I cannot remember how many times in 2023 I’ve seen that question on my X feed. At least once a week.
Came to a point where even heated discussions from ‘experienced’ devs or entrepreneurs try to defend the merits of LTD or Lifetime Deals.
But I found that most of them failed to understand the true hidden cost and diminishing returns of offering LTDs to your audience.
When others ask that question on X, the majority would say: One-time payment or lifetime deal.
Yes, pretty normal considering life starts to turn into a subscription and there is a SaaS fatigue brewing amongst consumers.
But majority of consumers are not entrepreneurs and all entrepreneurs are consumers.
What’s weird is that even the ones on business side of things prefer to buy LTDs over subscriptions, but yet they offer a traditional SaaS model for their own business.
My biggest fear with businesses offering only OTPs or LTDs with no clear vision or roadmap to go SaaS, is the risk of abandonment. But that’s not the only risk I see:
- OTP can spark enthusiasm for the builder but can fade out once honeymoon period is over and sales are declining
- The builder loses interest in the project and will put it on a shelf where it collects dust. It’s not the first time I’ve seen it and won’t be the last
- It’s much harder to sell the project on secondary markets since valuation would be skewed. There is no consistency for true valuations
- Offering LTDs would often mean you don’t value the business enough to make it happen long term if that’s the only pricing model you have and I would be very hesitant to commit to your business if I plan to use it pro-actively
- Sunken cost fallacy and diminishing returns. You tend to sell a product or service and time spent per customer can lead to a crushing negative. More often than not, the cheaper solutions or economic versions (price) will attract lots of people that need the most help. There is nothing wrong offer fair pricing to your customers, but if your hourly rate would be $50 per hour, and offering an LTD for $49 would mean you cannot spend more than one hour per customer (for LIFE) to go negative
True Purpose Of Lifetime Deals
If you’re serious in entrepreneurship and know the difference between a project and a startup, then offering lifetime deals is a great start. But it should not become a fundamental part of your business.
I do it too, offering LTD’s in the form of pre-order more than an ongoing strategy.
The only true purpose would be extending or building runway and capital to cover expenses of your build. Lifetime deals will buy you time, will grant you the option to stay bootstrapped as long as possible and will give you enough incentive to think about scaling.
Ask anyone the following: Do you know the difference between growth and scale?
Lots of them do not understand the difference whilst it’s very simple (in ABC):
Growth planning requires more resources for lesser net return. Which means more resources are required and more efforts are put into place to reach the same result.
Scale planning requires lesser resources for more return. Which means you would spend a lot less time, money or efforts acquiring customers to run the business.
An example outside of LTDs would be SEO: You would put in a lot more effort in the first year or two before yielding true results, but once SEO kicks in your CAC would go down because you reach an audience through organic search over spending ads or social media which requires planning.
It’s All About Runway
If you’re solo or bootstrapped, then runway is a huge factor. You do not have millions to spend like a VC backed startup and you certainly can’t live on air forever.
Offering in pre-launch and temporarily post-launch LTDs would shortcut your path to make better decisions since it makes that process very much easier.
If there are tools out there that would 10x your productivity but you currently cannot afford it then you can fund it with a bankroll acquired through an LTD offer instead of cutting corners and spending hundreds of hours on an alternative that actually sets you back instead of moving forward.
It also helps you build a level of PREDICABILITY.
Imagine your ongoing costs are $12K for an entire year (rent, food, etc) then selling 100 LTD licenses to your audience is not that crazy at $100 a piece. A very achievable number to reach that would cover your entire year and will lighten the mental tax burden.
I see lots of entrepreneurs making wrong or desperate decisions because runway has been cut short or just overestimated the true cost of starting a business.
You most likely have a higher chance to sell 120 LTDs at $100 than marching in on a crowded market with another subscription in early stage. Because customers or your audience don’t know your project yet and subscriptions mean commitments.
- You have in early stage a much easier time to figure out pricing.
- You can most likely convince faster 120 people to commit $100 one-time then selling them a SaaS model
- Setting clear goals (number to reach) and buy yourself a year worth of runway will help you fix, iterate, pivot and grow your business from zero to something.
Why I prefer SaaS over LTD
Take a look at my productivity stack. All of them operate on a subscription based model. And I wouldn’t want it otherwise. If that wasn’t the case I would never bet my entire workflow or business on a platform that cannot grow without resources, capital and I expect them to improve their platform over time.
As a customer, I send a signal to that business that I am committing to them and they can happily charge me every month or year so the money is well spent on improvements.
If businesses are stuck or operate on LTD’s only, I can rarely call them a business but will always stay a startup. And I have a golden rule:
I never build a startup on top of a startup. Or I would never build my business on top of a startup. EVER.
Still Not Convinced?
Not so long ago, there was someone sending me a snippet of a course or info product. And the message was very strong and clear from the first line: Tools are so expensive. Why do they cost $99 a month or even more?
Gives an audience the impressions that companies are solely built on greed and not to serve their audience. But the truth can be further from it.
Running a SaaS eats costs. Depending on the industry this can vary a lot. But what most people never take into consideration certain elements can cause a ripple effect that forces you to increase the prices.
A prime example is this:
- SaaS applications are built in a cloud environment
- Cloud is merely nothing more than a pile of servers on top with other servers
- Those servers are ran into data centers
- Data centers sell spaces to other suppliers (hosting companies etc)
- Price of electricity can surge, we’ve seen that in 2019 with Covid-19
- That means the supplier or data centers have to charge those costs to their clients to stay afloat
- That leads to you getting a bigger server bill
That alone is one of the reasons why most SaaS applications also hike their prices about 7 times in the span of a decade or more.
Offering LTD’s can only get you so far with a limited runway. It will always prevent you moving into scale, and you do not have the needed cashflow to delegate critical elements such as customer support, ORM or sales. Which leads to you capping yourself to the potential and loss of opportunities.
When I see projects launched under an LTD only with no eye on moving it into subscription basis, then I am not going to commit to it that easily. Because my risk and exposure would increase if it’s a tool I would rely on.
What I Would Do?
- Build a financial model where it makes sense to offer LTDs.
- Bake in a limit that protects your downside. Even when you would operate a net loss overtime with your first customers, they are still a baseline for become a voice of your business, and consider them not only early adopters but also brand ambassadors.
- Calculate your target of how much cash you want to ‘raise’ through this model just to cover overhead for 6-18 months for example.
- Consider the raise as a crowdfunded option to fuel your business, except you haven’t given up any equity.
- Move into subscription based model and test-drive price ceilings until you hit a sweet spot.
- Once you reached that milestone, you can calculate the current profit /cost ratio.
- Offer now subscriptions AND LTD’s but with a 36 month+ LTV count. For example: If you offer a subscription at $10 per month, then you could still give them the option to pay $360 or actually higher and they would move from sub based to LTD based but at least you have somewhat a very different cost per unit base and lesser diminishing returns.
Icedrive is a perfect example of doing that, and I believe this opens up a lot of possibilities for the buy and sell side.
To make it short. I will always give the same answer to anyone else. LTD’s are great in early stage to build runway and stay bootstrapped. It opens up possibilities and it will deffo help to lighten the mental tax burden.
But I would never ever trust my business to an LTD only model because the builder behind might lose way too much incentive to work on it if there is no recurring revenue to maintain the business or project.
I would also encourage end-users to see it from our perspective. Whether you’re an entrepreneur or consumer only. People cannot work or improve their business without recurring gains or incentive.
Yes, it’s cheap to only pay once for software, but it comes with a price and cost. On both ends.