Growing ConvertKit to $5,020 in Monthly Recurring Revenue
The Web App Challenge | March 11th, 2015
If you could sum up an entire story in one image, it would be the monthly recurring revenue graph for ConvertKit. So if you want the short version of the last 2 years of my work, just look at this image:
Now I’d like to share the behind the scenes stories that explain exactly what happened and what every curve of that chart means.
2 years, 2 months, and 9 days ago I announced my big new goal for the year: to start a brand new SaaS company and grow it to $5,000 in monthly recurring revenue within 6 months. The other catch is that I could only make an initial investment of $5,000.
I called this The Web App Challenge and you can read the announcement post here.
You can also go back and read the posts I wrote as I worked through the challenge. If you don’t want to read through the entire history I’ll sum it up here:
I decided to solve my email marketing frustrations and build a tool that had all the email marketing best practices I was using to sell hundreds of thousands of dollars worth of books built in by default. That tool is called ConvertKit.
Things didn’t work out as planned
Unfortunately July 1st, 2013 arrived and ConvertKit was only at $2,480/month. Basically half of where I needed to be. At first I thought, “Oh well, we’ll continue to grow and hit our goal in a few more months.” Unfortunately that didn’t happen. ConvertKit revenue stayed steady and then gradually declined. $2,480 was the peak month.
Note: this was actually based on an estimate of what the month would be (with payments from multiple sources), not final numbers (it was before I had Baremetrics). The actual numbers were closer to $2,000.
But I made it to that number only having spent slightly more than my initial $5,000 investment and another ~$5,000 that we brought in from customers.
When things didn’t work out as planned, I focused back on my books. By this time I had three books out that were all selling very well. I was making over $15,000-25,000 from book sales each month so that’s where I started focusing my energy.
I still worked on ConvertKit, but the limited effort I put into it didn’t result in any growth.
Summer 2014 I experimented with selling SaaS like an info-product by launching ConvertKit Academy. It was initially very successful ($7,000 in revenue in one month), but then seats stopped selling and I once again lost motivation.
Even though ConvertKit Academy didn’t turn out to be as financially sustainable as I’d hoped, it was still a good experiment which helped dozens of people start their email lists.
The wrong audience
Unfortunately the focus on education—particularly building a list from scratch—attracted an audience that didn’t make the best customers. What we found is that these beginners complained the most about price, lacked the discipline to produce content consistently, and were very likely to cancel when their project failed.
On top of that the focus on beginners alienated some people who would have been much better customers – people who already had serious online businesses wondered if ConvertKit was right for them. We were actually driving away our best customers and focusing on those least likely to succeed.
In October 2014 monthly recurring revenue had slid all the way down to $1,207. Something had to change.
Treating ConvertKit as a side project just wasn’t working. The rest of my business (book and course sales) were doing great, but ConvertKit was sliding further towards zero revenue. And it still cost a decent amount to run each month.
I had to make a decision. Either give ConvertKit the attention it deserved or shut it down (or put it on auto-pilot). Fully shutting down ConvertKit wasn’t really an option. It was an incredibly powerful tool that I had built for exactly my needs. It was the tool that enabled me to grow my list to over 30,000 email subscribers so quickly.
Putting it on auto-pilot was an option. That would mean continuing to run it for existing customers, but not actively market it or develop new features.
Or I could double down on ConvertKit and give it the time and energy it deserved to see if it could be successful. I thought long and hard about this. I had one direction that I could still try. I decided it was time to double down on ConvertKit and give it every possible opportunity to succeed.
Email marketing for _______
Who is ConvertKit for? That was a question that I never had a really good answer for. The answer was something like, “anyone trying to build an audience quickly and sell products online.”
That’s not good. Here’s a hint: if your market definition has the word “anyone” in it, you’ll probably fail.
Since writing and publishing Authority I’ve watched readers launch hundreds of books. One trend is that the more specific the book topic and audience, the more money it will make. In other words, “Introduction to Design” is not going to do nearly as well as a specific guide to something specific like software onboarding.
In other words, be specific.
Do what I say…
I’ve given this advice dozens of times and saved plenty of readers from writing generic books that are practically guaranteed to fail.
