Kit (Formerly Convertkit)revenue

hello everyone my guest today is Nathan berry he and a previous couriers he's been a designer author and blogger and after learning the power of email marketing he gave up a successful blogging career to build a company called convertkit which you may be familiar with that has now changed to a new name I'll let Nathan do the reveal on that but outside of work he enjoys playing a soccer woodworking and chasing after his two little ones up there in Boise Idaho Nathan I ready to take it to the top I am alright so first things first it was a big thing on social after your after your conference crafting Commerce what's the new name and why the change yeah so we changed the name from convertkit to seven and seven a Sanskrit word and it means selfless service and basically we're trying to build a much bigger brand and we didn't want to be I guess pigeon holed into a really techie sounding name my convertkit kind of sounds like a wordpress plugin and then also if you're if you're out there serving your audience and then you know you're delivering the best content growing your audience really serving them then convertkit as a name sounds really salesy and it sounds like you know you're trying to put them through a funnel and you're trying to sell them and we want customers who have the other approach and they're trying to you know build the best content on the web and really invest in their community yeah and it's doing well you've passed i believe about 1.0 1.0 7 million monthly revenue over 12 million run rate you you're really public with your metrics I think 6.5% kind of monthly churn are those all accurate yep they don't like your it that's great so let's dive kind of ok so I want to get more a little a little bit of a backstory here but I don't have to spend too much time there cuz people can go listen to the first interview but last time you were on which I believe was about 13 months ago you were doing about 650 or 700 grand a month so the growth is really healthy where are most the new customers coming from or is the growth coming from you driving expansion revenue across the current base yeah expansion revenue definitely helps but it hasn't been enough to get us to you know net negative churn which is the ultimate goal so it cuts our turn rate in half but you know we still have to drive a lot of new revenue it comes from three major buckets of one third would be affiliate revenue so that's us doing webinars we've got a three-person team that handles that you know scheduling booking the webinars all the logistics and actually teaching them and we do about 15 webinars a month with different partners and how are those if you're only asking how those roles split up is like one person the initial reach out one is the like set up the landing page and send them emails to send down and the third is the actual instructor yep that's exactly right so it's relationship teaching the webinar and then there's just so much behind the scenes of you know landing page so I've copied logistics all of that and that's what the third person does and I said 15 months yeah yeah we tend to average 15 a month and those are range from really big ones with someone like Pat Flynn that will drive you know 500 trials or something like that which is pretty substantial yeah or we'll do smaller ones that will drive 30-40 trials and that's still a good way to go the next big bucket would be you know kind of all of our organic you know the the marketing site the blog the content marketing and that drives about a third and then the remainder would be like pure word of mouth like all the referrals that don't come through the affiliate program you know people just hearing about the brand signing up and that's still you know that's the hardest one to track where it falls into other buckets you're trying to track it down but that's generally the breakdown okay and give me a general sense of how many new customer or how many trials per month are you at today in terms of signing up and then how many those are converting to paid customers yes we're right in the middle of changing all of this we switched from credit card up front on our trials which we've always done yep to credit card after the trial ends and so you're catching right in the middle of me trying to figure out if this is a good idea or if we just screwed our growth or what well this is an this is gonna be a beautiful conversation so so let me let me go back how let's start with the first version how was that working what was the performance yeah so we were running a few thousand trials a month it fluctuated quite a bit right because if we had a big webinar month that might drive an extra thousand trials so you're looking at a 50 left over you know another month but we're running about a 52 to 55 percent trial that paid conversion rate with credit card upfront so it's basically going on 14 or 30 day trial depending on the offer and then you end up paying for that first month yeah but they all those trials have to put their credit card at the beginning they're not charged anything though right correct okay and then you're saying 40 to 50 percent of them at the end of that trial would actually move into whatever your 50 60 $70 per month plan yeah I knew it was 50 to 60 percent 50 okay sorry 50 60 okay so why chain me people listening are going whoa wait this sounds great I would kill for these numbers why is he changing yeah I I asked myself that as well so we wanted to see you know you always want to test an experiment and really work on your funnel we we thought that a lot of people were signing up and we were getting conversions purely because people forgot to cancel and so then the churn down the road was higher and so we want to see can we build a better funnel here you look at Squarespace a bunch of other great brands and they all do it credit card at the end of the trial right that's so it's a it's