by Adam Feber
Mailgun is a leading email service provider (ESP) that has an impressive track record of innovation, funding, acquisition, and growth since its inception. But like most startups, the road to success is paved with speed bumps and lessons learned, especially relating to optimizing operational efficiencies at scale.
Today, Mailgun has grown to over 100 employees and their platform powers email for some of the world’s most recognizable brands such as GitHub, Shopify, Slack, and Lyft. Yet six months ago, their subscription billing and reporting workflows were still bogged down by manual, time-consuming processes that restricted growth.
As we continue to grow and introduce more complexity into our plans and pricing models, we needed a subscription billing provider that was designed for our needs—current and future. We evaluated all the solutions on the market and Chargify was the best option for us.
In late 2018, Chargify worked closely with the Mailgun team to migrate their pre-existing billing solutions over to Chargify. The end result was the definition of subscription success:
- Multiple billing systems were consolidated into one source of truth
- All those manual processes were fully automated
- Internal resources were reallocated to focus on growing their product and business
- Month-end closing times were dramatically reduced from two weeks to one day
- Billing limitations were lifted providing more freedom to experiment and customize product packaging
Before digging into these solutions, it’s helpful to understand Mailgun’s past…
A Quick History Lesson:
Founded in 2010, Mailgun set its sights on building a developer-friendly, API-centric email service provider that allowed businesses to quickly and seamlessly bake complex email functionality into their applications without the baggage of custom code.
They were clearly on the right path to success because shortly after launch, they were accepted into the 2011 winter Y Combinator class, and in May of 2011, received $1.1 million in funding from SV Angel, Yuri Milner, Maynard Webb, Paul Buchheit (Y Combinator Partner who created Gmail), and Geoff Ralston (who built & launched Yahoo Mail back in 1997).
With some experience, customers, and funding under their belt, Mailgun was ready to conquer the [email] world. But their plans for global domination were put on hold when they were acquired by Rackspace in 2012. While the acquisition didn’t change Mailgun’s mission and purpose, it did create an allegiance to focus on Rackspace’s ecosystem and customers.
In 2017, Rackspace sold off subsidiaries that were not part of its core strategy and found a new home for Mailgun at Turn/River Capital, a San Francisco-based private equity firm. In addition to the sale, Mailgun announced an additional $50 million round of funding from Turn/River Capital and—no surprise—Rackspace.
Developers are at the heart of everything we do. We are focused on solving the daily problems developers face when integrating and managing email inside of their applications. Our independence and influx of growth capital will allow Mailgun to drive a product vision that will thrill developers when they see what is coming down the pipe.
By leaving Rackspace, Mailgun was able to hyper-focus on delivering an impactful product roadmap, experimenting with packaging, and expanding their integration partners with companies such as Google Cloud, Heroku, Customer.io, and many more.
Mailgun’s newfound clarity and focus fueled growth, and yet another acquisition in April of 2019 when private equity firm Thoma Bravo purchased a majority stake in the company.
“We will be investing millions in the development of products you can use to enhance your deliverability, gain more insights into your emails, and deliver an unparalleled experience for your customers. We’re also doubling down on customer success and enablement to ensure our customers have exactly what they need to scale their communications.” Conway wrote in their acquisition announcement.
Mailgun’s future is very bright, but a lot of hard work went into getting them to where they are today…
The Evolution of Mailgun’s Packaging & Pricing
As you would suspect with an ESP, Mailgun’s pricing has always revolved around metered-usage billing with volume-based price breaks. Below is Mailgun’s pricing page from their launch in 2010:
In 2013, they modified their free offer, dropped the monthly minimums, and consolidated their production and development plans into a single pay-as-you-go plan.
While this dramatically simplified their pricing, it left little room for differentiating features and generating upsells. Mailgun’s pricing page went mostly untouched until they separated from Rackspace in 2017.
