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This works only if the product you are selling has near 100% margin. If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does no

This works only if the product you are selling has near 100% margin. If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. This is why you can not go to Somalia and purchase a Tesla for $10k or rent AWS compute at 1/10 of price for others.

libeclipse 4y ago
The marginal cost of digital goods tends to be low A bigger issue is that anyone with a VPN can access the discount
- matchagaucho 4y ago
  Not if the SaaS has ongoing hosting bills, or years of R&D to recoup.
  - TAForObvReasons 4y ago
    "years of R&D to recoup" does not affect the marginal cost of providing the service to another customer
    - mhuffman 4y ago
      Good luck explaining sunken costs here! I have had many, many discussions about this on this very site and I think that since it is so non-intuitive to anyone that has not taken business courses they just do not believe it.
    - matchagaucho 4y ago
      Going down market with steep discounts most often has higher maintenance and support costs.
  - Dylan16807 4y ago
    Every SaaS has hosting bills. Some of them are significant per customer, and some of them aren't.
- JimDabell 4y ago
  Look at the billing address associated with the payment card. A VPN can’t mask that.
  - deleted 4y ago
    [deleted]
  - niij 4y ago
    privacy.com cards allow any billing address to be used
    - dalmo3 4y ago
      ... if you're a US resident.
      - niij 4y ago
        Their terms state you can also be a non-US Resident Citizen (expat). But generally yes that service is only for US Persons. I wasn't really making a point about privacy.com specifically my comment was more to imply there are services that allow for arbitrary billing addresses.
        SXX 4y ago
        Debit / credit cards always show country where card is issued. By now you literally can't get card from a country you are not reside in. I guess there are few prepaid card exceptions, but they're generally rarely accepted anywhere. Banning those on e.g Stripe is super easy and a lot of SaaS do it. I not saying it's impossible to bypass these checks, but you either have to be very tech-savvy person to do it right or you you even have to break the law.
Arubis 4y ago
Good point. Could the PPP concept just be applied to your profits rather than your revenues, with a floor under which you just don't sell? Or, in the interest of equity at the cost of a little more complexity, deliberately round up pricing in profitable-after-COGS regimes to subsidize loss-after-COGS regimes?
deleted 4y ago
[deleted]
paxys 4y ago
Yes you have to sell it for >=$15, but you can still price it at $20 in Somalia and $100 in the USA. It doesn't have to be 100% margin.
ignoramous 4y ago
> If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. Reason why there's an uptick in SaaS companies in Eastern Europe, Asia, and West Africa. They can out-compete on price already and will gradually manage to build software of similar quality as their counterparts living in higher cost-of-living countries. This has been Freshdesk [0] / Zoho (both based in India) modus operandii for one to two decades now. And one I'm keen on living upto. [0] https://archive.is/h1n6z https://archive.is/h1n6z
clairity 4y ago
yah, this is all econ 101 stuff. what you're talking about is a specific application of marginal analysis to a firm's pricing policy, namely, making sure marginal revenue is greater than marginal cost (or, MC ≤ MR), ignoring sunk costs (like fixed costs). in software, fixed costs are high, but variable costs (e.g., COGS) are tiny, which is why software can be priced at just about any level (including "free") and still be profitable (in the absence of competition). the other economic concept at play here is arbitrage, which is being able to buy low and sell high risk free.
- mr_toad 4y ago
  > in software, fixed costs are high, but variable costs (e.g., COGS) are tiny In traditional software. SaaS has hosting costs, support costs etc.
  - freediver 4y ago
    To add to this API and licensings costs too..
  - clairity 4y ago
    in most cases, those (as well as licensing) aren't considered direct, variable costs, but rather sunk costs, as they exist regardless of the number of customers served, even if there's a rough correlation with size. this is akin to sales vs marketing costs. the former is usually a direct cost, while the latter is not, even though marketing costs often scale (roughly) with size too, but most of that cost isn't directly attributable to a specific revenue opportunity as in the sales case.
    - Dylan16807 4y ago
      Well, that's a dumb way of looking at things. If you have minimal customers, then your server costs don't need to go above the double digits. Servers will be almost 1:1, and licensing is usually 1:1. Considering them to be sunk costs is doing the math wrong. It's not like marketing at all.

