How Nutshell CEO Andy Fowler grew Nutshell to $4.7M revenue and 3K customers in 2019.

hello everyone my guest today is joe malcoon he's the ceo of a nutshell a sales automation tool for smbs he also co-founded an ann arbor-based co-working space called cahoots and recently acquired the blind pig an iconic live music club he loves live music paddles would canvas canoes better than he rides a bike and has a severe weakness for good food and drink joe you ready to take us to the top let's do it man all right so how much drink do i have to give you before the numbers just start coming out well as long as it's negroni's it it doesn't matter just we'll do fine man come out to ann arbor we'll go drink some negroni's together that's awesome all right so tell me uh tell me about nutshell what's company do and how do you make money yeah absolutely so um i think you're pretty familiar with our segment after reviewing some of your archive podcasts um so nutshell is a small business focused crm and i think like in the realm of crms where we sort of lean is more towards sales automation and sales pipeline management um obviously the term means a lot of things a lot of folks but we've been around actually for about nine years we've been around a lot longer than i think most people think and always focus on smbs from day one we haven't lost focus on that we haven't been chasing a higher asp or anything like that and i think that might be one thing that sets us apart in a sea of products that are very difficult to set apart um we designed the product day one to so it doesn't look like enterprise software and we never want to look that way yeah okay so you obviously have a price today your asp that you onboard new folks at but when you look at historical data what are average customers paying you per month right now today so right now asp is about a hundred dollars okay per month um that yeah per month and that that takes in account a lot of historical pricing right so you know for example we've got folks who up until recently we're paying five bucks a seat on a product that we're now charging you know anywhere up to thirty forty dollars a c4 so we actually just did a price increase which was an insane process um on all legacy pricing um and so we bumped some of those up but yeah so about a hundred dollars okay wait joe tell me about that because by the way i'm a big fan of like if you're gonna make a pricing change don't be a wimp don't grant for other people ask tell them they have to upgrade if they churn it means they weren't getting value anyway so yeah i saw that right like we we took a big hit on customer churn but our net overall you know um uh mrr coming out of it was a huge success and also what it did was it closed the gap for some of those customers to our pro product you know and so the price difference wasn't quite as big uh as it once was we actually ended up pulling a lot more folks into the pro product and then here is the big thing that i think folks need to keep in mind this was a huge surprise that we didn't anticipate i wish we had we were able to offer folks the opportunity to lock in their price for an annual contract when they were normally in a monthly and a ton of people did that so we were able to get a ton of cash up front and lock folks in and it was so total like win-win-win right so basically what you're saying is offer the annual lock-in price at the same time you're saying look we are a company who will increase pricing we're increasing it right now you're going to get an increase in a year but if you lock it in now at least you get another year at what you're at we wrote a pretty great uh like um our content person wrote a really great piece on this i could send you a link later and it's really cool because it's all yeah so let me let me just jump into like a few quick numbers here so before the price increase total number of customers was what uh before the price increase uh it was about 2 800. okay and post after the price increase was done would that drop to oh um i'd say net we probably lost that's a good question i i'd say like maybe 100 150. okay so maybe 2700 customers after now we're back up to like 3 000. okay uh so today you have 3 000 customers okay and they're all paying kind of that 100 a month so you're doing about 300 grand a month yeah no um uh no free product that's about 13 000 users 3 000 logos okay so again about 300 000 bucks a month in revenue uh yeah a little bit north of there that's great okay and then let's understand growth so a year ago where were you at um so you know what i should clarify something our hp is 100 but our arpa is north of there okay what's arpa arpa is uh about 130 right now okay so that would increase your revenue you're actually doing like 390 grand a month something like that uh a little bit south of there yeah okay good so 130 arpa which is average that's basically average revenue per user historically not their average selling price moving forward so 130 across 3 000 customers what happens with us is people sign up often with one seat and then in the next couple weeks they they load their whole team on so asp is artificially low yes that's why i always like to talk more about arpu versus asp right asp is a landing the initial price point but it expands okay good so 390 and okay so january 2019 you're caught you know a little south of 390 a month what were you doing exactly a year ago um let me check chart mogul okay do you like turmoil by the way yeah well it's gonna be my answer to your question about my favorite tool i'm like i'm i'm unnecessarily obsessed with it look look i and this is not i don't want to use this opportunity to dig on chart mogul there's a shitload of room for improvement and if i sold nutshell tomorrow i might jump into this space because i obsess over it and i still see a ton of areas where i would like to see some improvement so about a year ago we were like three point uh three point two okay uh per you're talking about ar which would be about 260 grand a month yeah okay great so 260 grand now you're up to call 360 370 ish range that's a nice healthy growth most that come from expansion on historical cohorts adding seats or brand new logos uh it's probably 50 50 i'd say um our net ends up being about 50 50 both um you know once you take out the single seat customers which i know a lot of folks are cohorting out now when they talk about unit economics we're we're basically negative churn to zero on net mrr when so what's what's break that down peel that onion for me what's gross churn and then what's expansion to get to the zero great so it's so gross is uh we target just under four percent monthly logo yeah with the one-seaters that drops to about half to about two percent when you take one seater's out and then you go to like greater than five and it's negative yeah so just to be clear though without going on the cohort analysis during under each thing you have about overall your whole base you have about four percent monthly logo month what's your revenue churn three minutes okay so three and a half years so monthly and you're also expanding by three and a half monthly the same cohort so net zero yep that's great and again any other axes you're using pricing x's you're using a drive expansion besides additional seats um yeah we do have sort of a tiered product we have our starter and our pro and so what we do is we kind of proactively look through our customer product usage and we see what they're doing and the questions they're asking support and if it makes sense we'll outbound to them and say hey listen it looks like you might be able to benefit from pro and here are the features that would specifically work so their feature their feature upsells not other usage based upsells like number of contacts or things like that uh you know from the beginning we kind of had this perspective that like storage is cheap and to sort of limit it uh it didn't make a lot of sense not just storage anything yeah yeah no no joe i'm asking you a question so your current but your current kind of metric based pricing is number of seats is there any other kind of metric you drive upsells against oh oh i'm sorry i thought you were asking uh why uh storage first uh feature no no we only uh the only upgrade is by seats and product here okay got it very good and then talk to me about cac to land a new hundred dollar a month customer what are you paying fully weighted um we're uh so fully weighted with the team and everything we're in like the 800 range okay so that's i mean that's healthy eight month payback gross margin payback what 12 months uh yeah about 12 14 months and where are you spending the 800 obviously there's salaries in there but the direct paid spend where are you putting it yeah so i would say like most of our direct paid spend is on adwords which frankly speaking we've been dialing back we also competitive you're in the crm i mean those keywords are really expensive and it's just inflating over time look this whole game it's a it's a it's a spiral to the bottom you know like you know a lot of my competitors have raised tens and tens of millions of dollars and it hasn't gone to their...