[HN Gopher] Annual pre-pay and marketing budgets
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Annual pre-pay and marketing budgets
Author : jger15
Score : 81 points
Date : 2024-07-14 09:50 UTC (13 hours ago)
(HTM) web link (longform.asmartbear.com)
(TXT) w3m dump (longform.asmartbear.com)
| cranberryturkey wrote:
| I've always used prepaid plans to get money up front and re-
| invest back in the business.
| choeger wrote:
| Where I live, most people will hesitate to buy into a yearly
| plan.
|
| I'd suggest to make it possible to _gift_ someone x years of your
| service, because that 's something many people will happily do.
| The only thing to avoid here is any kind of automatic retention.
| One year is one year, period.
| satvikpendem wrote:
| Who is going to gift a SaaS to someone else?
| mejutoco wrote:
| An example could be an uncle to a nephew interested in
| something educational.
| koolba wrote:
| The same idiots who give gift cards rather than fungible
| cash.
| tombert wrote:
| I "idiots" is a bit harsh.
|
| If I give someone cash [1], then they might just spend it
| on their power bill or rent or groceries or just let it
| live in a bank account. This is "fine", but it doesn't
| really feel like a "gift".
|
| If I buy them a gift card to Best Buy or something, they're
| kind of forced to buy themselves something fun. You can't
| really pay your rent with a gift card, it can't sit in a
| bank account, you're kind of forced to get yourself
| something you'll enjoy.
|
| I am not saying it's the best gift or anything, I just
| think "idiots" is harsh.
|
| [1] and assuming that the person is in an economically
| alright position
| fragmede wrote:
| Using the word idiots reveals GP's level of thinking.
| Gift cards are a less useful gift than cash. The first
| principals reasoning would say the more useful gift is
| worth more than three less useful gift but this is human
| psychology we're talking about so first principal
| reasoning isn't enough.
|
| Gifts are about having thought about somebody, and cash
| is the equivalent of saying I couldn't be bothered.
| Hence, gift cards. I thought about you for half a second
| longer and gave you money to spend at a store off my
| choosing. Under that framing, calling people idiots
| because they give gift cards indicates an inability to
| grasp or accept that cultural norm.
|
| So, it makes it easy when someone telegraphs their mental
| shortcomings to you.
| Retric wrote:
| I seriously dislike getting gift cards and rarely used
| them. It makes checking out take longer, and you need to
| remember you have them etc it's just a worse experience.
| lotsofpulp wrote:
| >Hence, gift cards. I thought about you for half a second
| longer and gave you money to spend at a store off my
| choosing.
|
| That half second costs me far more time and effort to
| keep track of a gift card, especially if a balance
| remains on it. Either get the actual gift you want to
| give the person, or give cash.
|
| A gift card only benefits the merchant who gets to hold
| onto cash and earn interest.
| ThrowawayR2 wrote:
| I'm mildly annoyed by merchant-specific gift cards when I
| receive them. They're strictly worse than cash because
| rarely does the merchant have anything I want at a price
| that I consider reasonable.
| ghaff wrote:
| Ideally you know the person well enough that you at least
| know "fun" stores they'll be shopping at anyway.
|
| Or give something like an Amazon gift card which really
| is more or less like cash for most people. (Though Amazon
| knows this and their conversion rate is generally worse
| than most retailers who are more specialized.)
|
| That said, I'm not a huge fan of gift cards. It's one
| more thing to keep track of but, hey, they're probably
| better than some gift you don't want and cash just isn't
| really acceptable in all cases.
| bryanrasmussen wrote:
| right, giving your daughter an annual netflix subscription
| when she moves out is idiotic but giving her money she can
| spend on a party and get drunk is a next-level genius move!
| gumby wrote:
| This is good advice. In the first case she's just sitting
| at home alone while in the second she's out building her
| network.
|
| A gift that can change her life.
| ghaff wrote:
| It's somewhat of a cultural thing. Giving cash can seem
| tacky whereas if someone has just got a house, a gift card
| from a home improvement store or, if they're an outdoor
| sports type, somewhere like REI might seem somewhat more
| thoughtful even if you don't know exactly what they'd like.
