18 months ago I launched The Web App Challenge and started building ConvertKit, an email marketing company. The journey has had a lot of ups and downs, but overall has been a lot of work without too much growth. This is the latest installment in that story.
Anyone looking to get into building a software-as-a-service (SaaS) application should know a few critical things.
- Recurring revenue is great, but it can take a really long time to turn into meaningful numbers (See: The Long, Slow SaaS Ramp of Death).
- It can be more difficult to sell a product that is available for purchase at any time.
- They often lack the training materials needed for the customer to be really successful.
- If customer churn is high (which is common) it can cripple the business.
These are all reasons that many experienced product people recommend that you do not create a SaaS app for your first product. The potential upside is huge, but they are really, really hard to make work.
Let’s contrast that with training products
Information products, such as books, courses, and other training products don’t have these same issues.
Instead of taking years to build up to a decent monthly revenue number, you can launch and make well over $25,000 in a single day! Instead of hoping someone will buy at anytime (and not convincing them well) you can build up anticipation for an open-and-close launch to get everyone to buy at once. And finally, since the product is all about education, your customers are more likely to be successful since it teaches them everything they need to know.
This isn’t without downsides. While it’s great to get a large payment up front, launch focused businesses are plagued by inconsistent monthly revenue. A huge spike one month is often followed by several months of low revenue. SaaS on the other hand has predictable revenue. So long as you add more customers than you lose each month, revenue grows.
Best of both worlds
I’ve slowly realized that you can merge these two models and solve many of the problems. This is exactly what I’ve done with ConvertKit Academy. Let’s walk through how that works.
Each month I launch ConvertKit Academy to just 10 members. Each member pays $300 which includes:
- A six month membership to ConvertKit ($50/month x 6 months = $300).
- Templates for creating your own incentive graphics (guides and book covers).
- A course on how to use email marketing (and ConvertKit) to get your first 100 email subscribers.
- Training on how to set up and use email courses (auto responders) effectively.
- Hands on help from a ConvertKit team member setting up their account, embedding the opt-in form, and planning marketing strategy.
Let’s walk through how this model solves many issues common to SaaS apps.
Monthly Recurring Revenue or Net Revenue
Monthly recurring revenue (MRR) takes a long time to grow. It can be frustrating when all the work of adding a single customer only adds $50 in revenue to your Stripe account. Especially when that customer has a decent chance of churning anyway. The revenue grows so slowly that you can’t rely on it to pay the bills, so you need to have other income streams (I have my books and courses) to keep the business running.
This is frustrating when the long term product (ConvertKit) doesn’t generate much income compared to a short term focused product (a book). In fact, my course, Photoshop for Interface Design, generated more in a day ($35,000) than ConvertKit does in an entire year! Then the Photoshop course did that again on the second launch day ($22,000).
When you have info-product cash cows to rely on, it’s hard to set time aside for development and marketing of a slow growing SaaS app.
When I launched ConvertKit Academy for the first time I saw a spike of $2,000 in a single day. That was from 7 new customers prepaying roughly $300 each. My first thought was, “That’s nice, but it’s a one time spike.”
Just a projection.
That one time spike is followed by a nice bump in MRR 6 months later (once those 7-10 people switch to monthly billing), but otherwise it doesn’t have much of an effect on long-term revenue.
Then after I launched the course the second time and made a little more money I realized something critical: I could treat that one time spike in net revenue as MRR if I recreated it each month by launching the Academy again.
By focusing on net revenue instead of MRR I had twice as much money to work with each month. The spike is from some of those customers prepaying for six months, but unlike a one-time-sale info-product, they will switch to paying $50/month at the end of six months. Meaning I can count on recurring revenue in the future.
Not only do I see nearly double the revenue in the short term, but also once the six month mark hits after the first ConvertKit Academy MRR spikes and continues to grow at a new trajectory. Now that’s starting to look like a sustainable business and not a hobby project!
Actually, the SaaS industry has known about this idea for a while, just in a different form: annual prepay.
