ConvertKit’s 3,000% revenue growth that nobody saw coming
One of the more interesting parts of our #OpenStartups initiative is getting to dig through the data and see what interesting observations can be had.
ConvertKit has been a part of #OpenStartups since nearly the beginning. They started as a challenge to build a $5,000/mo business in 6 months. Unfortunately that didn’t work out so hot. It ended up taking them 2 years to get there.
But amazingly, they managed to turn the ship around a few months later, and today they’re doing a whopping $226,000… per month. 😯
ConvertKit’s had literal hocky-stick growth. And they’ve had it where it matters: revenue. Lots of startups like to claim hockey-stick growth, but it’s usually with a metric that doesn’t have any correlation to a business actually, you know…businessing. This type of growth trajectory is often saved for users. Not actual money.
It’s worth noting how smooth this graph is, which says a lot about the stability of the revenue. There’s a danger with rapid growth of serious deceleration, but that’s not likely the case here.
12 months ago, they were doing $7,000/mo and since then, they’ve had 3,000% revenue growth. 😳📈🚀💥
So how did they do it? How did they go from a struggling, mostly flatlined SaaS business to one of today’s best success stories? Let’s dive into their publicly available metrics to find out.
Some tidbits about where their money is coming from: 50% of their MRR comes from plans valued at less than $50/mo, and a whopping 31% of their MRR comes from a single $29/mo plan.
This MRR graph shows that the bulk of their growth comes from new signups. That’s all fine and dandy, but crazy growth combined with low paying customers can make scaling infrastructure and support a nightmare (more on this later).
The holy grail of SaaS growth? Expansion revenue (ie. upgrades). You get the benefit of more cash with very little increase in support and infrastructure costs. This is tricky for ConvertKit to do now as they’re purely usage-based pricing.
Adding some amount of feature-gating or a “pro” version mixed into the sliding scale could do significant things for their revenue. Say what you will about Intercom’s pricing, but they do a really great job of mixing usage-based and feature-based pricing.
One of the most interesting parts of ConvertKit’s growth is that their ARPU has stayed exactly the same since launch.
What this tells us is that pricing has zero bearing on both not growing and rapid growth. It all came down to marketing.
Many founders make the incorrect assumption that they needed to lower pricing to increase growth, and ConvertKit could have done the same here. Instead, Nathan (the founder of ConvertKit) just changed who and how they marketed the product and things instantly took off.
Pricing is something founders love to tweak thinking that’s their problem, which often leads them to charging too little. Pricing isn’t your problem. Heck, there’s a decent chance the product isn’t even the problem. To who and how you market is significant.
Given their target market, that’s not all that surprising. The “blogger” world, while huge, isn’t terribly stable. ConvertKit is piling on the new customers at the moment, and far outpacing churn, but that isn’t sustainable.
I would categorize their market as semi-prosumer… somewhere between B2C and B2B, and for that, you should aim to have a churn rate that is less than 5%.
Here’s a lesson to other founders out there. It can sometimes feel more fruitful to chase after new revenue, but look at what happens to ConvertKit’s growth trajectory if they were to get churn down to 3%.
The difference? $920,360 MRR versus $694,323 MRR 12 months from now just by reducing churn. Keeping your existing customers is often a lot easier than finding new ones, and is just as helpful to your bottom line.
Customers on the higher tier plans are expected to net ConvertKit tens of thousands of dollars each before they churn.
Why is that? Well, if you think about the types of businesses that make up that cohort, it’s established businesses that aren’t folding anytime soon. This makes a very strong argument for getting a real sales team in place as soon as possible. Having 1–2 people focused on closing these larger deals can be huge.
On the other hand, there’s a certain level of comfort in not having a huge percentage of revenue tied to a small percentage of customers. There are plenty of businesses who’ve collapsed because they lost 1 or 2 huge customers.
ConvertKit has nearly $6,000 in delinquent charges, and over $3,000 in upcoming card expirations. That’s a little over 2% of revenue failing, which isn’t too bad, but a solid dunning solution could have a huge impact here.
If you’re losing more than $500/mo in failed charges, you need to do something about that. Shameless plug, Baremetrics has a tool for that.
A year ago, ConvertKit had 130 customers. Supporting that is a walk in the park. You don’t even need dedicated support staff at that point.
Today: 4,500. Holy guacamole. They’re adding 500 new customers every single month. Given nearly 50% of their customer base is made of up sub-$29 customers, I’d bet their support load is substantial.
The only thing more difficult than scaling software is scaling humans. On-boarding and training new support staff, though a good problem to have, is immensely difficult. Taking days to respond to your customers is a sure fire way to wind up with a churn problem, which will eventually act to slow your growth.
ConvertKit is experiencing the type of growth that most startups will simply never see. Not because it’s impossible, but because most startups don’t make the tough decisions required to turn the ship around. Nathan went out of his way to make the changes he did and it paid off in a huge way.