| dylan604 wrote:
| My first license of 1Password was a gift, although, this was
| before it was a SaaS. You can gift Neftflix and similar.
| There's a lot of things that can be a decent gift.
| 0cf8612b2e1e wrote:
| Netflix, Xbox/PSN, Roblox, etc would all be valuable
| subscriptions to children who are dependent upon others with
| funds.
| miki123211 wrote:
| Can you subscribe to any of these via PaySafe, or any other
| kind of card that you can just pick up in a grocery store
| for cash?
| j5155 wrote:
| Yes, I believe all of those services have gift cards in
| stores.
| ghaff wrote:
| Back in the day, gifting a magazine subscription like
| National Geographic was very normal.
| bartread wrote:
| Annual plans aren't for the most part aimed at individuals
| though: they're aimed at corporations. Corporations regularly
| sign annual and even multi-year contracts for all manner of
| services. There are many reasons this can be desirable, but
| budgeting and discounts are often big factors.
| withinboredom wrote:
| Even as a corporation, we are often given some discretion on
| spending through expenses. I may not be able to expense an
| entire year, but I can expense a whole month at a time. If
| it's valuable, then I will get permission to expense an
| entire year ... but I have to be able to prove it's value.
| arjunaaqa wrote:
| Listening from asmartbear is always inspiring !
| ChrisMarshallNY wrote:
| I generally prefer to prepay a year. It tends to knock a bit off
| the price, and is less annoying, as I'm not constantly getting
| notices of withdrawal. Many companies will actually refund the
| unused portion, if you cancel early.
|
| However, _lifetime_ subscriptions seem to be almost worthless, as
| I have yet to encounter a company that doesn 't redefine
| "lifetime," to mean the lifetime of the subscription, which ends,
| whenever they want.
| nocoiner wrote:
| At best, a lifetime subscription means the lesser of my
| lifetime or the company's lifetime. If the former, sucks for me
| - it's kinda like "winning" on your life insurance policy.
| ChrisMarshallNY wrote:
| I think reneging on a lifetime signup is really petty. I
| strongly suspect that they don't actually constitute much of
| a drain, and they are folks that had faith, and supported the
| company, early on.
| inafewwords wrote:
| Had a few apps that become subscription and lifetime is
| given to the early subscribers including free upgrades
| cess11 wrote:
| Depends on what you're getting. I have some 'lifetime
| subscriptions' that allow me to keep copies of whatever these
| companies are selling access to, which means that it's in
| part up to me what I take from the deal and keep until the
| end of my lifetime.
| j45 wrote:
| The lifetime deals that work out, are worth it.
|
| Hitting a bet on the appsumo startup casino can be fun.
|
| I have a few tools quietly that have remained lifetime, like
| brain.fm.
|
| Supporting what you think will win, early is a risk and an
| opportunity.
| unixhero wrote:
| But you should learn about the concept of time value of money.
| Don't part with your money until you have to, due to interest.
| ChrisMarshallNY wrote:
| Depends. If a year is $50, and a month is $5, then you save
| $10 (16.7%). That's probably more than I'd make in interest.
|
| My time is valuable, too. Every second not spent deleting
| reminder texts, is a second I can use for other stuff.
| toast0 wrote:
| > My time is valuable, too. Every second not spent deleting
| reminder texts, is a second I can use for other stuff.
|
| Don't delete them then. Inbox Infinity.
| plorkyeran wrote:
| And of course taxes make it better to spend less money than
| to earn the same amount of additional money. Beating a 10%
| discount for a one-year prepay means you're getting really
| good returns on your money, and 10% is the low end for
| annual discounts.
| shepherdjerred wrote:
| Plex has done a great job with their lifetime subscription. I
| paid something like $250 ~7 years ago and it's still the same.
| ttul wrote:
| This works until it doesn't. I have seen many startups raise a
| ton of cash from pre-payments, burn it on marketing and R&D, and
| then find that the cashflow isn't forthcoming as expected. I
| force my companies to clearly show prepaid revenue on their
| balance sheet and treat it as debt. Any discounts provided to win
| the pre-payment also have to be recorded as a financing cost -
| not a "sales discount" or buried in lower ARR. It might be
| borrowed from your customers, but it's still debt and you have to
| "service" it by providing products and services that do have a
| marginal cost. Showing the financing cost achieves two things:
|
| 1. It allows you to run a higher EBITDA metrics because financing
| costs are backed out of EBITDA.
