Should A Saas Startup Run A Lifetime Deal Campaign?
Are you running a Saas Startup? If so, there is a lot of good news for you.
The Saas market is facing a bright future. It is already the fast-growing section of the IT industry. Currently, the Saas is growing by 18% annually. It is also predicted that when 2021 ends, 99% of organizations will be using some form of Saas solution. All of these point to many great opportunities for a Saas startup that can do things right.
Unfortunately, however, there is a lot of competition in the SaaS market as well. The industry is extremely competitive, and gaining new clients is a challenge. Data on startup failures show that 7 out of 10 IT companies die out within the first 20 months after acquiring capital. That’s a big figure, implying that a lot of things have to go right for a startup to prosper.
One of the more pressing questions now is what form of revenue generation model to use. One model that many Saas companies rely on is Lifetime Deals (LTD).
What’s a SaaS Lifetime Deal?
A SaaS lifetime deal is precisely what its name implies. It allows the user to get a lifetime license for a one-time payment. It doesn’t matter what price changes the app or the application will undergo; the LTD customer will still get the right to use the app perpetually.
Under this model, an LTD license is mostly limited. Other features added to the software later will be exclusive to those paying monthly or yearly fees.
The LTD is usually offered during the launching of an app when it gets introduced into the market. There are several reasons why offering an LTD can be a great idea for a Saas startup.
We’ll go through the more important ones.
One of the most common, if not the most common, reasons why a Saas company would offer an LTD deal is that it needs the funding.
You see, SaaS startups are usually cash-starved organizations, especially when no investors are backing up their operations. It needs all the revenue it can get and an LTD can be a quick and relatively easy way of injecting some cash flow into the business.
Offering an LTD is also a great way to spread the word about a new app as it is being launched into the market. People who need that particular kind of app or software will be automatically interested once they hear about the offer. Or at least, they’ll check you out to sate their curiosity.
However, It’s not enough that you’re offering a bargain deal for your app.
Its quality should match the ones in the market that are already providing useful features. If people hear that the app does not deliver on its promised services, potential customers would not go for your offer, even if it’s for lifetime access.
It also helps to establish your company’s name in the industry. For this to happen, you have to market the offer like it is a major event in the Saas sector.
3. Building a Community
In some ways, the biggest upside of offering an LTD is that it allows the creation of a passionate community. First of all, those who sign up for your LTD offer will see real value in your product.
That’s why they would go for the deal in the first place. They would want you to succeed, and they can provide valuable feedback about your software.
This community can be the best means of promoting your app too.
Did you know that more than 90% of consumers trust a product or a service more if they get positive feedback about it through word of mouth? Just remember that offering LTD does not necessarily translate to building a solid community. The product has to work for it to foster loyalty.
The Lifetime Deal Model
Offering a lifetime subscription is not a seasonal offer, or at least it shouldn’t be. It should only be offered when your startup is in some serious need of some cash inflow or when the need for some short-term cash influx is greater than the company’s long-term interests.
Reaching the Ceiling
One of the main problems with LTD is they come with a revenue ceiling. That means if the value of the lump sum payment you get for an LTD is lower than the Lifetime Value (LTV) of existing customers then you are losing money because of the deal.
Let’s say that your subscription deal is priced at $20 each month. For the LTV, you have determined that its value is at $480. That means you expect your customers to stick around for two years and use your app. So, if you are offering an LTD, you need to set the deal price at $480 or higher.
But what happens when the customers stick around for longer than what you have anticipated? Let’s say that a customer who signed for an LTD uses the app for five or maybe even ten years? That means you will have to pay for them using the app for the period over the expected time for the LTV. If they use the app for10 years, then you will cover the eight years’ cost of them using your application.
Many Saas Lifetime Deals are actually offered on platforms like AppSumo. These platforms are go-to places for those looking for apps, which means having a presence there will give you exposure to a large audience. The problem with using an amazing tool like Appsumo is that it will get 70% of any sale that you make on the platform. Other platforms follow the same model, and those that do not have a large following.
This means if the sales of a startup get a total of $100,000 worth of LTD on a platform like AppSumo, they will only get 30% of that. The overhead costs have not been deducted from that yet. With all things considered, the startup might lose money while still getting clients.
Another aspect that must be considered when deciding to offer Saas is the idea of giving lifetime support. An LTD also means the customer will have to be supported for as long as they will use the app. If they stick around for longer than what you have factored in your LTV, you will be losing money while providing support for them. In other words, an LTD customer is a liability under that scenario.