a tried-and-true method on different brands we wanted to try it for ourselves and we knew that we needed to make our onboarding a lot better for that to work so we spent the last four or five months really diving in trying to improve all that finding problems getting bit a lot better metrics in place like name some of those metrics you feel you had to get in place to get the onboarding better yeah so we started asking we rolled out a tool called amplitude so we can track all of these events across all you know everyone who's signing up and we switched our signup flow so that we started asking questions first so we would ask hey are you brand new or are you switching from another provider I'm switching okay cool what provider are you switching from you know how many subscribers do you have so we're collecting all of that there's a user experience principle called gradual engagement and basically what it is is if you can get people to make a bunch of simple quick clicks they'll get more invested before you ask for meaningful information like email address you know or information to sign up for account so we we did that the other flip side would be if you're brand new it'll ask you do you have a website yet you know if they say yes okay is that Squarespace WordPress works whatever so now what we can do is we can start to break out cohorts instead of just looking at the overall trial to paid conversion rate we can start to break it down based on oh the people who are total beginners don't know how website don't have a single email subscriber no surprise that they're turning but then we can you know see that okay people with 5,000 subscribers moving from MailChimp maybe they're turning out a higher rate than we want so basically that was turning the funnel on its head trying to get much better analytics on that I would say that initially the experiment we have much better data is it alive or just it's not alive yet oh it's it's all alive it's been live for about a month and a half and we've had our worst month of growth ever June and I was gonna say okay before we but that's gonna be a cliffhanger here for a second most people listening to the switch you just articulated I imagine their board meeting debates around that change would sound something like this but if we ask a bunch of questions up front they're gonna drop off and they're not gonna answer all the questions and then we should just got their email so we could re-engage them that would've been so much smarter and but but you're arguing long term activating them in the trial period with actual usage metrics which I'm sure you're you're trying to figure what those are is way more powerful in terms of lifetime value and stickiness is that accurate yeah and I'm also arguing that the and this is a big internal debate the asking the questions will not decrease the number of people that make it from you know account signup page to create an account has it in the first month so that has actually worked out oh great turns out gradual engagement in our case works yeah it did not decrease that the conversion rate for those steps so try to smack your eye and make sure I understand it so trials are still the number of new trials on both the first test and the second are about the same yeah okay yeah though once we the other test is getting rid of credit card upfront and that has increased the number of trials substantially by how am I not enough yeah I don't have that number okay but it's also hard because it's skewed so much by the other promotions so like this I think of the month of June we're at 5200 trials so that's substantial way better I think our best month ever before that was in the 3000 range yep but it's still not enough to make up for the the lower number of people I'd hang a credit card do you directly attribute that 5,200 trials which was your best month ever do you directly attribute that to the fact that there is no friction in terms of a credit card on the first step yeah so I think that's the reason that it's higher but again it's not enough higher that that the math checks out but then you have to wait even further down line and see well maybe churn is significantly lower on these people since they might need much more of a conscious decision to purchase and so that's why we're running these experiments you're having to wait in some cases months to know if it's working yeah and so it's a little painful and expensive so let me if I'm listening to this interview right now the second thing I'm thinking is it's great Nathan's asking all these questions wow that's powerful but is he than creating 7,000 different onboarding process depending on what combination of questions people pick like new user Squarespace site five people on my email list versus you know switching from whatever company blah blah blah I mean how do you how do you actually use that data on the onboarding in a scalable way and are you using any software tools to help you do that at that scale yeah so it's all custom coded it's probably ends up being about 25 to 30 different variations but they're pretty small tweaks so it's a manageable number okay and it's things like if you put in you have over 5,000 subscribers then that alerts our demo team and it tries to get you to schedule a demo we're following up with you right because then you're raising your hand saying hey I'm a lead that you should pay attention to I see and then there's other little tweaks down the road so like the emails that we send if you're using WordPress are going to talk about setting our wordpress plugin rather than like here's how to embed a form in Squarespace interesting okay good so so there's three or four things like that one helps your sales team under prioritize right hey I have 5.0 the others like hey you're a wordpress thing well here's that tutorial right you should start there and then maybe there's three or four other kind of variants like