|
| 2. You record the non-discounted revenue for the customer, which
| is a truer representation of where the business could be one day
| when it's no longer playing the pre-payment game to generate
| cashflow.
|
| Generally speaking, it's a good idea to generate cash from pre-
| payments, but don't treat it as free no-risk money. You can get
| over your skis quickly, run out of cash, and then be in a world
| of hurt when you're unable to service those customers.
| cess11 wrote:
| I've recently been in contact with a SaaS company that failed
| in part because they changed their revenue model from pre-pay
| for something somewhat easy to deliver to something quite hard
| to deliver. Along the lines of 'pay (by buying 'credits') for
| any response to your marketing' to 'pay (by buying 'credits')
| for only positive responses to your marketing'.
|
| A deal isn't closed until both parties have done their part,
| and, as you aptly describe, until one has done the delivery any
| payment is akin to a debt, and hence it's a liability or risk
| until the customer got what they signed up for.
| j45 wrote:
| If it was credit based you could sell the credits upfront and
| the sale is complete.
|
| Access to the system could be included or a much smaller
| platform fee.
| kevincox wrote:
| > but it's still debt and you have to "service" it by providing
| products and services that do have a marginal cost.
|
| This should be accounted for. Say you sign a customer for $100
| for a year. You should be able to estimate up front that it
| will cost you $5 in service costs, $15 dollars in support, $5
| in ... then you can book the $75 as expected profit. Some of
| that can be put back into marketing in a short loop.
|
| The main difference from monthly is that it takes N months for
| that revenue to be captured. However you are more certain about
| it. (Especially in pay-after where you can subtract actual
| support and infrastructure costs from the revenue.)
| cj wrote:
| > I force my companies to clearly show prepaid revenue on their
| balance sheet and treat it as debt. Any discounts provided to
| win the pre-payment also have to be recorded as a financing
| cost - not a "sales discount" or buried in lower ARR
|
| "Unearned revenue" is a common account on any company's balance
| sheet and is standard best practice.
|
| You sign a 12 month deal, and it immediately hits your books as
| a liability because the revenue isn't "earned" until your
| company provides the service, so each month 1/12 of the
| contract moves from the "unearned" revenue account to an income
| account.
|
| But the 2nd idea of treating sales discounts as a financing
| charge sounds like some questionable financial engineering to
| me. If your sales guy offers a "10% end of quarter discount if
| you sign in the next week" you shouldn't be booking that
| discounted 10% as financing income because, simply, that's
| money you'll never receive.
|
| I've never heard of "non-discounted revenue" as a serious SaaS
| metric. Sure it will inflate your revenue (as will booking
| discounts as revenue) but those practices won't pass the sniff
| test when any outside VC or auditor looks at your books.
|
| But 100% agree with the first part of your comment: from an
| accounting perspective, prepaid contracts are typically booked
| as a liability or debt on your balance sheet, and gradually
| moved over into your Income/Earned Revenue account in 1/12
| increments (or equivalent) over the upcoming year.
| ttul wrote:
| I should clarify: The IFRS statements do not break out the
| discount in this manner. In accordance with IFRS/GAAP,
| revenue should be reduced by the amount of the discount, not
| treated as a financing item. However, for internal reporting,
| particularly to the board, I have found it useful to break
| out discounts for pre-payments in this manner and to force
| the CEO to think about pre-paid revenue as "debt" and the
| inherent discounts as "financing cost".
| unixhero wrote:
| This guy accounts! Thanks for the insightful analysis.
| lmeyerov wrote:
| Tracking monthly/annual bookings (or whatever the MRR/ARR
| number is) for investors seperately from monthly/annual
| recognized recognized revenue for conservative operations seems
| simpler and achieves the same?
|
| And yeah, the blog's advocacy of spending unrecognized revenue
| is indeed risky, and how to do that safely is an interesting
| q...
| dgan wrote:
| A wierd bubble he/she lives in. "Raise your prices! Your prices
| are low! Raise them now!"
