How I Infuriated Customers -- by Asking Them to Pay

Last Updated May 17, 2011 3:00 PM EDT

By David Hauser, Founder and CEO, Chargify, Needham, Massachusetts
Last year my startup, Chargify, which provides online billing services, made a major mistake: We made some much-needed changes to our pricing structure, but we moved too fast and didn't adequately prepare our customers. The response was loud and clear. Customers felt we had betrayed their trust. Minimizing the fallout from our misstep required a rapid response.

The free ride had to end
When we first launched Chargify, we offered a free plan. We thought it made sense to allow business people to use our service for free so they could grow their business to a size that required them to upgrade to our higher volume plans. But we came to find out that too many of our customers were in the hobby stage of building their businesses, and weren't going to become paying customers.

We also realized that our non-paying customers required the most support and complained about our services the most. Only 0.9% of our customers were paying us at all, and we found a direct correlation between the non-paying group and the customers with the highest volume of support requests. And it was these customers who seemed to have enough free time to voice complaints about our services in their blogs and tweets.

The backlash
We finally decided that the free option didn't make sense, so we shut it down while simultaneously increasing the price of our least expensive plan from $49 a month to $99 a month. Unfortunately, we went about this in the wrong way. We sent out an email to all our customers informing them of the elimination of the free option and a slight price increase for all our plans. We immediately started getting negative feedback. We received lots of customer complaints and the tech blogosphere lit up with negative coverage and comments. TechCrunch and Inc. both posted articles bringing more attention to the controversy surrounding our move.

Looking back, it's clear to me we made three major mistakes. First, we didn't communicate often enough or early enough about our planned change. Second, we didn't show our appreciation to customers who had supported us early on by providing them a discount. Lastly, our new pricing structure left many authentic startup businesses unable to afford our services.

Owning up
We were able to fix problems two and three. We eventually reached out to our long-time customers with a lower rate, and introduced a new $39 a month tier into the pricing structure for long-standing paying customers. There was no way we could go back and make up for our poor communication, but we could explain why we had made the changes and inform people about our attempts to address some of the complaints. We quickly began sending out emails and tweets about the change and I wrote a post for our blog that responded to our critics and acknowledged our mistakes. Once we started communicating more effectively, things quieted down.

We continued to receive feedback from people who were upset with us, but many of our customers migrated to the new plan without any trouble. Even though we hurt our reputation and lost the respect of some customers, our decision to end our free plan proved sound. Our revenue increased significantly and our position in the market has improved. We also learned some important lessons: Always genuinely listen to customers, value commitments made with customers, and own up to mistakes.

David Hauser is the founder of Chargify and numerous other tech start-ups, including Grasshopper, Grasshopper Labs, and PackageFox.
-- As told to Zack Anchors

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