that yeah I see I see okay so the first month doesn't go so hot your internal team you can see their eyes going is Nathan gonna flinch you're gonna stick with it how do you convince folks to stick with it can saying hey we need a bigger sample size here yeah so I think the biggest thing is knowing like making a decision are we still learning or we learned everything there is to learn on this and up until this point we're still learning we're making tweaks it's highlighting problems at specific parts of the funnel whereas before we looked at the funnel as a whole and so now we're seeing okay like we found a problem that a lot of these trials you know tons of new trials but a lot of them weren't coming back a second day like they weren't logging in a second time so that's a significant problem and if we were looking at the funnel as a whole we wouldn't have noticed that yep and so that we can fix that and and go from there are there yeah that's a great first step right so so I mean I also say of all these interviews that I've done the a lot of companies start off exactly like how you did which was kind of a whole credit card upfront thing and and they know that they're getting a little extra lift by people that just forget and then at some point you realize that's good to start with like if I want to go to a real company I don't wanna rely on people forgetting about the card let me actually get them addicted to the product and then they switch and I do what you do I mean you're you're on the same track so the next big question is like what should i what are the activation metrics that most directly correlate to them putting in the card and signing up for pricing and I imagine for you do you know what those are yet is it actually embedding the form on the bond the site like getting their first 10 subscribers what what are those things yeah it's exactly those two things so really them getting visits to a forum so it's one thing to like I made a forum great but if you didn't get anyone to visit it or and then subscribe to it that tells us you didn't you didn't promote it anywhere put it on your site and so that's the first thing where we always look let's get them to get a form on their website and then let's get them to get a handful of subscribers or if they said they'd like this is great that we have this data now if in sign up they said they have 2,000 subscribers now we know that our single goal is to get them to import those subscribers mm-hmm and so it can totally change the activation metrics based on yeah that's interesting okay good it talked to me about about team growth I I think I've seen you hiring a ton so I what are you out saying from the total team size yeah we're at 37 on the team okay and where were you about a year ago well it's more question think are we 30 okay good I'm more upper 20s the reason I ask is because you're in a unique well there's a lot of stuff happening by the way like an Idaho silicon slopes that kind of area but our mean are you finding it difficult to hire people where are you finding these folks yeah so our team's totally remote we're 37 people in 24 cities and so we did not have a hiring problem every position that we put out has 3 to 600 applicants you know remote is a huge huge advantage mm-hmm are they mostly customers or people to sign up for a trial they just they love you they love your content there's definitely some of that less on the engineering side ok um but a lot of that actually the engineers that we hire I guess they may not be customers but they've followed our story all the way along because we've been public about numbers we've you know like there's a blog post on my site being like yeah we hit 5,000 a month in revenue and so we have engineers joining our team who have followed us on Hacker News or places like that since then and so then they're they're thrilled to join the company this is the argument for being transparent with the numbers right talk to me about about other kind of paid acquisition channels I know you mentioned kind of three growth drivers earlier in the form of affiliates content and kind of word-of-mouth are you doing a direct paid stuff we do some I think are our paid ads budgets about 20 to 25,000 a month okay so out of a million total and monthly revenue it's a pretty small yep chunk we've been targeting a three to five months payback period and word we do okay hitting that it's better than before but it's not look at the level of hey let's let's dump money on this you know yeah and you're at a fit about a fifty five dollar RP right now right so five-month payback would be you know call it 250 280 bucks something like that yeah and we're really trying to sit in that three to five month range with five being the top-end yep so I don't know if we need to increase our tolerance there you know I've talked to other founders who are like what are you doing five months is great like spend a whole you know well you're still bootstrap though right yeah yeah are those founders funded yeah well of course right they're playing with other people's money right and and then they're the hits them in the form of dilution yeah so so let's switch that here for a second so you like the bootstrap mode I mean would you ever raise capital you're considering raising capital now or no I'm not considering raising capital so we've gotten to this point without capital and now we can basically fund whatever project we want and so I like having complete control I like having you know no one's putting us on a timeline for an exit we're able to grow at the rate that we want and I think the biggest thing is I'm not looking to sell in cash out everyone says that but they're like but you know they're having private equity conversations on the side or whatever else but I don't have another product that I want to start or the next thing and I actually don't like the early stage like the 0 to 25 K 50km are are like