|
| I find most services now are extremely overpriced. Your "pay us
| $coffee$ per month", is absolutely not going to happen because
| your service is one of dozens or hundreds I randomly find kinda
| somewhat interesting in a given day. Ok If the service was a
| couple of pennies, i might consider it.
|
| Every single little app/service now thinks they are indispensable
| utility provider and by such are entitled to x% of my monthly
| salary. Get lost!!
| stevoski wrote:
| He is the founder of WP Engine, by far the biggest WordPress
| hosting service.
| gaadd33 wrote:
| Is WPEngine larger than WordPress.com? Just curious since
| years ago WPEngine seemed like the scrappy small startup.
| true_religion wrote:
| Ah yes, the bubble of having a product worth paying for.
|
| In B2C I think subscriptions are over used since products do
| not provide value over time but in B2B that should not be the
| case.
|
| Software that supports your business may be used be a daily
| basis, and the value can be translated into a dollar figure of
| time saved versus the alternative.
| dgan wrote:
| Okey I realised I went a little too hard on this. I agree on
| the B2C versus B2B split and your analysis
| aantix wrote:
| Are you an engineer in the U.S.?
|
| Seems like engineers rarely do the math on their productivity.
|
| A tool that costs $100/month and saves an hour or two can still
| be worth it.
| CamelCaseName wrote:
| It's different for everyone, but I don't stumble across tools
| that save an hour or two that often.
|
| In fact, excluding the very well known tools (e.g. LLMs) I
| think I've found maybe 3 in my career and I only use one of
| them sporadically (a $20 one-time Excel add-in). The other
| two cost 4-5 figures and were provided by my employer at the
| time.
| addicted wrote:
| This analysis is the right kind of analysis but most people
| use the wrong metrics.
|
| On the value of your time side, the metric that I've seen
| people always use is the average value of a person's time.
| However, the real relevant metric is the marginal value of
| someone's time.
|
| So,for example, if you are an engineer earning a fixed salary
| that works out to $100/hr, saving a few more hours will not
| earn you any more money. If, for example, it saves you some
| time, the real question is what's the value of the time you
| saved. If it saves company time, then the answer is close to
| $0 with the only benefits being an earlier delivery (which
| may even be a negative in many workplaces for you
| personally). This may be a reason for the company to pay for
| the tool but not for you as an individual. Alternatively, if
| those 2 hours saved means you're gonna earn an additional 2
| hours of free personal time, then the question is what you
| will do with that personal time. If the answer is watch
| Netflix for 2 hours then the value of those 2 hours is likely
| much lower than $100/hr and in some cases may even be
| negative.
|
| Then there's an incomplete analysis on the other side as
| well. If I save 2 hours by paying a freelancer $20 to setup
| my servers, I may be losing some educational value that I
| would have gained it by doing it myself. And for some there
| may also be entertainment value attached. Personally, there
| are several projects I can outsource that I enjoy doing
| myself. Paying Google to manage my emails and calendars (at
| least the less important accounts) is actually taking away
| from the enjoyment I get in setting up, tinkering with, and
| maintaining my NextCloud instance.
| ajb wrote:
| There is a sense to this but it depends on the kind of business
| you're in. The more novel your business is, the more the customer
| will need to try it out before they are convinced it's good
| value. Similarly, where you are delivering the same thing every
| month (like a vpn service) the customer can be easily convinced
| that the next 11 months will deliver the same value, but where
| it's a new thing every month (entertainment, education,
| information) the customer will need several months to decide that
| your value is consistently delivered. And the worst case is
| where, like a dating app, or therapy, you are selling the
| prospect that it might work, but each additional month is
| evidence that it's not working.
| bastien2 wrote:
| This smacks of the infinite growth fallacy.
| teo_zero wrote:
| I know nothing about which is more profitable, monthly or annual,
| but I'm sure TFA is mixing profit&loss and cash-flow. Getting the
| money in advance (a concept belonging in cash flow) doesn't make
| your budget (an item of P&L) any larger.
| wiradikusuma wrote:
| "CAC is the total cost.. ..including fully-loaded salaries" but
| "Their CAC is $80.. ..$1.60 / 0.05 / 0.4 = $80" -- Where's the
| salary part?
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