

 The benefits of a monthly recurring revenue model in tough economic times - bdotdub
http://www.37signals.com/svn/posts/1471-the-benefits-of-a-monthly-recurring-revenue-model-in-tough-economic-times

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axod
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.

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

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

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davidw
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.

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bdotdub
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.

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davidw
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.

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bdotdub
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".

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davidw
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.

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mechanical_fish
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.

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vaksel
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.

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Jasber
___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.

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gcheong
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.

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puzzle-out
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.

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zmimon
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.

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dell9000
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?