Despite giving that advice I made the exact same mistake. ConvertKit wasn’t messaged to a specific segment of the market, and as a result, no one thought it was exactly for them.
Another case of do what I say, not what I do.
With the advice from a few friends I decided to focus heavily on one market and change all the messaging to match. We wouldn’t turn away customers from outside the market, but this would give us a focused audience to pursue.
Email marketing for authors
The segment we chose was email marketing for authors. One trend I saw among our most successful customers was that they wrote and sold books or courses to their audience – just like me. I built ConvertKit with my exact use-case in mind: it’s the perfect tool to sell more books and courses.
This new direction, combined with full-time work on the product, reversed the downward trend of revenue. By the end of October MRR had grown 23% to $1,646.
Then in November we continued to execute on the same strategy and grew 27% up to $2,100.
Around this time I also started doing direct sales. Previously if I talked to someone at a conference and they expressed interest in ConvertKit, I’d talk to them and then try to remember to follow-up later.
I’m sure you spotted the problem with that already: I’d try to remember. I didn’t write it down, track the conversation, or anything else.
But finally I changed that and started tracking every conversation in a ConvertKit Sales Trello board.
While at MicroConf, Ryan Delk and I were talking with another attendee who expressed interest in ConvertKit. We talked for a while about how he could best use it. After we finished our conversation, I pulled out my phone, opened Trello (their iOS app is really good), and added the person I’d been speaking with to the “Interested” column on the ConvertKit sales board.
Ryan’s only comment was, “I’ve been trying to get you to do that for over a year.”
The focus on authors also enabled us to start reaching out to potential customers. Since technical authors did well with ConvertKit, we contacted all the top sellers on LeanPub and Udemy. Out of about a hundred personal emails, we picked up 5-7 customers. Not great, but also not bad. Especially for this early stage.
I found it interesting to learn that even the top LeanPub authors aren’t actually making that much money, whereas the top Udemy authors are doing very well.
December was the month all this effort really started to come together. MRR grew 54% to $3,237. I started to get very encouraged about where things were headed.
And because of a couple annual prepayments net revenue was even higher at $4,480.
All these new customers meant a lot of feature requests. And I was starting to notice the flaws and little frustrations in the product. In order to make ConvertKit truly great we would need a full-time team focusing on it.
Dan was already on the team, mostly working on my books and courses, but over this time he switched over to focusing full-time on ConvertKit support. Marc was working about half-time on our development, but he was also busy with other projects.
To build the big features like marketing automation, we needed to add a full-time developer.
But that costs money that ConvertKit didn’t have. In order to support growth over the past couple months I’d been funneling a bit of money from my books and courses into ConvertKit to make up for our increased expenses. Now that I wanted to bring on a full-time developer I’d need to make that official with a larger investment.
So on January 1st, 2014 I invested $50,000 into ConvertKit. The next day my good friend David Wheeler joined the company as lead developer. David and I have worked together on a bunch of projects over the last 5 or 6 years. Whenever I need a designer or developer, he’s the first person I turn to.
I honestly didn’t think I’d be able to hire him away from his current gig, but circumstances worked out perfectly and I’m incredibly lucky to have him on the team.
Though, the new expenses did add stress. Hilary and I trimmed our personal expenses to the minimum, I ended the lease on my office and moved my computers and camera gear back home, and we cut back the extra money we were paying on our mortgage each month.
Since we had spent so much money buying and remodeling our house, our personal accounts were the lowest they’d been in years. In fact, that $50,000 investment represented the last bit of our large cash reserves from the year before.
We decided that focusing this way would make 2015 a lean year for our personal finances, but it would be worth it in order to build ConvertKit into a sustainable company.
Record growth and then a slump
The beginning of January we landed a few big new accounts and MRR kept climbing. From December 15th to January 15th we grew 60% to $4,067.
That’s great! Except that’s not the entire month of January. If we look at the entire month things don’t look as good:
On January 18th I went on a 2 week trip to Thailand to visit family. The trip was an amazing experience and I felt blessed to be able to travel like that.