libeclipse 4y ago

The marginal cost of digital goods tends to be low A bigger issue is that anyone with a VPN can access the discount

matchagaucho 4y ago
Not if the SaaS has ongoing hosting bills, or years of R&D to recoup.
- TAForObvReasons 4y ago
  "years of R&D to recoup" does not affect the marginal cost of providing the service to another customer
  - mhuffman 4y ago
    Good luck explaining sunken costs here! I have had many, many discussions about this on this very site and I think that since it is so non-intuitive to anyone that has not taken business courses they just do not believe it.
  - matchagaucho 4y ago
    Going down market with steep discounts most often has higher maintenance and support costs.
- Dylan16807 4y ago
  Every SaaS has hosting bills. Some of them are significant per customer, and some of them aren't.
JimDabell 4y ago
Look at the billing address associated with the payment card. A VPN can’t mask that.
- deleted 4y ago
  [deleted]
- niij 4y ago
  privacy.com cards allow any billing address to be used
  - dalmo3 4y ago
    ... if you're a US resident.
    - niij 4y ago
      Their terms state you can also be a non-US Resident Citizen (expat). But generally yes that service is only for US Persons. I wasn't really making a point about privacy.com specifically my comment was more to imply there are services that allow for arbitrary billing addresses.
      - SXX 4y ago
        Debit / credit cards always show country where card is issued. By now you literally can't get card from a country you are not reside in. I guess there are few prepaid card exceptions, but they're generally rarely accepted anywhere. Banning those on e.g Stripe is super easy and a lot of SaaS do it. I not saying it's impossible to bypass these checks, but you either have to be very tech-savvy person to do it right or you you even have to break the law.

Arubis 4y ago

Good point. Could the PPP concept just be applied to your profits rather than your revenues, with a floor under which you just don't sell? Or, in the interest of equity at the cost of a little more complexity, deliberately round up pricing in profitable-after-COGS regimes to subsidize loss-after-COGS regimes?

deleted 4y ago

[deleted]

paxys 4y ago

Yes you have to sell it for >=$15, but you can still price it at $20 in Somalia and $100 in the USA. It doesn't have to be 100% margin.

ignoramous 4y ago

> If there is COGS involved (cost of goods sold), if your widget costs $15 to make it does not matter what target customer purchasing power is, you have to sell it at >=$15 or you are losing money. Reason why there's an uptick in SaaS companies in Eastern Europe, Asia, and West Africa. They can out-compete on price already and will gradually manage to build software of similar quality as their counterparts living in higher cost-of-living countries. This has been Freshdesk [0] / Zoho (both based in India) modus operandii for one to two decades now. And one I'm keen on living upto. [0] https://archive.is/h1n6z https://archive.is/h1n6z

clairity 4y ago

yah, this is all econ 101 stuff. what you're talking about is a specific application of marginal analysis to a firm's pricing policy, namely, making sure marginal revenue is greater than marginal cost (or, MC ≤ MR), ignoring sunk costs (like fixed costs). in software, fixed costs are high, but variable costs (e.g., COGS) are tiny, which is why software can be priced at just about any level (including "free") and still be profitable (in the absence of competition). the other economic concept at play here is arbitrage, which is being able to buy low and sell high risk free.

mr_toad 4y ago
> in software, fixed costs are high, but variable costs (e.g., COGS) are tiny In traditional software. SaaS has hosting costs, support costs etc.
- freediver 4y ago
  To add to this API and licensings costs too..
- clairity 4y ago
  in most cases, those (as well as licensing) aren't considered direct, variable costs, but rather sunk costs, as they exist regardless of the number of customers served, even if there's a rough correlation with size. this is akin to sales vs marketing costs. the former is usually a direct cost, while the latter is not, even though marketing costs often scale (roughly) with size too, but most of that cost isn't directly attributable to a specific revenue opportunity as in the sales case.
  - Dylan16807 4y ago
    Well, that's a dumb way of looking at things. If you have minimal customers, then your server costs don't need to go above the double digits. Servers will be almost 1:1, and licensing is usually 1:1. Considering them to be sunk costs is doing the math wrong. It's not like marketing at all.