Increase in Growth Urgency
Getting many LTD customers also puts more pressure on your startup to grow.
Let’s go back to the example that was cited earlier. You offer an LTD that’s priced at $480 and your monthly subscription is at $20.
$480 / $20= 24
This means you have 24 months to get enough clients to offset the cost of all the LTD customers that you got initially. Two years might seem like a long time, but it might not be enough to offset the cost of your lifetime deals.
For a software company to survive, it has to undergo what other industries would consider phenomenal growth. For a manufacturing company, for example, experiencing a 20% increase annually is exceptional. Still, for a software company, it was found that a software company getting 20% annual growth has more than a 90% chance of failing in the next few years.
That means for a software company to thrive and just survive, it needs to get an annual growth that would be next to impossible in other industries. This points to the necessity of having a plan on how you will be allocating the money you will receive from all your LTD. It should be strategically spent in growing your customer base.
Offering an LTD can increase the awareness about your app but keep in mind that might mean an influx of new clients and potential clients who will demand answers to their questions and will request discounts and information. Do you think that your organization is ready to provide that support?
Expect the LTD clients that you will get are very demanding. There’s a reason why they took the offer you are giving them. More likely than not, they check about the new features and the support you provide.
Can your customer support handle the sudden impact of new clients?
Should a Saas Startup Run A Lifetime Deal Campaign
Those are the pros and cons of running an LTD marketing campaign. So, should your Saas company offer Lifetime Deals now?
There is no one answer to this that can be applied to all Saas companies. It really depends on your situation and whether you think the Pros would outweigh the Cons or vice versa. If your company needs a quick source of cash, then offering an LTD can be a stopgap solution to remedy that. Just remember that doing so will come at a price.
Strategies for Running a Lifetime Deal Campaign
You’re aware now of the risks and the benefits of running LTD campaigns. You’re in a position now to decide whether running an LTD will be beneficial for you or not.
Now, if you decide that an LTD campaign will be beneficial for you, the next step is to come up with a strategy. You cannot just start a campaign without a plan. Here are some of the strategies that you need to conduct:
- Pick the right pricing
- Create an SOP for refunds
- Write down specific details for the deal coverage
- Create a plan for upselling
- Determining the Pricing
If you are running an LTD campaign to generate cash inflow, you have to determine the correct pricing for the offer. Things become even more complicated when you are running your campaign on a platform like AppSumo since a percentage of the payment will go to the platform.
To compute the right pricing, you have to take the price of the monthly subscription and multiply it by the months of what you think is the average time that a client will use your app. Then you have to factor in the amount that will go to the platform.
You can also consider giving out tiered plans for your LTD offers. You can give upgraded features for higher prices, for example.
Process for Refunds
You need to have a robust refund process in place. No matter how good your app is, you can’t please everyone. There will be those who signed up for your LTD who will want to get a refund. You need to have a process ready to follow once someone requests to get their money back.
Make sure that everyone in your team who comes in contact with your clients will be aware of the refund policy and process so they can respond right away to any request. This will give the impression that you have a smooth process within your company.
Be Clear about the Coverage
One of the most common mistakes that Saas startups make when offering LTD is not being clear about what is covered in the deal. This mistake can result in frustrated customers, bad reviews, and refund requests.
To avoid this problem, you must be very clear about the coverage when discussing it with potential clients. Some questions that you should have an answer for include:
Will the deal still be applicable even if there are major upgrades to the app?
- Is a client allowed to purchase several perpetual licenses?
- How many metrics will be covered by the deal?
- If I wish to get a feature that is not included in the LTD, should I get a subscription instead?
Ensure that you have answers to these questions and more because your potential clients will be asking them.
You’re already selling a perpetual license, but it doesn’t mean that you cannot upsell to those who sign up for your LTD. Your clients know that the perpetual license they have purchased will have its limits. So, you need to have your subscription plans ready, so you can offer those to your clients the moment they show interest in upgrading.
The Deal Breaker
An LTD can be a great way to promote your product, start a community, and generate cash. But it comes at a price and you should be aware of the downsides that it might bring to your company.
Don’t let your startup be ruined by making the wrong decision on whether you should offer lifetime deals or not. For more information and tips about Saas and how to run Saas startups like this article, visit our blog here and be updated with the latest trends in SaaS marketing.