Bootstrapped Founder #29: Offer Yearly Plans from the Start

Dear founder,

Most bootstrapped businesses offer monthly subscription plans. The revenue that is generated from your customers that way is incredibly reliable. If you know how many customers you have, you know exactly how much money will come in this month, next month, and the future, provided you keep your customers or replace the ones that quit with new ones.

That's where risk comes into play. If you only offer monthly plans, a wave of cancellations can cut into your revenue substantially, and you will feel the effects within the next thirty days. Yearly subscriptions allow you to lock in a portion of your revenue in a much more reliable way while providing something valuable beyond dollars: validation.

Yearly Subscriptions and Validation

There is something incredibly satisfying that happens when a customer chooses a yearly plan for your product. Not only do they pay up to twelve times as much as a monthly subscriber, but they also communicate something powerful to you. They trust your business to be around in a year, they trust your product to provide value for at least another year, and they're sure that they won't find anything better until then. That is why having a yearly subscription option is not optional. It should be a choice from the beginning.

It also gives you access to a very interesting subset of your early customers: your future evangelists. Look at it like this: early adopters are already betting on your product working out for the foreseeable future. If some of them actually commit to paying you a year's worth of money, then you can be sure that they will go above and beyond to make sure your business succeeds. They will be the people who talk about your service on social media, introduce it to their peers and the members of the communities they frequent. Leverage that, particularly in the beginning.

Yearly Subscriptions and Cash Flow

Besides the validation component, a yearly plan will allow you to borrow from future profits to invest in your business. Being able to invest the 11 months of advance payments into the growth of your business will liberate you from the month-to-month thinking you would have if you only offered monthly plans.

This will protect you from running out of money too fast. Any meaningful churn will still do financial damage to your business, so unless half of your subscribers are on a yearly plan, you will need to still iterate on your business when people start canceling in troves. Having a few yearly subscribers will allow you to spend a few more days or weeks to deal with the things you need to improve.

Yearly Subscriptions and Discounts

You should also discount your yearly subscriptions, for two reasons. First, a cheaper subscription will incentivize customers who like to save on purchases they would make anyway. Second, and that is a much more critical reason, a discounted plan can come with a (clearly visible and communicated) non-refundable clause. This allows you to use the full amount for investing in your business, alleviating the need to keep funds back for possible refunds, should the business run into trouble.

Most customers will understand that discounted plans are not refundable. Make absolutely sure that your refund policy is clearly visible to your customers before they purchase, and have it easily looked up both in your account setting as well as in your knowledge base and Terms & Conditions.

At FeedbackPanda, we sometimes refunded yearly subscriptions even though we had a no-refund policy. For a handful of hard cases like people who had suddenly lost their jobs or had medical emergencies, we quickly refunded the money. This saved us from chargeback fees that would have occurred had our customers went through their bank, and it created a lot of goodwill with the people we helped. Many of them became outspoken evangelists, loudly talking about our surprisingly helpful customer service and how respected they felt by us making an exception. To our knowledge, no-one ever abused this system, and the loss in revenue was worth all the feedback and gratitude we got from our customers.

You can find this article on my blog, and as an episode on the Bootstrapped Founder Podcast.

Links I Found Interesting

Davis Baer curated a list of bootstrapped founders with at least $10.000 MRR, both past, and present. If you're interested in following along the journey of these founders, subscribe to that list. Every day, you'll learn something new. I am a bit biased since both Danielle and I are on that list, but every single member is worth following.

In a few Twitter conversations this week, the problem with ethics in engineering and business came up. In Germany, where I studied Computer Science (and successfully dropped out of), we have the "Gesellschaft für Informatik", an organization of IT professionals that puts heavy emphasis on moral and ethical standards for German software engineers and businesses. Researching those codes, I found this wonderful collection of Oaths, pledges, and manifestos: a master list of ethical tech values. If you want to learn more about how to structure your product and business in a more inclusive and empowering way, please take a look.

Amie Chen, the author of Spider Pro, wrote an article about the things she wished she knew before making a paid browser extension. I found her thoughts very interesting, as we maintained a browser extension at FeedbackPanda, and it was a lot of work even though it wasn't paid. If you're interested in the risks of building a business on a browser extension, you'll also find Azer Koçulu's "Why am I shutting down Kozmos" very insightful. Platform dependency risk is no joke.

Bootstrapping Successes, Failures, and Stories

Jack Ellis of Fathom Analytics took to Twitter and talked about building a tool and stepping away from it after seeing a huge competitor looming on the horizon, only to find out years later that they went nowhere. There is a lot of contingency to our choices, and we never know if they're the right ones until long after we make them. Thank you, Jack, for sharing your thoughts on this particular choice.

On the other side, some founders choose to go all-in. The pandemic has caused many wantrepreneurs who were on edge about starting a business to commit finally. Jamal Mashal is the latest developer to start with a bang: he lost his job and sold all his stock to become an Indie Hacker. While this is extremely risky, it sure is very bootstrappy. If you ever wanted to see an all-or-nothing journey unfold, follow Jamal on Twitter.

Thank you for reading this week's edition of The Bootstrapped Founder. If you like what I wrote about, please forward the newsletter to anyone you think would enjoy it too.

If you want to help me share my thoughts and ideas with the world, please share this episode of the newsletter on Twitter or wherever you like, or reach out on Twitter at @arvidkahl.

See you next week!

Warm Regards from Berlin,

Arvid