that's painful yeah and so I want to be running sever for the next 10 15 years and so you know raising capital doesn't exactly aligned with that yeah well Aceves ounds like it's doing well i have one last question before we wrap up where do you get a 4-letter domain name sorry I for yeah for the domain name like that it was something that you bought ages ago and it's in your GoDaddy account no I I wish that would have been less expensive but I bought it about two and a half months ago uh and yeah we paid three hundred and ten thousand dollars for it okay that's actually that's not a horrible for a pronounceable floor domain name what did that negotiation like sound like did you reach out yourself or go through a broker or what we went through a broker it was owned by a company that has tens of thousands of premium domains they're one of the biggest in the market company called venture calm okay and they wanted to lease us the domain that's their business model which I'm gonna build a whole brand around yeah but they're gonna lease it for two grand a month which that's super cheap an option to buy they wouldn't do that yeah I was like there's no way we're doing this and so they stayed for that like we asked through a broker hey what what would the price be and they said five hundred thousand and they stayed completely firm at that and so like after a bunch of back and forth for like three or four weeks we had them down to like four hundred and sixty thousand and I made a comment to my assistant like wow this is a frustrating negotiation and she said yeah it must be frustrating to be negotiated like that like just implying that like yes they are a hundred they think you're in love with a domain and you and they feel like you have no other options and you're cooked yeah and so we ended up going back and forth and they we got them to make some pretty big jumps down ones that came down the wire and then we were basically like hey we'll go so what did you use so the biggest thing was we were negotiating payment plans and when we switch to say hey cash upfront ah then so basically the end result was I will give you three hundred ten thousand all upfront and why are you the money first thing tomorrow morning yep cuz at this point it was like you know 4 p.m. or something and they were like ok now so it was weird we're in two days it went from I don't know this deal is gonna happen yeah and even I think that highlights such an important like thing in negotiations which is there's a massive difference between like a deal price and payment terms right like there are people that you could you have a buyer company for a million bucks but if it's only a hundred grand cash upfront and then nine hundred grand earned out over three years you might be able to win that battle by saying here's 300 grand all cash upfront iyu tomorrow morning right and I think people are expecting to get then later like you agree on a price and they're changing it more there's other terms that you forgot to mention and so when you say that I'll wire you the money tomorrow morning then it's like oh no we're serious and I could have a deal right now yeah guys are very good Nathan let's uh let's wrap up here with the famous five number one what is your favorite business book oh I'm gonna go with anything you want by Derek Siver's okay number two is there a CEO you're falling or studying right now I just spent some time with Mike McDermott from fresh books yesterday Oh super sharp guy he's probably one I'm learning the most from yep and if you guys want to listen to Mike's interview on the show that was back in episode a 1260 great interview there a lot there's a lot of stuff by the way happening up there in Canada man it's a good place to spend some time number three what's your besides your own with your favorite online tool for building the business oh that's a good question I don't do a lot of e-commerce but I've been into Shopify quite a bit lately cuz we're pushing into that world and so that's the first one that came to mind you mean you're getting a lot of e-commerce brands during the use convertkit for like lifecycle emails cart abandonment things like that yeah and we've been building deeper integrations with them and I think of them because I was just at their office yesterday and so they're just great people and building a really solid product and I look at their all their growth numbers cuz they're insane it is it's incredible number four how many hours of sleep are getting every night at 7 or 8 7 or 8 I sleep I sleep plenty oh and he said I'm married with two little ones right yep and how old are you Nathan I'm 28 it's Fulani 8 last question what he was your 20 year old self new um I think that all of this is gonna take longer than you think it will I wasn't super impatient at 20 but but you know fairly impatient and so just knowing that if you grind it out for years you keep working the same company I had like a build it flip it build the next thing kind of mentality and once that changed to nope this is what I'm doing five years ten years 20 years down the road then you start to get the compounding effects of SAS and it's just so much better guys there you have it from Nathan everything takes longer stick with it especially if you're in SAS you're getting compounding effects he's where he likes to be he doesn't like the first 0 to 20 K now doing over a million bucks a month in a revenue making a big shift in the beanie on your arm courting plan moving from a credit card upfront to hey let's focus on asking questions first do gradual engagement and in customized experiences and he thinks that will help long term with churn we'll see what happens again rebrand going well as seven as he looks to build something that's less about hey just sell sell sell and more about hey build a great experience for all your customers Nathan Barry thank you for taking us to the top thanks for having me