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Annual pre-pay and marketing budgets
- cranberryturkey 2y agoI've always used prepaid plans to get money up front and re-invest back in the business.
- choeger 2y agoWhere I live, most people will hesitate to buy into a yearly plan. I'd suggest to make it possible to gift someone x years of your service, because that's something many people will happily do. The only thing to avoid here is any kind of automatic retention. One year is one year, period.
- satvikpendem 2y agoWho is going to gift a SaaS to someone else?
- mejutoco 2y agoAn example could be an uncle to a nephew interested in something educational.
- koolba 2y agoThe same idiots who give gift cards rather than fungible cash.
- tombert 2y agoI “idiots” is a bit harsh. If I give someone cash [1], then they might just spend it on their power bill or rent or groceries or just let it live in a bank account. This is “fine”, but it doesn’t really feel like a “gift”. If I buy them a gift card to Best Buy or something, they’re kind of forced to buy themselves something fun. You can’t really pay your rent with a gift card, it can’t sit in a bank account, you’re kind of forced to get yourself something you’ll enjoy. I am not saying it’s the best gift or anything, I just think “idiots” is harsh. [1] and assuming that the person is in an economically alright position
- fragmede 2y agoUsing the word idiots reveals GP's level of thinking. Gift cards are a less useful gift than cash. The first principals reasoning would say the more useful gift is worth more than three less useful gift but this is human psychology we're talking about so first principal reasoning isn't enough. Gifts are about having thought about somebody, and cash is the equivalent of saying I couldn't be bothered. Hence, gift cards. I thought about you for half a second longer and gave you money to spend at a store off my choosing. Under that framing, calling people idiots because they give gift cards indicates an inability to grasp or accept that cultural norm. So, it makes it easy when someone telegraphs their mental shortcomings to you.
- Retric 2y agoI seriously dislike getting gift cards and rarely used them. It makes checking out take longer, and you need to remember you have them etc it’s just a worse experience.
- lotsofpulp 2y ago>Hence, gift cards. I thought about you for half a second longer and gave you money to spend at a store off my choosing. That half second costs me far more time and effort to keep track of a gift card, especially if a balance remains on it. Either get the actual gift you want to give the person, or give cash. A gift card only benefits the merchant who gets to hold onto cash and earn interest.
- ThrowawayR2 2y agoI'm mildly annoyed by merchant-specific gift cards when I receive them. They're strictly worse than cash because rarely does the merchant have anything I want at a price that I consider reasonable.
- ghaff 2y agoIdeally you know the person well enough that you at least know "fun" stores they'll be shopping at anyway. Or give something like an Amazon gift card which really is more or less like cash for most people. (Though Amazon knows this and their conversion rate is generally worse than most retailers who are more specialized.) That said, I'm not a huge fan of gift cards. It's one more thing to keep track of but, hey, they're probably better than some gift you don't want and cash just isn't really acceptable in all cases.
- bryanrasmussen 2y agoright, giving your daughter an annual netflix subscription when she moves out is idiotic but giving her money she can spend on a party and get drunk is a next-level genius move!
- gumby 2y agoThis is good advice. In the first case she’s just sitting at home alone while in the second she’s out building her network. A gift that can change her life.
- bryanrasmussen 2y ago>A gift that can change her life. Hey Dad, I'm pregnant.
- ghaff 2y agoIt's somewhat of a cultural thing. Giving cash can seem tacky whereas if someone has just got a house, a gift card from a home improvement store or, if they're an outdoor sports type, somewhere like REI might seem somewhat more thoughtful even if you don't know exactly what they'd like.
- dylan604 2y agoMy first license of 1Password was a gift, although, this was before it was a SaaS. You can gift Neftflix and similar. There's a lot of things that can be a decent gift.
- 0cf8612b2e1e 2y agoNetflix, Xbox/PSN, Roblox, etc would all be valuable subscriptions to children who are dependent upon others with funds.
- miki123211 2y agoCan you subscribe to any of these via PaySafe, or any other kind of card that you can just pick up in a grocery store for cash?
- j5155 2y agoYes, I believe all of those services have gift cards in stores.
- ghaff 2y agoBack in the day, gifting a magazine subscription like National Geographic was very normal.
- bartread 2y agoAnnual plans aren’t for the most part aimed at individuals though: they’re aimed at corporations. Corporations regularly sign annual and even multi-year contracts for all manner of services. There are many reasons this can be desirable, but budgeting and discounts are often big factors.
- withinboredom 2y agoEven as a corporation, we are often given some discretion on spending through expenses. I may not be able to expense an entire year, but I can expense a whole month at a time. If it's valuable, then I will get permission to expense an entire year ... but I have to be able to prove it's value.
- arjunaaqa 2y agoListening from asmartbear is always inspiring !
- ChrisMarshallNY 2y agoI generally prefer to prepay a year. It tends to knock a bit off the price, and is less annoying, as I'm not constantly getting notices of withdrawal. Many companies will actually refund the unused portion, if you cancel early. However, lifetime subscriptions seem to be almost worthless, as I have yet to encounter a company that doesn't redefine "lifetime," to mean the lifetime of the subscription, which ends, whenever they want.
- nocoiner 2y agoAt best, a lifetime subscription means the lesser of my lifetime or the company’s lifetime. If the former, sucks for me - it’s kinda like “winning” on your life insurance policy.