Jason Cohen talked about how critical annual prepay is for cashflow in his talk last year at MicroConf. By getting a (discounted) payment for the entire year, WPEngine is able to spend more on acquiring each customer (it solves a cash flow problem) and count on lower churn since the customer has prepaid for the year.
I considered an annual payment for ConvertKit Academy, but I think a $500 or $600 payment is a bit high for someone just getting started. So I settled on $300 for six months of access.
How many of your customers are truly getting value from your product? Look through your account stats and I’m sure you’ll see a lot of companies that don’t have enough projects/forms/widgets to make the product actually useful. Meaning they are just paying you to keep their account open since they either hope to use it someday or they just forgot entirely.
Those people will cancel eventually unless they start to get value.
With ConvertKit I saw a lot of people set up a new account, create a form, then do nothing else. Then after their first payment they would realize they weren’t using it and then cancel. The churn rate for customers in their first month was nearly 40%! That decreased quickly for any customer that lasted more than 30 days, but still, it was bad!
At first I looked for flaws with the tool. What features did it lack? Why were people canceling?
Each person who cancels has to write a short message saying why they canceled. The most common reason was, “Not using it.” It’s hard to get value from a tool that you aren’t using.
One ConvertKit customer was struggling to see the value in ConvertKit since his forms weren’t really set up and he didn’t have any subscribers. When I talked to him he was close to canceling. I helped him plan his landing page, promote it (he actually did a really good job!), and the subscribers started to roll in. Now that he has over 1,000 subscribers for his upcoming product, he isn’t switching any time soon!
The single biggest factor in decreasing churn is not some little trick or adding another feature, but instead just making your customers successful.
Find the issues
Once I started talking to customers I found a few reasons why they weren’t successful:
- They weren’t ready to launch a product
- They didn’t know what to put on a landing page
- It was too hard to add the form to their site
- They didn’t have graphics to go with their form
- They couldn’t think of a good headline for their landing page
- They couldn’t decide what was the best signup incentive
- They didn’t know how to get traffic to their page once it was live
Very few of these had anything to do with running an email marketing and landing page tool. So I had to stop and think about what business ConvertKit was in. Helping customers send email? No, that’s what everyone else does. In order to make our customers successful our goals need to match theirs. So I decided ConvertKit is here to help our customers get more email subscribers and make more sales.
That means we don’t just show you how to use the tool and send you on your way. Instead we need to teach the soft skills like marketing, basic copywriting, and how to grow an email list.
I write a lot of books (three in one year!) and courses, so when I was planning the next course to write, everything pointed to something on email marketing. I know a lot about the topic, plenty of people read my blog to learn email marketing tactics, and it would be a great cross-sell to ConvertKit. People could buy the book/course as an introduction, then if they liked my philosophy on email marketing, sign up for ConvertKit as well.
But after seeing the issues ConvertKit customers were having, I decided to make the course a part of ConvertKit (with the Academy) and mandatory for all new customers. Which has really helped. The course material answers questions about how to plan and create a good incentive, what your landing page should say, and provides templates for any graphics you may need.
Not being able to anticipate all the issues, I then added two live Google Hangout calls with all the members of the current Academy class (up to 10). On this call I answer questions about marketing plans (“Should I grow my list before announcing a product? Or use the product landing page to grow my list?”), tech support issues, copywriting (planning the title for your incentive), and anything else that comes up.
All of that worked to increase customer success, but I realized it still didn’t remove all the roadblocks. Customers now had a template they could use to make nice graphics for their forms, but what if they didn’t have (or know how to use) Photoshop? Or they had the WordPress plugin, but even with step-by-step instructions they couldn’t get it installed on their site?
In the past I would have been inclined to write good support docs or explanations and leave it at that. But now our goal is to remove every roadblock preventing that customer from growing their email list. In the last two batches of ConvertKit Academy I’ve jumped in Photoshop and designed book covers and other graphics (using my templates) for them!
Now I ask, “What’s holding you back?”