Their 2017 overhaul included:
- Reintroducing tiered plans as an opportunity to differentiate value-added features such as log retention, levels of support, and more
- Launching and productizing validations as its own metered-usage add-on
- Implementing a base fee for premium tiers which include buckets of monthly emails and validations with tier-based volume discounts for overages
Like any company that sells to enterprise customers, they’ve been negotiating and personalizing packages for enterprise/contract customers throughout their journey.
But the buildup of custom plans combined with recent changes helped Mailgun realize that to remain innovative and agile with packaging, they needed to rethink and retool their existing billing solution.
Optimizing Operational Efficiencies At Scale
Chargify cannot take credit for Mailgun’s wild success to-date, but since moving to Chargify in early 2019, Mailgun has been able to dramatically streamline billing operations and free up internal resources to focus on growth—not billing headaches created by manual processes.
Subscription billing in a pre-Chargify world:
Prior to Chargify, billing at Mailgun was fragmented between two systems—Stripe for automated card payments and QuickBooks Online for contract customers with highly complex needs.
Pricing for these contract customers varied based on each customer’s negotiated terms. Personalized pricing combined with high volume usage required an excessive amount of spreadsheets and data entry prior to invoice generation.
To make matters more complicated, there were many contract customers with parent/child relationships where the parent account would have multiple children accounts for different businesses units or environments such as production, staging, development, etc. The parent was the payer for its children but needed a consolidated, itemized invoice that broke out usage and pricing for each child account.
It took an internal resource multiple days to calculate usage, merge accounts, and generate invoices for these contract customers. Not only was it a time-consuming headache, it meant that billing didn’t happen on the 1st of the month—or even during the first week of the month—which is what Mailgun strived to achieve.
These delays also had a snowball effect on monthly revenue reporting which took an additional one to two weeks after invoices were generated to merge and calculate revenue from the two billing systems.
Subscription billing in a post-Chargify world:
Step one required unifying the two systems under one roof by replicating their product catalog of publically available and customized plans from over the years. Luckily, our Price Points functionality was designed to simplify this process by utilizing a smaller, more manageable product catalog with multiple price points under any given product or component.
At Mailgun, we have a substantial number of “contract customers” that are on our Managed/Enterprise plans, and each contract customer typically requires custom pricing. We’re big fans of Components Price Points which allow us to quickly create custom usage-based pricing from our existing options.
With all of the products and components created, Mailgun could begin to import customers and map them to correct billing logic:
- Every customer was associated with the product they were subscribed to and the Component Price Points for metered-usage that’s passed in through Chargify’s API
- Calendar Billing was configured to automate calculations and ensure that all of Mailgun’s customers would be accurately billed on the first of each month
- Customer Hierarchies and WhoPays provided the ability to model parent/child relationships and generate consolidated, itemized invoices that roll payment responsibilities up to the appropriate parent/payer
- Customers using automated card payments would continue being processed through Stripe via Chargify
- Contract customers were updated to follow the desired workflow of invoices that could be paid via check or ACH
- Dunning workflows were configured to automate communication with past due accounts, helping to maximize revenue retention caused by failed or delinquent payments
With all the heavy lifting done, Mailgun was able to seamlessly and successfully migrate their entire customer base from the two systems into Chargify. Did it achieve the results they were looking for?
There was a lot of work that went into preparing for the first of the month every month, and now everything is completely automated. For the first time in a very long time, all of our customers are properly billed on the first of the month vs. being days or weeks behind through our previous systems. And our period end reporting has decreased from two weeks to one day. Implementing Chargify has freed up a lot of time on peoples’ calendars to work on other things, which is a big win in our book!
And remember the aforementioned person that had to manually calculate/record usage to generate invoices for contract customers? He has completely been removed from any billing responsibilities and is a happy, contributing member of the development team! ????????
Do you want to learn how your business can automate billing operations and free up internal resources similar to Mailgun? Set up a call with a Chargify Billing Expert. We would love to understand your business and how Chargify can help you grow faster!
