Full disclosure: I run Spreedly, an earlier to market but much less funded competitor to Chargify.
Here's the dirty little secret that Spreedly discovered about 18 months ago, and that I'm sure Chargify - like Recurly before them - has now found out for themselves: there are plenty of people who want to start subscription businesses, and out of those, the vast majority will not succeed and will actually end up costing more than they ever bring in. That leaves businesses in this space two options: either focus on successful startups and actively filter out the "losers" (by charging a minimum of $99/month, for instance), or minimize costs for "low probability" businesses - and they're all low probability early on! - and use "cheap to try things out" as a star search for the few businesses that will end up getting big.
Note that Chargify paired this price increase announcement with two other significant announcements that have largely been overshadowed by the hullabaloo: PCI Level 1 compliance, and 24/7 phone support. This pairing is not coincidence - I'm pretty confident that the pricing change is very firmly tied internally to these two new "features". PCI Level 1 compliance is a hefty upfront cost plus a large ongoing price tag. Good 24/7 phone support is crazy expensive to provide, and means that free customers would eat their lunch since so much of the support needs for one of these businesses is on the front end.
The ridiculously huge mistake I think Chargify made here was something I thought was just a given these days: they should've unilaterally grandfathered all of their existing clients, and quietly given the grandfathered plan to anyone who was already integrating but not yet launched as well. When Spreedly made our last pricing change - from percent of transaction fee to flat per transaction fee - it was a price drop for most of our customers. But not all: anyone with super low prices would've ended up paying us more, so we explicitly made it the minimum of $0.20 or 2% of the transaction. There's just no excuse for ticking off existing customers - it makes you look like a cell phone company. Even if you absolutely have to raise prices across the board, I think three months of warning is the absolute minimum amount of time to give a customer base before you hit them with the increase.
So, that's my $0.02 - hope it helps folks understand why I think this is happening. Questions, feedback, etc., welcome.
P.S. I think in some areas Chargify's definitely ahead of Spreedly Subscriptions in terms of functionality - all of that extra capital definitely shows in the end product. But that's because we've been focused on "what's next" after you figure out the naive business model doesn't work in this space. I said above that there are two options. That's a lie - we're working on a third option. If there are any angels reading this that would like to invest in a team that's been thinking deeply about this space since before Chargify and Recurly were a twinkle in their founder's eye, drop me a line.
> here are plenty of people who want to start subscription businesses, and out of those, the vast majority will not succeed and will actually end up costing more than they ever bring in.
That's not exactly news, that's why you try to get a good grip on the life-cycle of a cross section of your potential customers before you set a pricing scheme.
A free customer should work out at any level of scale and any life cycle that that customer can go through, the fact that there are 'many of them' or that the distribution is not what you expected points to a lack of research of your prospective customers.
Bait-and-switch by accident or by design makes no difference to your customers.
> Note that Chargify paired this price increase announcement with two other significant announcements that have largely been overshadowed by the hullabaloo: PCI Level 1 compliance, and 24/7 phone support.
Wait until they start getting in to more and riskier transaction volumes, they'll have to add up to 30 cts per transaction worth of fees for various services to help with scrubbing the bad stuff from the good stuff to keep the chargeback rates in check.
Otherwise they'll be spending a lot of money on airline tickets to warm and sunny places trying to get merchant accounts from banks that mere mortals would rather not deal with just to stay in business.
> they should've unilaterally grandfathered all of their existing clients, and quietly given the grandfathered plan to anyone who was already integrating but not yet launched as well.
100% agreed on that one, I really can't fathom with they decided to shoot themselves in to both feet at once like that.
Do you guys do segregated merchant accounts (one merchant account per customer)? If not how will you deal with a merchant account issue once your volume is larger and you start to attract 'bad apples'? (like everybody else that ever did multiplexed merchant accounts)
> Wait until they start getting in to more and riskier transaction volumes, they'll have to add up to 30 cts per transaction worth of fees for various services to help with scrubbing the bad stuff from the good stuff to keep the chargeback rates in check.
Selling a billing logic service to businesses isn't exactly high risk. Their customers' users' payments do not go through Spreedly/Chargify... they just talk to the API of the customers' payment gateways using their customers' credentials. Any end-user chargebacks related to the subscriptions are on the customers, not Spreedly/Chargify.
> Do you guys do segregated merchant accounts (one merchant account per customer)? If not how will you deal with a merchant account issue once your volume is larger and you start to attract 'bad apples'? (like everybody else that ever did multiplexed merchant accounts)
You misunderstand what these services are. They do not provide payment processing in any way. They are only selling business logic the app developer would normally have to write.
