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That explains why switching to annual plain is beneficial. It does not explain $200 gain per email. 20% of $200 - quite possible. That translates to $40/email,

That explains why switching to annual plain is beneficial. It does not explain $200 gain per email. 20% of $200 - quite possible. That translates to $40/email, which is still quite significant. But still not $200.

gojomo 12y ago
I see how "$200" works strictly as a cash-in-door number – though at the expense of later profits. Toy setup matching the post's parameters: STARTING SITUATION: 10 customers at $200/month = $2,000 cash this month and next 11 months over 12 months = $24,000 expected revenue BUT INSTEAD: send 10 emails, 1 customer prepays $2200 (instead of $200) = $4,000 cash this month then $1800/month next 11 months over 12 months = $23,800 revenue So, this month, the 10 emails brought in $2,000 extra cash – hence, "$200-per-email". But of course it's just pulling revenue forward (borrowing from customers). And, it's at a rather steep effective interest rate: over 17% per year. So while it's cash-flow positive, it's only profitable if there's some combination of (1) productive places to invest that money; and (2) improved mid-year retention of the prepaid customers – that together return more than the ~17% cost.
- hawkice 12y ago
  It actually leaves you with more money, due to churn being reduced to 0 for that customer for a year. Assuming a somewhat idealized 5% churn, you'll get numbers floating in this ballpark: No Yearly Discount Offer: Month 1: $2,000 Month 2: $1,900 Month 3: $1,805 Month 4: $1,714 Month 5: $1,629 Month 6: $1,547 Month 7: $1,470 Month 8: $1,396 Month 9: $1,326 Month 10: $1,260 Month 11: $1,197 Month 12: $1,137 Total: $18,385 Yearly Discount Offer Month 1: $1,800 Month 2: $1,710 Month 3: $1,624 Month 4: $1,543 Month 5: $1,466 Month 6: $1,392 Month 7: $1,323 Month 8: $1,257 Month 9: $1,194 Month 10: $1,134 Month 11: $1,077 Month 12: $1,023 Total: $18,747 This works for churn = 2% and churn = 3% as well, but the difference is smaller (still favors the yearly discount, though). If you have a churn of 1%, then the yearly discount costs you money, but you still get the cash immediately, which is so useful I'd do still do it. EDIT: It should be noted that the churn rate you care about here is the churn rate of people who would be willing to make a year-long precommit (more loyal customers in general), but I don't see them as being 1% churn level, as 'patio11 alluded to above.

gojomo 12y ago

I see how "$200" works strictly as a cash-in-door number – though at the expense of later profits. Toy setup matching the post's parameters: STARTING SITUATION: 10 customers at $200/month = $2,000 cash this month and next 11 months over 12 months = $24,000 expected revenue BUT INSTEAD: send 10 emails, 1 customer prepays $2200 (instead of $200) = $4,000 cash this month then $1800/month next 11 months over 12 months = $23,800 revenue So, this month, the 10 emails brought in $2,000 extra cash – hence, "$200-per-email". But of course it's just pulling revenue forward (borrowing from customers). And, it's at a rather steep effective interest rate: over 17% per year. So while it's cash-flow positive, it's only profitable if there's some combination of (1) productive places to invest that money; and (2) improved mid-year retention of the prepaid customers – that together return more than the ~17% cost.

hawkice 12y ago
It actually leaves you with more money, due to churn being reduced to 0 for that customer for a year. Assuming a somewhat idealized 5% churn, you'll get numbers floating in this ballpark: No Yearly Discount Offer: Month 1: $2,000 Month 2: $1,900 Month 3: $1,805 Month 4: $1,714 Month 5: $1,629 Month 6: $1,547 Month 7: $1,470 Month 8: $1,396 Month 9: $1,326 Month 10: $1,260 Month 11: $1,197 Month 12: $1,137 Total: $18,385 Yearly Discount Offer Month 1: $1,800 Month 2: $1,710 Month 3: $1,624 Month 4: $1,543 Month 5: $1,466 Month 6: $1,392 Month 7: $1,323 Month 8: $1,257 Month 9: $1,194 Month 10: $1,134 Month 11: $1,077 Month 12: $1,023 Total: $18,747 This works for churn = 2% and churn = 3% as well, but the difference is smaller (still favors the yearly discount, though). If you have a churn of 1%, then the yearly discount costs you money, but you still get the cash immediately, which is so useful I'd do still do it. EDIT: It should be noted that the churn rate you care about here is the churn rate of people who would be willing to make a year-long precommit (more loyal customers in general), but I don't see them as being 1% churn level, as 'patio11 alluded to above.