I have an interesting hypothetical question.
If you could charge 2x the LTV of your SaaS app as a one-time sale at the same conversion rate as your SaaS pricing. Would you do it?
So essentially what I’m asking is, if you could charge $200, when the LTV of your SaaS app is $100, AND the conversion rate is roughly the same, would you turn your business into a one-time software business? Or would you stick with SaaS.
I’d love to hear your thoughts.
I would not. An opportunity like that means I’m pricing my service way too low. A SaaS that has an LTV of $100 is likely charging what, $5 - $10/montn? Many customers are happy to pay 10x monthly for an annual subscription. Working backward from that, a customer willing to make a $200 purchase is also likely to make a $20/month purchase for a similar amount of value, which equals 2 - 4x increase in LTV.
The point is not the dollar value, the point is that you can convert users from monthly to one-time accounts at the same conversion value, with the one-time sale being 2x the LTV of your usual customer. Assume the SaaS has high churn.
Piggybacking on your post.
I’m considering adding one-time service to our SaaS (in addition to subscription).
For a small, one-time fee users will be able to uploads docs and convert them to the various formats. Get in, pay, get out.
To answer original question - I would not. My not SaaS app is ~ $500 LTV. My SaaS starts at $250/month. To be honest I have no idea how to survive on $10/month SaaS, let alone $120 LTV app.
Typically, small bootstrapped SaaS companies don’t really know their “true” lifetime value of their customers, because they haven’t been in business very long. Typically, it’s calculated as LTV = ARPU / User Churn.
Based on our experience at Planio, you’ll see the following patterns:
Your churn rate at 10 customers will be wildly volatile - one month it’s zero and another month it is 20%.
Even at 100 customers, one person canceling in a month is 1%, so you can still see big fluctuations from month to month.
Once you get to above 1,000 customer, the volatility reduces to small changes.
Therefore, selling a lifetime subscription based on 2x your current lifetime value before you have a very constant churn rate is probably underselling yourself. You’re also entering into a potentially eternal obligation in the case of SaaS in return for a one-time payment. It’s hard to see how that will work unless you actually plan on shutting down in the future!
It’s probably a better idea to offer discounted annual plans, so you get extra cash upfront if you need it.
How do you think about it if your SaaS is more “seasonal,” meaning users might only use it once per year (for example, tax software). Do you still think charging monthly is the right move in that case?
I feel like I’m missing something.
Getting 2x the money and getting it all up front is a clear win. What’s to debate?
So this may be a bit of a thread hijack, and I apologize for that, but I’m highly interested in this topic (one-time vs. SaaS). I often see the recommendations not to go into one-time and that the subscription model is far superior (which I believe to be true and I think applies in most cases). However, I think there are some situations where a one-time model is appropriate and a subscription model doesn’t quite make sense.
Basically, one the ideas that I’m working on is a video montage creation app for special occasions (I hope to describe it in more detail in a future post). It would be used for birthdays, anniversaries, etc.
I can easily see people paying $25-$50 as a one-time fee to use the service (have some validation), but trying to shoehorn them into a subscription doesn’t make much sense to me. I totally understand the economics that at say $40 a pop, I would have to get massive traction to make this my only business. Perhaps the best-case scenario for it is a mostly-passive service that provides a decent side income?
Am I wrong? Should these opportunities that only fit the one-time model be avoided?
That’s what I’m thinking. But people are still saying just go SaaS instead of one-time.
There are downsides, though. For example, having too many people using their software for a longer time than the LTV and causing support headaches. Another issue is that one-time sales isn’t as attractive to potential buyers. And lastly another issue is the fact that perhaps you could have moved “up market” later on, but now you have all these stragglers who have bought your software at a lower price point.
IMHO if your app should be SaaS / Subscription / One time payment is more about what it does and how people use it not about whats convenient for you - as your example perfectly illustrates.
