
Ask HN: A company wants to buy me a perpetual license, how can I value it? - frankferma
I&#x27;m a solo business with a SaaS (It is a software to process data, I prefer not to reveal the name) and one of my clients, the bigger one pay me around $1800 per month for the service, my client wants a perpetual license (they are a large company and need to keep control over it) how can I set a value for it? My net profit for this client is only 15% (I pay AWS costs to keep the service running), because a bad negotiation with a 3 years contract, with a license it is going to be the 100% net profit.<p>I was thinking to multiply 1.800 per month per 3 years, it is 64.000 with only a year of updates if any (maybe there will be not updates), if I release an update after that I will charge for it with a year update policy, can someone give me any advice?
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mchannon
Here's a wacky idea: say no. Don't offer a perpetual license.

Alternatively, you can price it so high that a 1% money market account earns
exactly X in interest in perpetuity.

With a perpetual, you lose autonomy. You will be forever unable to discontinue
your product should it stop being profitable or worthwhile or relevant. When
that day finally comes (you pass away at the tender age of 108) this client
might be ticked off and demand a refund plus interest from your estate.

~~~
AnimalMuppet
I'd say price it higher than that. Price it high enough that they clearly
don't want it. But if they do want it, it's a price that you would be
deliriously happy with.

One thing to keep in mind, though: If they have a perpetual license, they may
want much more of your service. If _you_ have to provide that, your costs may
go up.

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Someone
$1,800 per month is $21,600 per year. $64,000 put in the bank or invested
without risk, gives you, very optimistically, $6,400 per year ⇒ if you think
they will keep using this for years, that $64,000 is too low by at least a
factor of 3.

Also, if AWS becomes more expensive, or they start to use the product more,
you can increase pricing, but if you took a one time payment, that’s all you
got.

I would think you need to ask at least $500,000, and probably something closer
to a million. That gives you money to spend on putting the source in escrow,
which, if they really are a big company, they should want, and also gives you
money to talk to a contract lawyer (e.g. about the feasibility of your idea
_”if I release an update after that I will charge for it”_ ) and an accountant
about this deal.

They may not want to pay that much, but they shouldn’t be surprised, either,
if you explain to them what extra costs you have to make.

Disclaimer: don’t take my word for it.

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mtmail
Try to offer code escrow (for a fee) instead. Larger companies are worried
that small services go out of business. In case you close your business (or
get hit by a bus) the customer then has the legal right to get a copy of the
code from the escrow.

~~~
frankferma
This is one of the things I want to avoid, I don't want to be out off business
and generate a problem for my current client, the service is critical for them

~~~
Someone
But choice is between, both currently and with a perpetual license, _“if I get
hit by a bus, my customer is hosed”_ and, with escrow, _”if I get hit by a
bus, my customer at least has a fighting chance, however small”_.

With escrow, your customer certainly isn’t worse of.

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zer00eyz
This ask is completely antithetical to how SaaS works.

If your selling them a perpetual license then it is a "shrink wrap" copy of
your software, and they get to run it (your not a SaaS any more then)

If they are asking for this, tell them you will sell them a copy of the SaaS
for them to run internally - the EULA/contract needs to state that employees
and contractors are the only ones allowed to use it, and they can't resell it
-

Tell them that you will happily sell it at 5x the 5 year cost and if they need
help setting it up/deploy that your hourly rate is $200 an hour, with a 5 hour
minimum.

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dragonwriter
A perpetual license to the code or perpetual service contract on the SaaS?

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frankferma
Perpetual license on the core of my service, not the code and not the whole
SaaS, I will provide the core service inside a virtual image

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frankferma
Guys thanks for the comments and advice. I'm going to avoid to sell a
perpetual license.

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DoreenMichele
Just say no.

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frankferma
Why not? I forget to say my net profit is very low

~~~
DoreenMichele
Large companies routinely screw over small ones.

 _Perpetual_ sounds like another way of saying _unlimited._ Every story I have
ever read involving an unlimited contract involved bleeding the company that
agreed to provide unlimited service.

People who bought unlimited airline flights for life basically live on
airplanes. They soak the airlines for all they can get.

I have seen stories of small shops that died largely due to agreeing to give
unlimited service to a single client for a fixed fee.

They are asking you to enter a contract where they pay you one time and then
service them forever. If that doesn't sound like a deal with the devil, maybe
read up on what a bad deal slavery typically is.

~~~
Spooky23
Perpetual is just licensed software.

If you sell it for $100/user, you charge $20-30 per year for maintenance
annually.

The OP is making no margin on his SaaS already and the client probably knows
it. This is an opportunity to actually generate a return.

~~~
DoreenMichele
A quick skim of articles comparing perpetual and SAAS licensing suggest SAAS
is more lucrative. If he's barely making a profit now, this sounds like it
only gets worse.

I based my assessment of the scenario in part on this being his largest
client. Large companies routinely screw over small ones. It is par for the
course. You can basically assume that if a big company wants it, you are
likely to lose your shirt if you are overly cooperative with their agenda.
They are looking out for number one. They are not looking out for you.

~~~
Spooky23
YMMV.

It sounds like he didn’t price it right. SaaS is more profitable in general
because you own the customers data, guaranteeing renewals, and it’s cheaper to
support an app than support a customer on Amazon.

I made a lot of money selling a little application to an enterprise that did
some data transformation. That enterprises policies would have prevented them
from buying a SaaS from me.

~~~
DoreenMichele
It is always humbling to learn the limits of one's own knowledge. You've been
very kind about it.

Best.

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alexmorse
Tell them no

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frankferma
Why not? My net profit is very low with the monthly payment

~~~
DoreenMichele
It will get lower still, likely into the negatives, if you agree to charging
them once and servicing them forever.