Then do whatever I can to fix that. That means our support team will help you in any way we can! Creating graphics, FTPing a WordPress plugin, fixing style issues on your blog, and anything else that relates to ConvertKit.
A few book covers we’ve made for Academy members.
There are definitely limits (sorry, we won’t redesign your site), but generally if it is fairly quick and you are going through ConvertKit Academy, we’ll help you out.
Why do people buy during product launches?
I’ve seen over and over again that even when a product is available for purchase at any time, people buy during product launches. Here are a few reasons why:
- A good launch builds anticipation
- Subscribers hear about a product more during launch
- A launch is an event — people like events
- A launch adds urgency (limited number, sale ending, etc.)
SaaS products are often available for sale at any time, whereas books and courses tend to have a big launch. In some cases, that launch closes after a few days or a week to add even more urgency. I’ve gotten very good at making launches an event and driving a lot of sales during that time. It’s much easier for me to build anticipation before an event and get people to buy than it is to just say, “Hey, this is available, buy it at any time.”
Since the ConvertKit Academy requires so much time from me (and my team) I decided to cap each session at just 10 attendees and launch it once a month. Each month I am able to build up to a new launch and then add urgency by capping it at such a low number. Then I can get every member on a single Google Hangout and still give personalized attention.
Each launch is an event and it follows the same process so I am able to create more systems to streamline the process (I still have a ways to go!).
How’s it working?
June marked five months of ConvertKit Academy. I wish I could tell you that my growth problems from the last year immediately disappeared, but that just isn’t the case.
The plan was to sell out each time, but because I only promoted it to a small list, I only sold seven of ten seats the first few months.
The first time through I wrote the course material as I went (which was a lot of work), but the second time I was able to hit play on the email sequence and then just step back and make a few tweaks.
I continued to refine the process, then in June I really stepped up promotion and ran two sold out classes. The result is over $7,000 in revenue for the month!
Even better than the revenue, feedback has been incredible! Only four people have canceled their accounts and one was because the educational lessons in the Academy showed them that they need to be working on something else right now. Everyone else is doing really well and have anywhere from their first few subscribers, up to hundreds eagerly awaiting their new product!
You can read several case studies here.
Why you should sell your SaaS app like an info-product
When I started this process I identified four issues with how I was selling ConvertKit:
- Recurring revenue can take a really long time to turn into meaningful numbers
- It can be more difficult to sell a product that is available for purchase at any time
- Customers lack the training materials needed to be really successful
- High churn rates can cripple a SaaS apps growth
Here are the steps I’ve taken to combat each of these:
- Recurring revenue can take a really long time to turn into meaningful numbers.
By asking for more money up front (six months) you can create spikes in revenue. With mini launches each month, that spike in net revenue can turn into a meaningful trend over time.
- It can be more difficult to sell a product that is available for purchase at any time.
Launch each month so you can talk about the product and build excitement each time. Then cap the number of customers with each launch to add urgency.
- Customers lack the training materials needed to be really successful.
Add training and extra support to the product. Help them overcome each obstacle that is preventing them from being successful with your product. Go above and beyond to help them. You can afford it since each of your customers are paying for six months whereas before they may have canceled after just a month or two.
- High churn rates can cripple a SaaS apps growth. This is solved in two ways: First, by paying more up front customers will put in the time to actually learn and use the product. They are making a commitment and that will pay off in that they will give it more than an hour or two of time before canceling. Second, that commitment, along with extra help and support, will help make them successful. The reason for this new focus is that successful customers don’t cancel.
Instead of hockey stick growth, the last year for ConvertKit has just been slow, steady effort. Over time I’ve learned how to position and sell ConvertKit, but it isn’t until now that I feel I really have a strong direction. Now I plan to double-down on this strategy that is clearly working. July revenue may not be as high as June, but I know MRR is growing and ConvertKit is filling a real need for its customers.
If building an email list is something you want to learn more about, take a look at ConvertKit Academy. It’s centered around teaching you what you need to know, then helping you actually take action and build your list.