At the same time being away in remote parts of the world taught me two things:
1. The team I have in place to run ConvertKit is truly world-class.
Several major things went wrong at a time that I was on a remote island trying to make sure my stuff didn’t get stolen by monkeys. Dan, Marc, and David fixed everything and communicated with customers perfectly without any involvement from me. That’s a founders dream come true.
2. Growth stalls out when I go on vacation. We still hit 20% growth in January, but that’s only because the first 15 days were so good. We ended the month with lower MRR than we had on the 15th. My hope was that growth would continue, though I didn’t expect it to at the same rate. But I learned that I need to get better systems in place for sales.
Getting back on track
February had a slow start, but growth picked up and we closed the month growing 17% to $4,561.
A messaging problem
In January I started to notice a problem with “Email marketing for authors.” Our customers that most strongly identified with the term “author” tended to be on the smallest accounts, needed the most help, and were the most likely to cancel. In other words, they were hobbyist authors. Not professionals.
Somewhere in that time Dan and I realized that our best customers didn’t start building an email list from scratch, instead they switched their list over from another provider. These people usually didn’t strongly identify themselves as authors. Instead they were bloggers, course creators, or something else. I didn’t know what to call them.
But the feedback was pretty strong from my one-on-one conversations: the people who had the potential to be our best customers saw “email marketing for authors” and thought it wasn’t for them.
David spent the beginning of the year working on marketing automation, which totally changed ConvertKit’s capabilities. Before these automation features, you could do a lot with Zapier, but the process was clunky. Now, marketing automation is built directly into ConvertKit, and the user experience is 10x better.
With our powerful triggers and actions you can build a fully automated marketing and sales funnel. We’ll announce more about this soon.
Our dedication to a great UX is best summed up by our Gumroad integration.
You can now move purchasers from Gumroad into ConvertKit and add them to a course or form in 47 seconds. Seriously, that’s how good it is. You can set it all up that quickly. Watch this video:
That makes ConvertKit the only email marketing provider to have a direct Gumroad integration. If you use Gumroad to sell products and/or courses, we should talk.
I spent last weekend up in the mountains of North Carolina for a mastermind retreat with Barrett, Caleb, Matthew, and James. In a 90 minute session we focused entirely on ConvertKit. We talked messaging, growth, and other strategies.
The key takeaways were that we would:
- Rebrand ConvertKit to be “Email marketing for Professional Bloggers”. That statement best represented our best customers. The authors page is still available at /authors, but it no longer has the focus of our home page.
- Focus even more on direct sales. Talk to professional bloggers with lists of 30,000 to 250,000 subscribers to up their marketing game and switch to ConvertKit.
- Continue to provide incredible support and concierge migrations to move these professional bloggers over to ConvertKit and help them grow their lists faster and sell more products. That’s what we’re best at.
- Continue to feature our favorite customers. They do amazing things and we want to do a better job showcasing their work.
I made it home late Monday night with perfect clarity on what I needed to spend my time doing and who our target customers are. That’s an amazing feeling.
Meeting the goal
Then something happened that I’ve been working towards for 2 years, 2 months, and 9 days: we passed $5,000 in monthly recurring revenue.
Based on the conversations I’m having now we should continue growing quite quickly.
Obviously with the team we have in place now and current expenses, ConvertKit isn’t profitable. Our burn rate is now about $8,000 per month, not including my own salary.
Breaking the rules
Originally I set out two rules for The Web App Challenge:
- Grow to $5,000 in MRR in 6 months.
- Do it with only $5,000 in investment.
I didn’t hit either of those. Instead of 6 months it took 26. And instead of investing just $5,000 in ConvertKit, I’ve invested $55,000.
But instead of giving up along the way, I pushed through what was a long, hard journey and met the ultimate goal: $5k in MRR.
This is just the beginning. Now with a great team on board we’ll continue to grow to become profitable. I know exactly the steps that need to be taken in order to make that happen.
If you make your living from your blog, we should talk. ConvertKit was tailor made for people just like you and me. Plus, we’ll handle the entire migration for you and set you up with marketing best practices along the way.
Here’s to the next 2 years, 2 months, and 9 days.