- ChrisMarshallNY 2y agoI think reneging on a lifetime signup is really petty. I strongly suspect that they don't actually constitute much of a drain, and they are folks that had faith, and supported the company, early on.
- inafewwords 2y agoHad a few apps that become subscription and lifetime is given to the early subscribers including free upgrades
- cess11 2y agoDepends on what you're getting. I have some 'lifetime subscriptions' that allow me to keep copies of whatever these companies are selling access to, which means that it's in part up to me what I take from the deal and keep until the end of my lifetime.
- j45 2y agoThe lifetime deals that work out, are worth it. Hitting a bet on the appsumo startup casino can be fun. I have a few tools quietly that have remained lifetime, like brain.fm. Supporting what you think will win, early is a risk and an opportunity.
- ttul 2y agoThis works until it doesn’t. I have seen many startups raise a ton of cash from pre-payments, burn it on marketing and R&D, and then find that the cashflow isn’t forthcoming as expected. I force my companies to clearly show prepaid revenue on their balance sheet and treat it as debt. Any discounts provided to win the pre-payment also have to be recorded as a financing cost - not a “sales discount” or buried in lower ARR. It might be borrowed from your customers, but it’s still debt and you have to “service” it by providing products and services that do have a marginal cost. Showing the financing cost achieves two things: 1. It allows you to run a higher EBITDA metrics because financing costs are backed out of EBITDA. 2. You record the non-discounted revenue for the customer, which is a truer representation of where the business could be one day when it’s no longer playing the pre-payment game to generate cashflow. Generally speaking, it’s a good idea to generate cash from pre-payments, but don’t treat it as free no-risk money. You can get over your skis quickly, run out of cash, and then be in a world of hurt when you’re unable to service those customers.
- cess11 2y agoI've recently been in contact with a SaaS company that failed in part because they changed their revenue model from pre-pay for something somewhat easy to deliver to something quite hard to deliver. Along the lines of 'pay (by buying 'credits') for any response to your marketing' to 'pay (by buying 'credits') for only positive responses to your marketing'. A deal isn't closed until both parties have done their part, and, as you aptly describe, until one has done the delivery any payment is akin to a debt, and hence it's a liability or risk until the customer got what they signed up for.
- dgan 2y agoA wierd bubble he/she lives in. "Raise your prices! Your prices are low! Raise them now!" I find most services now are extremely overpriced. Your "pay us $coffee$ per month", is absolutely not going to happen because your service is one of dozens or hundreds I randomly find kinda somewhat interesting in a given day. Ok If the service was a couple of pennies, i might consider it. Every single little app/service now thinks they are indispensable utility provider and by such are entitled to x% of my monthly salary. Get lost!!
- stevoski 2y agoHe is the founder of WP Engine, by far the biggest WordPress hosting service.
- gaadd33 2y agoIs WPEngine larger than WordPress.com? Just curious since years ago WPEngine seemed like the scrappy small startup.
- true_religion 2y agoAh yes, the bubble of having a product worth paying for. In B2C I think subscriptions are over used since products do not provide value over time but in B2B that should not be the case. Software that supports your business may be used be a daily basis, and the value can be translated into a dollar figure of time saved versus the alternative.
- dgan 2y agoOkey I realised I went a little too hard on this. I agree on the B2C versus B2B split and your analysis
- aantix 2y agoAre you an engineer in the U.S.? Seems like engineers rarely do the math on their productivity. A tool that costs $100/month and saves an hour or two can still be worth it.
- ajb 2y agoThere is a sense to this but it depends on the kind of business you're in. The more novel your business is, the more the customer will need to try it out before they are convinced it's good value. Similarly, where you are delivering the same thing every month (like a vpn service) the customer can be easily convinced that the next 11 months will deliver the same value, but where it's a new thing every month (entertainment, education, information) the customer will need several months to decide that your value is consistently delivered. And the worst case is where, like a dating app, or therapy, you are selling the prospect that it might work, but each additional month is evidence that it's not working.
- bastien2 2y agoThis smacks of the infinite growth fallacy.
- deleted 2y ago[deleted]
- teo_zero 2y agoI know nothing about which is more profitable, monthly or annual, but I'm sure TFA is mixing profit&loss and cash-flow. Getting the money in advance (a concept belonging in cash flow) doesn't make your budget (an item of P&L) any larger.
- wiradikusuma 2y ago"CAC is the total cost.. ..including fully-loaded salaries" but "Their CAC is $80.. ..$1.60 / 0.05 / 0.4 = $80" — Where's the salary part?
- robocat 2y agoJason Cohen talks about annual prepay in https://youtu.be/otbnC2zE2rw https://youtu.be/otbnC2zE2rw about bootstrapping or self-funding your startup. Excellent talk that includes many other valuable opinions.
- iainctduncan 2y agoThe author of the blog IS Jason Cohen....
- scott_w 2y agoI honestly never understand partial refunds for cancellations (outside of money back guarantees). As a customer, you’re committing for a year to get a discount. If you can cancel at any time and get that money back, why are they getting a discount? I know there’s the underlying benefits for cash flow but the customer is undoing this by getting a refund. To be clear, I’m talking about the 1-1 transaction between seller and buyer, not the overall business model.