Here’s a simple question: How many paying customers do you have? As a startup with a freemium business model, understanding this most basic of questions is vital to understanding the health of our business (or rather, since we’re a startup, the health of our business potential). But it’s a question that we struggled to answer for a long time.
It’s not that the question itself is hard. But until we joined Batch 007 of 500 Startups, defining the problem took a back seat to building the product. Does a user count as paying upon entering a credit card, or only after being charged? What about a user who signs up as part of a team account? We’re being paid for that user, but that user didn’t make the decision that Populr was worth paying for. The boss just said sign-up. Does that designate a conversion or not?
As part of 500 Startups, we started being asked growth and acquisition questions much more frequently. We were asked by our advisors, mentors, and potential investors. We needed to chart growth, a task requiring measurable data week over week. But we were simultaneously wrestling with existential questions of identity and building out the product (it wasn’t until late-December that we finally supported IE & Firefox in the editor). And every time we needed to provide an answer, we were daunted by the same questions.
After far too much time attempting to extract answers from our disparate sources of data, we bit the bullet and made a decision. Here it is:
- A user is converted when we first receive payment from that user.
- A user churns when a converted user chooses to downgrade, deletes his account, or has a repeated card failure that causes an automatic account downgrade.
Now that we’ve made the decision, it seems obvious. It completely sidesteps all the concerns about free trials and coupons and team users that muddied the water before. And most importantly, it ties directly back to the number that most closely represents our prospects as a company: revenue.
On a related note, if you are struggling with answering questions about churn, LTV, and ARPU, and you use Stripe, then check out Baremetrics. They provide a fantastic dashboard with insight into all manner of financial related questions. If you use Mixpanel, check out our page on Tips for a Successful Mixpanel Integration.