Freemium at MailChimp: A Year Later (Treasures from a Forgotten Attic)

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

Choosing a business model for a startup is not an easy stage. Sometimes the magic of numbers can be misleading: the number of users will always be more than the number of paying customers, so startups choose the most attractive numbers for a guide. Therefore, they often follow the Freemium model, and then make efforts to monetize the audience. This is the trap. We invite you to check out Ben MailChimp's co-founder’s article, which tells how his company introduced Freemium, but not at the beginning of the journey, but at its peak. Although the article was written in 2010, and was even published in Russian in an abridged version, we decided to share its full version, because it not only did not lose its relevance, but even became more useful due to the technology of mailing that has received widespread over the years . And of course, it can be useful to startups, who are increasingly paying attention to the freemium model. The narration is in the first person.

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

What helped us make this colossal breakthrough? Simply, earlier this month we actually doubled the maximum number of subscribers that a company using the freemium tariff could have from 500 to 1000 people. On average, earlier we had about 30,000 customers per month (that is, about 1000 per day), however, 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.

What has significantly increased during this time is the number of lunches for which they began to invite me. It seems that entrepreneurs and investors are simply eager to understand why freemium is so wildly popular. As a rule, they think that freemium can become a panacea for all their problems. Perhaps this is so, but you need to be careful and careful not to kill yourself with your own weapons ...

Many people discuss the success of MailChimp related to the freemium plan, but it is frightening that some entrepreneurs want to completely copy our model. This is frightening because they have no idea about our work history, they don’t know what moved us at one time or another, etc. Recently I came across an article: "Why are free tariffs ineffective?" Among others, they positively mention MailChimp, however, as the discussion in the comments shows, people really need an explanation of what made us use freemium specifically. So, let's begin ...
First, here are the statistics:

Yes, I know that you are reading this article only for specific figures. No problem:
• Monthly 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 grown by more than 150%, and profits have grown by more than 650%.
• Profit increased, mainly due to lower costs for attracting users. It decreased by 8% in the last quarter alone and became less than $ 100 per one new client.
• We ship about 700 million emails per month.

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

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

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


12% of users on 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 revenue from large customers increased from 48% to 65%. I think this is expected when you make lower levels free. We can also assume that while our average revenue per user will decrease, competitors will increase it, on the contrary.
Another way to look at the big picture is the volume of emails that we send to our customers with lists of subscribers 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 over 200 million emails per month for large customers.

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

This is especially true for some of our competitors who like to say: "For what I paid, I got it."

Why is freemium attracting more paying customers?

Because we do everything backwards!

History of MailChimp

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 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 faced many problems. It also helped that we began 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 announcements everywhere, they are sure that we are the same startup as 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 no one 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 there 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 that we make free, and then offer a paid option if users want to use advanced features." We 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 technology made it all much cheaper. We took advantage of the savings and did some things for free.

Years of price experimentation

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 for many years we tracked profitability, changes in order volumes, how many users left after we reduced prices, how many returns were made, etc. We analyzed tons of pricing information. After the launch of the freemium plan in 2009, you can rest assured, we used the data to see what happened.

If we started with freemium, the situation would be completely different. That’s exactly what I’m leading ...

10: 1 ratio

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



10: 1 - the ratio of non-paying to paying customers, according to a study by Freeemium by Matt Brezin from Hobni.
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 have 10 non-paying customers.

Is freemium right for you?

Ask yourself if you have enough income from this one client to pay all bills. For 8 years, our company did not even think about freemium. We did not even know that such a concept exists. For the long 8 years we did everything to increase profits. If someone from our company during this period would propose the concept of “freemium”, we would look at him as a madman and will return to work again. In fact, when we started MailChimp, we didn’t even have a free trial. It took us several months to offer its users. And when we launched the free trial tariff, it allowed us to send (ridiculously remember!) Only 25 emails. In other words, we focused on this very same paying customer from a magical 10: 1 ratio. We would never launch freemium until until the number of paying users would not be large enough. Sufficient to pay 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 very attractive to them. 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 lend money.

Does your venture capitalist have the patience to think about how to “monetize” and attract this only paying customer? Answer: no, not enough.

Achieve small before chasing something unattainably huge. And after you have paying customers, let the investor help you 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 well as those customers who pay us. Because we hope that sooner or later, “freebies” will also join the ranks of paying users.

Our real motivation: free ice cream!

I was never a fan of ice cream until I met my friend Mark in college. When I was a kid, Breyers was considered the best ice cream, and I thought I was really lucky if some friends invited me to my birthday at Baskin Robbins. One day, Mark told me about Ben & Jerry’s Free Ice Cream Day.



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

He took me with him on a free ice cream day, and we went to a small shop located at the same time in the prestigious and “hippie” part of the city. There was a rather large line at the entrance to the store. I remember, I thought: "In Baskin Robbins, this certainly would not have happened." When, finally, it was our turn, my friend suggested that I try different types of ice cream. While I tried to try all available ice cream varieties and tried to find Rocky Road (ha ha), he was busy buying different flavors to take them home. It was evident that he was just thrilled with this! And, frankly, his delight was transmitted to me. I tried my best free of charge, found the Chunky Monkey horn and have been a fan of Ben & Jerry ever since.

In short, this is what inspired and motivated me to launch a freemium program on MailChimp.

For many years, we worked 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 around the world with a small monkey at the bottom of the message. And this is one way to thank our customers. Many of them could use free tariffs instead of paid ones. And if we double the freemium plan, many will do so.

Saying “thanks” to our customers, we also give 5,000 MailChimp T-shirts. Send an email and - wuhuuu - 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 the monkey logo” to the co-founders of our business, my colleagues did more serious things - they thought about finances, staffing, etc. etc. I don’t want anyone to think that we launched freemium without careful consideration and planning. Since the launch, we carefully monitored the 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 many calculations and analyzes associated with freemium. However, if someone thinks that we were doing this because of high competition in the business, or motivated by a marketing or pricing strategy, I will disappoint you: we just enjoyed it. If you don’t enjoy what you’re doing, then what’s the point?

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