> Bait-and-switch by accident or by design makes no difference to your customers.
Not trying to justify, just inform.
> Do you guys do segregated merchant accounts (one merchant account per customer)?
We don't do merchant accounts at all - that's pretty much a constant across everyone in this space. Businesses plug in their own merchant accounts - Spreedly just handles all the billing logic.
There are companies that will use a single merchant account across all their merchants. Essentially you pay for the privilege of not having to get your own account.
Typically these services grow like mad and then explode. Happy to hear that chargify at least is not one of those.
A rising tide lifts all boats. I'm gratified by (a) the introduction of your new lowest-tier plan within only hours of the outcry; and (b) two competitors speaking quite well of one another in public.
I expect nothing less from people who get to touch my financial transactions, but it's still a pleasure to see.
So, are you saying that firms like Spreedly which don't have as high costs are not offering PCI Level 1 compliance and poorer support? What are the liabilities for Spreedly and its customers for non-compliance?
Spreedly is PCI Level 2 compliant, which while not cheap, is significantly lower cost than Level 1 compliance. There's not additional liability involved by us being Level 2 vs Level 1 - while Level 1 is certainly a nice marketing strategy, the truth is that it's not required until transaction volume reaches a pretty significant level. Once Spreedly reaches that level we'll get it, but by that time we'll also be able to afford it.
In terms of support, what we're doing at Spreedly is focusing on providing excellent email support, and occasionally supplementing that with IM/phone support for critical issues. It's a trade-off that seems to be working well for us and our customers at this point.
It seems that a better solution to the dilemma of high up-front costs would be exactly what Chargify does not have: setup fee (+monthly costs, probably lower than existing)
Then by definition, all the old users would be grandfathered in(they are already setup).
Other issue would be changing advertising which emphasizes no setup fees...
At Spreedly we rarely do any phone pre-sales or support, and that's a very intentional choice. As noted above, good phone support is expensive to provide, and one of the ways we've decided to keep costs down (at least for now) is by sticking to email. For those who want phone pre-sales and support, Chargify's offering looks like it could be a good option.
Totally understand the reasons not to offer this, but we feel it is pretty important the ability to call your billing provider 24/7 and talk to someone as well as a NOC that is staffed 24/7 monitoring all systems. Collecting money is what makes a business work, sending an email that someone might get to the next day just is not good enough for us.
Here's the dirty little secret that Spreedly discovered about 18 months ago, and that I'm sure Chargify - like Recurly before them - has now found out for themselves: there are plenty of people who want to start subscription businesses, and out of those, the vast majority will not succeed and will actually end up costing more than they ever bring in. That leaves businesses in this space two options: either focus on successful startups and actively filter out the "losers" (by charging a minimum of $99/month, for instance), or minimize costs for "low probability" businesses - and they're all low probability early on! - and use "cheap to try things out" as a star search for the few businesses that will end up getting big.
Note that Chargify paired this price increase announcement with two other significant announcements that have largely been overshadowed by the hullabaloo: PCI Level 1 compliance, and 24/7 phone support. This pairing is not coincidence - I'm pretty confident that the pricing change is very firmly tied internally to these two new "features". PCI Level 1 compliance is a hefty upfront cost plus a large ongoing price tag. Good 24/7 phone support is crazy expensive to provide, and means that free customers would eat their lunch since so much of the support needs for one of these businesses is on the front end.
The ridiculously huge mistake I think Chargify made here was something I thought was just a given these days: they should've unilaterally grandfathered all of their existing clients, and quietly given the grandfathered plan to anyone who was already integrating but not yet launched as well. When Spreedly made our last pricing change - from percent of transaction fee to flat per transaction fee - it was a price drop for most of our customers. But not all: anyone with super low prices would've ended up paying us more, so we explicitly made it the minimum of $0.20 or 2% of the transaction. There's just no excuse for ticking off existing customers - it makes you look like a cell phone company. Even if you absolutely have to raise prices across the board, I think three months of warning is the absolute minimum amount of time to give a customer base before you hit them with the increase.
So, that's my $0.02 - hope it helps folks understand why I think this is happening. Questions, feedback, etc., welcome.
P.S. I think in some areas Chargify's definitely ahead of Spreedly Subscriptions in terms of functionality - all of that extra capital definitely shows in the end product. But that's because we've been focused on "what's next" after you figure out the naive business model doesn't work in this space. I said above that there are two options. That's a lie - we're working on a third option. If there are any angels reading this that would like to invest in a team that's been thinking deeply about this space since before Chargify and Recurly were a twinkle in their founder's eye, drop me a line.