, by the end of August 2010, this figure increased to 20%.



20% of customers on the lists had more than 10K subscribers.

In the same period, the share of total income from large customers increased from 48% to 65%. I think this is expected when you make the lower levels free. It can also be assumed that, while our average income per user will decrease, it will increase for our competitors, on the contrary, increase.
Another way to look at the overall picture is the volume of emails that we send to clients with subscribers lists of more than 50,000 people every month:



About 200 million messages per month for large customers.

The first “boom” occurred in June 2008, when we launched MailChimp v3. The next "jerk" was September 2009, when the freemium plan was launched. Then we went to more than 200 million emails per month for large customers.

The fact that we began to attract more users with voluminous lists with more complex requests to the service seemed surprising and even illogical to most people.

This is especially true of some of our competitors who like to say: “I paid for what I received”.

Why does the freemium plan attract more and more paying customers?

Because we do everything backwards!

MailChimp History

If you want to understand the features of our approach to freemium, then you should learn something about the history of our company. First, some of the things that people think about MailChimp are fundamentally wrong. For example, we are not a startup. Over the years we have accumulated a sufficient amount of experience and are faced with many problems. It also helped that we started work during the crisis of Internet companies. Some people think that we are a startup because we are developing dynamically. And now, when they see our ads everywhere, they are sure that we are a startup just like many others.

And when they tell me that they are also going to use freemium, because they are tired of waiting for the weather by the sea, I suggest they relax and wait another 10 years. Usually nobody likes my advice.

Then at least listen to this guy who is sure: it will seem to everyone that your success is an accident, and behind him are years of hard work and work.


Source: Startupquote.com

The second myth about us is that we do not use the standard version of the "incomplete version of the product, which we make free, and then we offer the paid version if users want to use advanced features." We have spent years creating a powerful, affordable, profitable and original product. We have invested heavily in the API. We constantly worked to improve our product. Then, cloud computing made it all much cheaper. We took advantage of the savings and made some things free.

Years on price experiments

Here is another part of the story. From the very beginning of product development, I was fascinated by the art and science of pricing. I experimented with pay-as-you-go, and with monthly plans for $ 9, $ 9.99, $ 25, $ 49, $ 99.99, and so on. We changed our pricing model at least half a dozen times, and over the years tracked profitability, changes in order volumes, how many users left after we lowered prices, how many returns were made, etc. We analyzed tons of pricing information. After the launch of the freemium plan in 2009, you can be sure that we used the data to see what happened.

If we started with freemium, the situation would have been very different. This is what I am leading to ...

Ratio 10: 1

Many startups starting from scratch pay attention to the conversion level of the freemium plan, and they ask me first about it. Of course, it’s worth worrying about conversion. Matt Brezina from Xobni made a presentation at the Freemium Summit in 2010, in which he said that the idea of ​​freemium is as old as the world. The concept has always existed and was used in the case of the local art museum, park, government, as well as in those places that you never thought about. The key slide in his presentation, I think, was the sixth:



10: 1 is the ratio of non-paying to paying customers, according to a Freeemium study conducted by Matt Brezina from Xobni.
Throughout the history of all the businesses that he researched, the ratio of non-paying users to paying users has always been 10: 1. Look at this ratio. For one paying you always 10 non-paying customers.

Is freemium right for you?

Ask yourself if you have enough income from this one client to pay all the bills? For 8 years, our company did not even think about freemium. We did not even know that such a concept exists. For 8 long years we did everything to increase profits. If someone from our company offered the concept of freemium during this period, we would look at it as if it were crazy and return to work again. In fact, when we launched MailChimp, we didn’t even have a free trial. It took us several months to offer it to users. And when we launched a free trial rate, he allowed to send (it’s ridiculous to remember!) Only 25 emails. In other words, we focused on this very one paying client from the 10: 1 magic ratio. We would never launch freemium until the number of paying users is large enough. Enough to pay salaries to 70+ employees, take care of their health, save money for the future, etc.

It seems to me that many startups are interested in launching freemium, because the number “10” seems to them very attractive. This is dangerous, because they did not even achieve this very "1"! How are they going to pay their bills? Answer: they will need to borrow money.

Will your venture capitalist have enough patience while you are thinking about how to “monetize” and attract this single paying customer? The answer is no, not enough.

Get small before chasing something unattainably huge. And after you have paying customers, let the investor help you to please non-paying customers (if necessary). It's my personal opinion. Disclaimer: I am mistaken in 99% of cases.

A side effect of our unusual approach to freemium is that we do not think of non-paying users as annoying freeloaders. We love them as much as those customers who pay us. Because we hope that, sooner or later, the "freebies" will also join the ranks of paying users.

Our real motivation: free ice cream!

I have never been an ice cream fan until I met my friend Mark in college. When I was still a child, Breyers was considered the best ice cream, and I thought I was lucky if some friends invited me to Baskin Robbins for my birthday. Mark once told me about Ben & Jerry's Free Ice Cream Day.



I had no idea what Ben & Jerry is. My friend was shocked and immediately began to conduct educational program. He told how cool the brand is Ben & Jerry, and how this experience helped him in his time (I'm sure he also mentioned Grateful Dead, Phish, hippies hugging trees, world peace and other things associated with Ben & Jerry in that time).

He took me with him for the day of free ice cream, and we went to a small shop located at the same time in the prestigious and “hippie” part of the city. At the entrance to the store was quite a long queue. I remember, I thought, “Baskin Robbins would never have had that.” When, finally, our turn came, my friend suggested that I taste different versions of ice cream. While I was trying to try all the available types of ice cream and was trying to find Rocky Road (haha), he was busy buying various flavors to take them home. It was evident that he was just in awe of this! And, to admit, his enthusiasm was passed on to me too. I tried it all for free, I found the Chunky Monkey horn and since then I’m a Ben & Jerry fan.

In short, it was this that inspired and motivated me to launch the freemium program on MailChimp.

For many years we have been working to create a truly powerful service that will simplify email marketing. And I want the whole world to feel all its advantages. I think it’s cool when a lot of “serious” business letters are sent all over the world with a little monkey at the bottom of the message. And this is one of the ways to thank our customers. Many of them could use free tariffs instead of paid ones. And if we double the freemium plan, many will.

Saying “thanks” to our customers, we also give 5,000 MailChimp T-shirts. Send an email and - woooooo - you become the owner of a cool T-shirt.

Of course, when I presented my project “let's share MailChimp with the world and make a monkey logo” to the co-founders of our business, my colleagues did more serious things - they thought about finances, staffing, etc. etc. I do not want anyone to think that we launched freemium without careful thought and planning. From the moment of launch, we carefully monitored statistics, studied our customers, their impact on our business and, ultimately, used this data to decide whether to double the tariff this year or not.

There are a lot of calculations and analysis associated with freemium. However, if someone thinks that we have been doing this because of high competition in business, or motivated by a marketing or pricing strategy, I will disappoint you: we just had a thrill. If you don't enjoy what you are doing, then what is the point at all, right?

Original article: blog.mailchimp.com/going-freemium-one-year-later