The benefits of a monthly recurring revenue model in tough economic times | Hacker News Reader

The benefits of a monthly recurring revenue model in tough economic times

37signals.com

22 pointsbdotdub19 comments

I would have thought some of these things are the first to get the axe.

Do we really need to pay $20/month just to have a chatroom? When there are free alternatives out there? When times are good, sure if you like, but when money gets tight, it's probably a contender for getting cut.

I feel like their cashcow is Basecamp and people would be hard pressed to ditch their project management app

You're right, but the problem is that many people are hard pressed.

This is certainly a reasonable view for a developer/hacker. For other small businesses that want an app that they can rely on, paying a small amount every month means that they can get support and that the app won't suddenly stop working. It doesn't mean that 37signals price points are correct, but for business related apps free can be the wrong price.

http://signalfire.com/ is free, as far as I can make out. It looks well designed. I believe I tried it briefly a few months ago when it launched, but can't remember much else about it.

You're discounting inertia.

a) As stated in the post - people will look to cut FUTURE spending before discounting current spending. So the argument is that while getting new customers may be difficult in a downturn - the inertia of the fact they have to take an action to cancel - will slow down any attrition.

b) There's still a transaction cost - training, updating links, migrating data/history, etc with moving from SeviceA to ServiceB. Which will again push that migration down the list of cost-cutting priorities.

What's not discussed is "the increased savings from moving to an open source knockoff of 37 signals' offerings", given that you're not just paying once, but every month.

While true, I imagine a lot of small businesses who use 37signals won't have a dedicated IT staff to manage and maintain an instance of XYZ project manager. Having 37signals handle all the 'techy' stuff and having them as support must be cheaper than hiring someone to maintain it.

I guess 'open source' narrows it down too much, but a bunch of guys who go around trying to 'do less' ( http://gettingreal.37signals.com/ch02_Build_Less.php ) can't be that hard to undercut as far as their products are concerned (they would be very difficult to beat, though, in marketing terms). You could offer a product that people only have to buy once, for instance, instead of slowly bleeding them month after month.

From the business perspective, what's the advantage? If you sell a product once, I feel like it becomes more difficult to have people pay for an upgrade. If you spend a lot of time developing updates and improvements upon your product, I feel like you'll find fewer and fewer people willing to pay for them because whatever they have "works fine".

It's completely in the business' interest to keep going back for more money every month. However, perhaps with the economy headed south, people will look at that flow of money and think twice about it.

Actually, hard times make many people discount the future more. Why spend a lot of money up front on a solution that will sustain you for four years when the odds that your company won't last one year have just gone up?

In extreme cases, businesses with cash flow problems are just like poor people, who are forced to patronize ripoffs like check-cashing places, payday loan sharks, and Rent-A-Centers because they can't afford the minimum balance or down payment on a better solution. They live day-to-day. So do businesses in trouble.

From the customer perspective paying month creates an ongoing incentive for the developer to continue to maintain and enhance the offering. If the application is something that you would foresee using every month, or at least most months, then paying for it monthly aligns incentives.

From the seller perspective it is normally easier to get folks to pay a smaller amount for one month's use than an annual or perpetual license fee. You can always offer annual and multi-year licenses with a discount structure in addition.

yeah lately I've been thinking more and more about the benefits of a monthly subscription. People tend to be lazy, so even if they stop using a service, they'll continue paying for it, because they are too lazy to cancel. And $10/month just doesn't seem like that much money to most people, and gets lost in the credit card statement. So you are pretty much guaranteed your revenue, even if you completely stop selling.

Compare that to advertising models, where you need to work non-stop just to make sure you sell your ad-space to cover your next month's bills. Or one time fee models(sales/commission), where once again, you need to make sure you continue being on top of the food chain, to make those new sales every single month.

The good thing about monthly billing, is that you tend to keep those customers for a long ass time. So pretty much all you need is time to grow to profitability.

So you can have a very mediocre acquisition rate(lets say 5 new users per day), after a year of sales(@ $10/mo), you are already making $18,250 a month. And since you get paid month-in, month-out, you can spend a ton of money on advertising to continue growing. Because you have a fixed income.

And $10/month just doesn't seem like that much money to most people, and gets lost in the credit card statement. So you are pretty much guaranteed your revenue, even if you completely stop selling.

I think this is OK as long as you're upfront with the customer about the reoccurring payment. If you try to slip it past them, they will notice, will want their money back and will leave with a sour taste in their mouth.

Maybe they're just talking about web-based software but it seems the most popular model in the enterprise space is one-off pay up front, pay for upgrades and pay for support.

Your typical non-IT SME tends to invest in IT after a big sale / raising new investment - as this does not happen every month, I'm inclined to agree with you Sir.

Although it may work well once I'm signed up, personally I am about 10 times more reluctant to sign up for a monthly subscription in the first place. I don't like that the price might change for month to month and I don't like that if something goes wrong with billing that it might cause the service to stop working (and if they have my data and it might get deleted while I'm on holiday then that's particularly bad). And finally unless I plan to only use it for a short time, it is nearly always very expensive compared to a one off purchase.

So - if you want me to actually buy your software - make the pricing as simple and transparent as possible and make it either annual or one time purchase.

How would you feel / how would the conversation change if, for instance:

- the $10 / mo charge came with a one-time, upfront cost of $24.99?

- what if that upfront cost is $14.99?

Any difference?

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