ConvertKit: How Nathan Barry Bootstrapped an Email Marketing Business

Tell us about yourself and what you're working on.

Hey there! My name is Nathan Barry and I run ConvertKit, an email marketing company for professional bloggers. You can think of it as a more powerful MailChimp, built specifically for content creators (bloggers, podcasters, authors, etc). I've been working on it since 2013, and we now have a distributed team of 25 employees, all around the world.

One of our core values is to teach everything we know, so that means our revenue numbers are public (and have been for 2+ years). We're currently making $597,000 MRR (just crossed $7M ARR last week). You can dive into all of our metrics at convertkit.baremetrics.com.

I got my start as a web designer and spent a good part of my career before ConvertKit working as a user interface and user experience designer building iOS and web applications. So out of all the skills I've picked up over the years, I still identify most strongly as a designer.

How'd you get started with ConvertKit?

After leaving a job leading the software design team at a startup, I really wanted to earn my living from selling products to my own audience. The only problem was that I didn't have an audience. So as I built iOS apps for myself and clients, I started blogging about it and then decided to write a book called The App Design Handbook. It launched to a small audience of 798 subscribers (hosted on MailChimp), but sold $12,000+ in the first 24 hours.

From then on I was hooked on selling digital products. Over the next few months I wrote another book on Designing Web Applications and then launched it to double the audience (and double the sales numbers). At this point I was making a great living from the two books ($80k in the previous 4 months), had a small audience of 4,000 subscribers, and was ready to take on the next big challenge.

For me that challenge was SaaS. I felt like I'd become pretty good at selling ebooks, so I wanted to get back into designing and building software. I was also starting to get excited about the idea of recurring revenue. I thought it would be amazing to have a predictable revenue stream each month to augment the big revenue peaks and valleys from my book launches.

I decided to launch into building a SaaS app (even though I didn't yet know what I was going to build) and blog publicly about the entire thing. That's what launched The Web App Challenge. My initial goal was to get to $5,000 in MRR within 6 months. Because I didn't want to waste a bunch of money building something no one wanted, I also capped my initial investment at $5,000. That meant I had to fund the majority of it with customer pre-orders.

How did the Web App Challenge turn into ConvertKit?

The entire story is public, but the short version is that I decided to build an email marketing tool built specifically for authors/bloggers like myself who needed a good solution for selling digital products.

Every time I learned a new best practice (tagging customers, easy follow-up sequences, etc), I felt like I was fighting with or hacking around MailChimp to make it work. There were other tools (such as Infusionsoft and Ontraport) that were much more powerful, but the UX designer in me died a little each time I used their interfaces.

So I built ConvertKit, with a description that eventually became "the power of Infusionsoft, but easier to use than MailChimp." I hired a contractor to build the Ruby on Rails app, and I worked on all the design and front-end code.

Six months in, ConvertKit was at $2,000 MRR. Not the $5,000 I wanted, but still not bad.

What did it take to eventually reach your revenue goal of $5,000/month?

Fast forward a year and a half, and revenue had actually declined. When it got hard to grow revenue, I started to lose interest and dropped down to only working on it part-time. Around that time I was walking back from a dinner at a conference with Hiten Shah and he turned to me and said, "I think it's time you shut down ConvertKit."

He continued, "You'll be successful at whatever you do, but you're well over a year into ConvertKit, it's not growing, and it's time to shut it down."

Then he kept walking, leaving me to think about what he said.

After I caught up with Hiten he added more: "Or, you take ConvertKit seriously and give it the time, money, and attention it deserves. But whatever you're doing, it's not working."

That stuck with me. It's not often a friend gives such pointed advice. He was basically saying shut it down or double down.

I did what everyone does when they hear really good advice: nothing. For 6 months I just continued to slowly work on ConvertKit as the revenue gradually declined to $1,300 per month. By October 2014 I'd been running ConvertKit for 22 months and was now losing more money than ever each month. So I had to decide: shut it down or double down?

I decided to double down. That meant hiring a full-time developer (no longer outsourcing), investing my last $50,000, and shutting down my other business to focus on ConvertKit full-time. You can read all about the details of that decision.

The next step was to start direct sales. I'd been selling through content marketing, but not really getting good results. So I started cold emailing bloggers and then setting up Skype demos. They loved the idea for the product, but the biggest objection was that it was too much work to switch email providers. So on a whim I said I'd do it for them. For free.

That worked. We later called it concierge migrations and started doing that for hundreds of customers. 6 months after the decision to double down, ConvertKit had grown from $1,300 per month to $5,000 per month. Finally hitting that original goal, just two years late.

What other strategies have you used to find customers for ConvertKit?

The first 50 ConvertKit customers came from content marketing through writing about The Web App Challenge. Being public and transparent about everything was great for initial traction. But it wasn't enough to really grow the business.

