#zferral

Zferral let's you easily create, track and manage custom referral programs. Zferral is a custom incentive engine for businesses.  Their flexible and fully-integrated software gives you the tools to engage, mobilize and reward your fans.

Much has been written about the decision by Chargify to eliminate their freemium model and drastically raise their prices.  For some background, see this TechCrunch article, or one from Inc.  Nearly everyone who has heard about this fiasco agrees the situation was handled poorly, my intent is not to pile on, rather to explain why the uproar was justified and an important lesson to the SaaS industry.

Let me add that Chargify is certainly not the first company to do this and they won't be the last.  So when I saw David Hauser's post, "How to Break the Trust of Your Customers in Just One Day: Lessons Learned from a Major Mistake."  I assumed there would be a heartfelt apology and some interesting lessons.  I couldn't have been more wrong.  Quite frankly, as a customer currently under the 'free' plan, I was insulted.

The bottom line is that David failed to understand 3 important aspects of his business, all of which lead to the massive uproar:

Chargify Was Never Freemium For Users

Trust is Imperative for an Integrated & Recurring Web Application

Chargify Blames Their Customers for Their Miscalculations    

CHARGIFY WAS NEVER FREEMIUM FOR USERS

Chargify falsely assumes their product was FREE for customers: this is not true.  It is true that Chargify received $0, yet, nearly all companies using Chargify pay a significant price in development, testing, integration & time. 

At zferral, we spent several weeks of development time testing and integrating our application with Chargify.  In salary alone, this cost was in the thousands...

[added] However, the key takeaway here is to show that we were literally binding our app (via API) to this product.  The point was not to complain about the costs -- rather, it was to prove we were invested in Chargify's success.  The only way I could ever see us leaving was if we totally lost trust....

TRUST IS IMPERATIVE FOR AN INTEGRATED & RECURRING WEB APPLICATION

Trust can be defined as, "having confidence in an expected outcome."  In business, most consumers trust the business will operate in a fair and consistent manner.

With your material change in pricing (without Grandfathering) you effectively eliminated your pricing model.  It is clear you can change at a moments notice...  The new plan is actually:

     "You pay THIS amount per month, until we feel like RAISING it."

This is inherently unpredictable (also unfair) and therefore, cannot be trusted.

Here's the kicker:  Chargify is not a CRM, where you can easily port your contacts from one app to another.  As I mentioned above, the customer has already "invested" their time and resources into Chargify. 

The trust for an application that requires custom integration and has a recurring billing model requires an order of magnitude MORE TRUST than a simple web application that can be easily canceled and switched. 

Who would tie themselves into an agreement where you can get price gouged at any time?  Would you lease a car from a company that can raise the prices at any time?  I hope not! 

CHARGIFY BLAMES THEIR CUSTOMERS FOR THEIR MISCALCULATIONS

Apparently, nearly 99% of Chargify customers were on the free plan.  Clearly, their business model is not to have the top 1% subsidize the other 99%.  This was a miscalculation or their end.  However, this was their conclusion:

Free customers go out of business or never launch

 Really?  Aside from being factually incorrect, how about "our internal assumptions were miscalculated and we should have done a better job of weeding out those who are not seriously considering our product."

But wait, there's more:

Free customers have the time to complain There is a big difference between bootstrapping a business, which I have done a number of times, and trying to test a hobby to see if it is viable as a business.

Those customers that were working on a hobby business, or just something they were not investing in significantly, seemed to have the time to tweet all day long, post multiple negative comments on every possible channel available, and shout the loudest.

This is not to say we did not get valid complaints from great customers—boy, did we ever—but their complaints were well considered, included real information and were mostly in private forums.

This whole paragraph is a crock. Maybe David misunderstood that the Bootstrappers had the most to lose in your new pricing scheme, hence the uproar!  It appears larger customers were mostly unaffected -- change their price and I guarantee you will hear complaints...

Perhaps, David is confusing  "complaining" via twitter with researching the competition.  I took the time for my hobby errr, my startup to tweet the Chargify competitors CheddarGetter, Recurly & Spreedly.  I loudly asked them if they would Grandfather my account if I switch, which given the circumstances, is a fair question.  I received nearly instant communication from them stating they would. 

Communication...CHECK.  Fairness....CHECK.  Trust....CHECK.

In the end of the day, I am making this point as both a consumer and CEO.  As a consumer, with a company that relies on other 3rd party applications, I do not want to see the industry become the Wild West -- where prices are only good for 30 days at a time...

As a CEO, I want my current and future customers to know where I stand.  I can guarantee, that any customer of zferral.com will always be grandfathered into the pricing scheme on the day they signed up -- if we ever raise prices. 

It is a bit sad that I have to publicly declare this, however, I now think it is necessary.