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Most MBA programs go over why you don’t want a small number of high paying clients. It’s the opposite of diversification and is a risk factor. In the situation

by soared 6y ago

Most MBA programs go over why you don’t want a small number of high paying clients. It’s the opposite of diversification and is a risk factor. In the situation they claim as bad losing 1 clients means losing 10% of your revenue!

dan-robertson 6y ago
I think this isn’t arguing that you should aim to have 10 (or 1!) high/paying clients, but rather that it is better to have 100 (or 1000) medium-paying clients than 10,000 (or 1,000,000) low-paying (or free) clients, because you are likely to underestimate the marginal cost of a single client, and at higher rates, this marginal cost is more significant. If you have 100 medium-paying clients then losing 1 is not such a big hit to revenue. If you have some kind of dynamic pricing, it seems reasonably likely that you’ll get a power law for how much clients pay, and you’ll be worried about the biggest client leaving even if you have lots of others.
lovemenot 6y ago
Yeah, but that logic is really for the very small number of clients on a very high revenue per client. I think the example in the article used such low numbers to make the calculation easier. In most cases, the kind of SAAS they are talking about would have at least one or two orders of magnitude more users. Reshaping the question: would you rather have 50,000 users paying $1 or 1,000 paying $50 each? your MBA caveat largely becomes moot.
notimetorelax 6y ago
Still it’s easier to support 10 users than a 100. Product may be simpler because of it.
- leesalminen 6y ago
  It depends on which 10.
CodeWriter23 6y ago
That’s only part of the picture though. Customer service is expensive, and I’m sure those MBA programs you speak of acquaint students with the practice of a cost:benefit analysis. I would also point out your logic about his revenue stream comparison falls apart when you double the numbers to 2,000 vs 20 customers.

by soared 6y ago

dan-robertson 6y ago

I think this isn’t arguing that you should aim to have 10 (or 1!) high/paying clients, but rather that it is better to have 100 (or 1000) medium-paying clients than 10,000 (or 1,000,000) low-paying (or free) clients, because you are likely to underestimate the marginal cost of a single client, and at higher rates, this marginal cost is more significant. If you have 100 medium-paying clients then losing 1 is not such a big hit to revenue. If you have some kind of dynamic pricing, it seems reasonably likely that you’ll get a power law for how much clients pay, and you’ll be worried about the biggest client leaving even if you have lots of others.

lovemenot 6y ago

Yeah, but that logic is really for the very small number of clients on a very high revenue per client. I think the example in the article used such low numbers to make the calculation easier. In most cases, the kind of SAAS they are talking about would have at least one or two orders of magnitude more users. Reshaping the question: would you rather have 50,000 users paying $1 or 1,000 paying $50 each? your MBA caveat largely becomes moot.

notimetorelax 6y ago

Still it’s easier to support 10 users than a 100. Product may be simpler because of it.

leesalminen 6y ago
It depends on which 10.

CodeWriter23 6y ago

That’s only part of the picture though. Customer service is expensive, and I’m sure those MBA programs you speak of acquaint students with the practice of a cost:benefit analysis. I would also point out your logic about his revenue stream comparison falls apart when you double the numbers to 2,000 vs 20 customers.