If this is some sort of tool for a person doing these often then yeah - subscription. If its a one off tool for individuals then I think you’re pushing uphill to try and make it a subscription.
I know that Microsoft/Adobe/Helpspot do this differently - but I think they are the exception not the norm.
Thanks for the reply. I agree with your assessment. My follow-up question would be: is it still worthwhile for bootstrapped founders to pursue one-time businesses such as these? Taking my example, say I develop a service people would pay $40 for do help them create such a video. To get to $10k monthly (non-recurring) revenue, I’d have to get 250 customers per month or roughly 8 or 9 purchases per day (and I’d have to get 250 new customers the following month). Now, the customer-base/market for such a product is massive, but is reaching an audience of this size something a bootstrapped founder can achieve? The marketing challenge seems daunting and I don’t have much experience there. I know businesses like this exist, but do they have massive marketing budgets?
I’d love to be pointed to examples that have succeeded, but I’m wondering if this is the reason guys like Ian Landsman and Rob Walling tend to discourage people away from the one-time, low-price, B2C model.
Marketing will always be tough, no matter B2B, B2C, SaaS or one time. But you’ll play on different fields in each of these cases. If it’s low cost one time B2C app you probably won’t be able to make Adwords profitable. But Facebook/Twitter might be a good match, which are often not good for B2B. And I suspect you’ll have to invest a lot of time in PR, since mass products are interesting to magazines/blogs/review sites. Much more than niche B2B apps. So better check what you can do about PR.
One time prices for B2B are a different story. You can often sell tens of licenses to single company, so even if it’s $30-40 util it could happen that average purchase is much more, and you won’t have to find hundreds of customers each month. And you could use Adwords, even if customer aquisition costs more than 1 license price.
If a customer is willing to buy your software at 2x LTV up front then one of these is true:
If the third is true, I would not want to take the 2x LTV money because I’d feel like I was ripping them off.
If my customers were all seasonal, I’d probably sell an annual subscription.
That said, I have seen saas owners launch by selling lifetime memberships, in limited quantity. I don’t think it’s a bad idea since it would give you a lot of cash up front and limit the downside.
I do not quite get the question.
If customers naturally churn out after a very short period, this is simply not a SaaS-suitable business.
Think Perfect Table Plan: most of customers would use it only once (L=1 month) be it SaaS, desktop, mobile or anything else. Pretending it is a SaaS by raising monthly prices won’t help because customers will still use it for one month only.
Then it totally makes sense to sell them one time, and get rid of a mess of 24/7 web application+database, replication, security, spam, DoS, whatnot.
I agree the question is worded strangely. If you take it at face value, it’s: would you like to earn twice the amount of money, up front instead of over 18+ months of the life of a customer? Yes, please?
I think your pricing model depends on your target audience. If your audience is DIY photographers who are just doing their own sister’s wedding (or whatever), then a monthly subscription doesn’t make sense - in that case, they might be willing to pay a one-time, reduced-usage fee. If your target audience is professional wedding media people, then a subscription makes a lot more sense.
The pricing could actually be the same for both, and you could just give the user an option to choose a non-recurring subscription for a 1-month price. In other words, the DIY-er could just sign up for one month, and check the box that says “don’t renew my subscription”, where a professional media person would choose a recurring subscription.
I wouldn’t go for one-time. The sweet spot I found is to offer a yearly subscription option that is discounted yet it won’t be below the LTV of the user on the particular plan you sell.
Let’s say your plan X is 29/mo. If on average, a user on this plan stays 4 months and churn after that, his LTV is 116USD. Then sell a yearly option of plan X for more than 116USD - you’ve just increased the LTV, got more cash upfront and won’t deal with forever-free support.
In my case most of our customers write to support before purchase or in the first month of using the app. So no “forever-free support” because they learn all the nuances fast.
But anyway subscription should be justified by the product’s features, see the comments to Ulysses’s transition to subscription (spoiler: many customers didn’t like it):