February 8, 2013
37signals is a polarizing company. Because they do things differently, often contrary to what the ‘textbooks’ say you should do, they have ended up building a legion of fan-boys and plenty of haters.
Recently they launched two new products, Breeze and Basecamp Personal. There’s nothing really surprising about these two products. Both were born from their redevelopment of Basecamp, and both scratch a small itch across a rather large market. What was surprising is that both these products came with a Pay-Once pricing model, something rarely done in the SaaS (software-as-a-service) space.
This pricing model seemed to confuse a number of people, and Jason Fried’s blog post on How to Price Something didn’t provide much insight into this.
CLTV is the net present value of the recurring profit streams of a given customer less the acquisition cost.
Any graduate of SaaS school knows that the SaaS model of recurring subscriptions will result in a higher Customer Life Time Value (CLTV) compared to a single up-front license fee – so long as you’ve priced it right, you can keep you acquisition/retention costs in check, and you can keep a customer happy long enough.
Breeze by 37Signals was priced at $10 one-time fee. So why would they do this? Surely they could make more money charging $2/mo, or even $10/yr. But what if the point of Breeze was to prospect for new accounts?
Breeze and Basecamp personal have one very important thing in common: They both involve keeping many people in the loop about a topic. This act of keeping many people in the loop means that the reach of the product goes far beyond the account holder.
Take Breeze for example, this is a simple email distribution list manager for lists up to 50 people. The numbers below are just for example purposes.
So was their $10 pay-one pricing good? Yes. It can be treated like a loss leader to get people in the door to offer additional products. I’m using ‘loss leader’ as a concept. I don’t actually think they would lose money on Breeze. Because their R&D and commercialization costs were likely pretty low for Breeze, it’s likely that $10 per lifetime account is very profitable, and if that $10 product has tentacles like Breeze does, the product can do sales prospecting for you and increase subscriptions across the board.
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