2 ms·

I love all HNers dearly, but I have to say, prior to writing off monthly payments as a model: consider how much you're likely to gain in business from someone w

by patio11 15y ago

I love all HNers dearly, but I have to say, prior to writing off monthly payments as a model: consider how much you're likely to gain in business from someone who occasionally buys apps for $10 and thinks $130 is a lot of money versus how much you're going to lose by not being able to debit the bank account of a business $200 to $2k a month. (P.S. Neither of those are large numbers if you are doing something worthwhile for them.)

sgdesign 15y ago
Absolutely, I'm sure that in a lot of case SaaS makes perfect financial sense. I'm just saying it's not ALL the cases. For example, would it make sense to run Bingo Card Creator as a SaaS?
- patio11 15y ago
  If I got a do-over this would be the first thing I changed. I thought teachers would rebel against recurring billing because every other education product did it. It took me five years to spot the logical flaw there...
  - sgdesign 15y ago
    Interesting. If you ever do switch, it would be interesting to see what your customer's reaction is and how much more profitable the SaaS model is compared to the current one.
jason_shah 15y ago
We would probably all agree that the core question then is "When does a SaaS pricing model (vs. an outright, perpetual software license) make sense?" The answer varies based on a range of criteria, as well as who you are (i.e. profit-maximizing business, or price-sensitive, value-maximizing customer). Some key criteria that matters to both parties: - Difference in price/revenue between one-time and recurring: If the recurring revenue stands to significantly exceed the one-time fee (accounting for attrition and those who decide not to buy into the subscription), a SaaS model is attractive to the business, and not to the price sensitive customer. - How steep would the one-time fee be (and who is the decision-maker, i.e. will they have the budget for this?): If the one-time fee would be so steep that a lot of IT managers (or whoever the buyer is) won't have authority or willingness to front the cash, a SaaS model makes sense. This is a case in which both the sellers and buyers prefer a lower cost (even if it results in a higher long term expense for the consumer since the buyer may be spending out of a bureaucratic budget that they don't want to under-use, i.e. when budgets are slashed for being under-used). - Likelihood of renewal: If the seller does not think that you will renew (due to low switching costs, an inferior product, etc.), then an upfront fee maximizes profit. If you think you are likely to renew time and time again, the buyer probably prefers the one-time fee because that is likely lower than a subscription cost in the long run. So, again, the seller and buyer are at odds: buyers who will renew would rather an upfront cost to save money, sellers expecting buyers to renew want an ongoing subscription fee. There are surely other criteria; what else would you add? It seems like SaaS pricing model pits seller and buyer at odds because of conflicting incentives. But as the SaaS model grows more prevalent, it can be expected that buyers/consumers will basically just have to deal with it, as they have with exorbitant annual software licenses in the past. For SaaS startups this means opportunity; for consumers it seems to mean continually increasing costs under the guise of frequent updates, flexibility to cancel, and an easier ability to try out software within corporate budget limits.
- HeyLaughingBoy 15y ago
  There are surely other criteria; what else would you add? Budget. The SAAS bill is probably paid from the Operations budget but the desktop software bill is probably paid from the Capital/Supplies budget. For a lot of companies, it's easier to get approval for money from Operations than Supplies. Learned this from an old boss who used to be a CFO at another company.

by patio11 15y ago

sgdesign 15y ago

Absolutely, I'm sure that in a lot of case SaaS makes perfect financial sense. I'm just saying it's not ALL the cases. For example, would it make sense to run Bingo Card Creator as a SaaS?

patio11 15y ago
If I got a do-over this would be the first thing I changed. I thought teachers would rebel against recurring billing because every other education product did it. It took me five years to spot the logical flaw there...
- sgdesign 15y ago
  Interesting. If you ever do switch, it would be interesting to see what your customer's reaction is and how much more profitable the SaaS model is compared to the current one.

jason_shah 15y ago

We would probably all agree that the core question then is "When does a SaaS pricing model (vs. an outright, perpetual software license) make sense?" The answer varies based on a range of criteria, as well as who you are (i.e. profit-maximizing business, or price-sensitive, value-maximizing customer). Some key criteria that matters to both parties: - Difference in price/revenue between one-time and recurring: If the recurring revenue stands to significantly exceed the one-time fee (accounting for attrition and those who decide not to buy into the subscription), a SaaS model is attractive to the business, and not to the price sensitive customer. - How steep would the one-time fee be (and who is the decision-maker, i.e. will they have the budget for this?): If the one-time fee would be so steep that a lot of IT managers (or whoever the buyer is) won't have authority or willingness to front the cash, a SaaS model makes sense. This is a case in which both the sellers and buyers prefer a lower cost (even if it results in a higher long term expense for the consumer since the buyer may be spending out of a bureaucratic budget that they don't want to under-use, i.e. when budgets are slashed for being under-used). - Likelihood of renewal: If the seller does not think that you will renew (due to low switching costs, an inferior product, etc.), then an upfront fee maximizes profit. If you think you are likely to renew time and time again, the buyer probably prefers the one-time fee because that is likely lower than a subscription cost in the long run. So, again, the seller and buyer are at odds: buyers who will renew would rather an upfront cost to save money, sellers expecting buyers to renew want an ongoing subscription fee. There are surely other criteria; what else would you add? It seems like SaaS pricing model pits seller and buyer at odds because of conflicting incentives. But as the SaaS model grows more prevalent, it can be expected that buyers/consumers will basically just have to deal with it, as they have with exorbitant annual software licenses in the past. For SaaS startups this means opportunity; for consumers it seems to mean continually increasing costs under the guise of frequent updates, flexibility to cancel, and an easier ability to try out software within corporate budget limits.

HeyLaughingBoy 15y ago
There are surely other criteria; what else would you add? Budget. The SAAS bill is probably paid from the Operations budget but the desktop software bill is probably paid from the Capital/Supplies budget. For a lot of companies, it's easier to get approval for money from Operations than Supplies. Learned this from an old boss who used to be a CFO at another company.