By doubling down and switching my focus to direct sales, I brought in higher quality customers who were more likely to stay long-term. That also switched our focus to the specific niche of bloggers, rather than just anyone who happened to need email marketing. The new messaging and focus was a game-changer. Now our fans had clear language to describe us: "Email marketing for professional bloggers" and "The power of Infusionsoft, but easier to use than MailChimp."

Once we hit about $20,000 MRR (through direct sales and word-of-mouth) we added an affiliate program. That worked exceptionally well because bloggers — our target market — are used to using affiliate programs to generate revenue. Also, if a small business owner loves your product they might tell 2-3 friends. But if a blogger loves your product, they'll tell 20,000 readers! So we had a very natural distribution path built in.

We decided to pay a 30% recurring commission each month, rather than a large upfront commission, mainly because we didn't have any cash and couldn't cashflow anything up front. That turned out to be a great decision since many bloggers want a predictable, recurring income source.

Later on we started doing webinars with our affiliate partners as a way to help them drive more sales. This not only grew our email list significantly (up to 50,000 subscribers in a year), but also drove a ton of new revenue. Today we pay out just over 10% of our revenue each month to our affiliates.

How do you generate revenue at ConvertKit? What's changed over time?

All of our revenue comes from selling software on a monthly or annual subscription. We don't do any paid services (we still offer those concierge migrations for free).

As for pricing, all of our plans scale on one thing: subscriber count. That means that someone paying us $29/month on our 1,000 subscriber plan (our smallest) gets all the same features as someone paying us $599/month for 100,000 subscribers. That simplicity makes the pitch for ConvertKit even easier.

Out of the entire range of plans, our average revenue per customer is $48/month. We're trying to drive that up by having our three-person sales team focus on large accounts.

Our profits have fluctuated quite a bit over the years, but for the last 6 months we've been quite profitable. We currently operate at about 25-30% profit margins: Out of $500k+ each month in revenue, at least $150k is profit. The goal is to continue to build up cash reserves to support the rapid growth and also to have plenty of cash to pay out to the team via profit-sharing.

Since we haven't raised money and aren't planning on a big exit, I want to continue to pay myself well through distributions so that offers to buy the company continue to be easy to decline.

What are your goals for the future?

My goal is to build an incredibly efficient company loved by customers. Two numbers that I track are revenue per employee and customers per employee. At this stage it isn't something that we heavily optimize for, but I want to factor that in to each decision. Some companies brag about headcount, but I like the opposite. I prefer a small team that feels like a family at our team retreats.

We're trying to grow 100% this year. That will take revenue from $500k MRR to $1M MRR. It seems doable. We're currently a little bit behind where we'd need to be, but with some big promotions we should be able to catch up.

The overall goal is to run this company for years. Everything we do is optimizing for the long-term rather than an exit. I finally have the resources to invest in projects that I've wanted to do for years, including a conference, a documentary series, and a print book. It's really fun to have resources to invest in projects that help customers and the industry, but don't necessarily have a clear ROI.

If you had to start over, what would you do differently?

I'd focus sooner. I can't effectively run multiple businesses at the same time, and I don't think many other people can either. Now I laugh when someone brags about running 4 businesses. Just focus on one.

Starting over I'd also focus on direct sales sooner. The feedback from each rejection is so much more powerful than just having your online sales pitch silently rejected hundreds of times each week.

Finally, I'd work on scaling infrastructure sooner. We had a painful summer and fall because our growth started to outpace our engineering team and server infrastructure. I'm not sure how much we could have avoided with limited resources, but even a little bit would have saved a lot of stress.

What would you do the same? What's been really helpful?

I'd keep the same target market. Early on we were made fun of for focusing on bloggers, rather than "real" businesses. But the referral effects from bloggers have been so powerful. It means that we can use direct sales to land a $200/month account and know that if we treat them really well they'll refer quite a few more of their friends.

I'd also keep a sales team (and keep doing sales myself). Most everyone is to afraid to sell, so they hide behind their content marketing or paid ads. Those are great, but you also need to get out and sell to get initial traction.

What advice would you share with aspiring indie hackers?

I really like John O'Nolan's answer to this question. Basically he said stop looking for advice and focus on building. I completely agree.

The only thing I'd add is that getting traction takes far longer than you think, so press on longer even when it's not going well. That long-term focus is critical for getting results. MailChimp built an amazing empire, but they've been at it for 17 years!

Where can we learn more about you?

You can follow my writing at NathanBarry.com. I'd particularly recommend reading The Web App Challenge series that's been written all the way along this journey. After that, follow me on Twitter (@nathanbarry) or Instagram (@nathanbarry), but only if you like woodworking videos and pictures of my kids.

Thanks so much for having me!