Bootstrapped Founder #72: Lifetime Deals and SaaS Businesses

Dear founder,

If you prefer listening over reading, you can listen to this episode of The Bootstrapped Founder on my podcast.

If there is one polarizing topic in the bootstrapped SaaS space, it's running lifetime deals for a subscription business. Founders either love the idea of offering a one-time-payment for "forever access," or they hate it. It's right up there with the question, "should you take venture capital funding?" — an equally divisive topic.

Michael Aubry of Motionbox had to choose how to fund his brand-new video-editing SaaS business: continue freelancing, find funding, or get a solid cash injection through a lifetime deal. Michael chose the lifetime deal, and he was successful with it. His product was almost fully functional at that point, and while he had to rebuild his technical infrastructure during the sale, his lifetime customers invested in him and his idea. And they were right. Motionbox is still around and quite successful at that.

When you offer a Lifetime Deal, you are looking at a potentially massive cash injection. Customers would pay a lump sum to get access to your service forever. If you have just launched your SaaS business and don't have many customers yet, cash is in short supply. Offering a Lifetime Deal, a pay-once-and-use-forever account, sounds excellent for initial traction and cash flow.

Even if you offer such a deal through a platform like AppSumo, which takes a 70% cut, it can generate a significant influx of cash. Due to the sheer size of the marketing engine behind AppSumo, many products launched there generate five-and six-figure revenue numbers within a few weeks. That sounds promising, right?

I used to dismiss Lifetime Deals in the past completely. I have since talked to many founders who employed those deals with varying degrees of success, and I have changed my mind. I moved towards a slightly optimistic skepticism: Lifetime Deals do work, and they could work for you, as long as you use them intentionally and with several safeguards.

You should make several considerations before setting up a lifetime deal, weighing the pros and cons. There definitely is an upside to such a deal, but there are risks as well. Let me introduce both.

The Revenue Ceiling

Offering a Lifetime Deal is usually a once-in-a-business-lifetime event. It happens when a nascent business is strapped for cash and would rather get a mid-size pile of money today than wait for monthly subscription revenue to accumulate over the next few months or years.

A lifetime deal has a revenue ceiling. As it's a lump sum, you can equate it to "x months of subscription revenue." If that number is significantly below the Lifetime Value (LTV) of your customers, you will eventually stop being compensated for the value they receive. If your product is $10 a month, you expected your lifetime customers to stick around for two years and thus priced the Lifetime Deal at $200, but they turn out to use your product for a decade, you will pay for eight years of their usage out of your own pocket.

The problem is that you can't just set an arbitrary price with Lifetime Deals. They still have to feel like a "deal." Consequently, many such deals run the risk of becoming a long-term liability due to the revenue ceiling.

But until they turn into such a liability, they are an asset since you got an upfront payment for however many months worth of subscription revenue you charged. Just like annual plans, this will work in your favor for the time being. If you can use those months or years to recruit enough monthly subscribers to also pay for your Lifetimers, that liability might never realize itself.

The 30/100 Split

When you run Lifetime Deals through platforms like AppSumo, you get access to a mighty marketing machine — at a price. Lifetime Deal platforms take hefty cuts because they are well aware of their power.

Here is the central issue you'll need to consider when using a platform like that: you will get 30% of the revenue, but you'll still have 100% of the cost. Are you ready for this?

Lemlist did an AppSumo deal where they made $161,896 after two weeks in sales — but since AppSumo takes a 70% cut, Lemlist only got 30% of that money after fees. Now they will have to serve over 3000 new customers for life after handing over $100.000 of their revenue to AppSumo. They retain all the downside but only receive 30% of the upside. This bargain is not for the faint-hearted. You need to be sure that you can support the customer influx long enough to create a flywheel for subscription customers.

So what's in it beyond the cash? What drives founders to hand over 70% of their revenue and still come out better than before?

Robert Gelb of HeySummit considers the AppSumo Lifetime Deal they offered for their Online-Summit product to be primarily a marketing and community-building opportunity. For them, the Lifetime Deal was testing product acceptance and willingness to pay. It also supplied them with a heavy influx of passionate supporters who wanted to see their product succeed.

And this is what changed my mind about this whole concept. All monetary consideration aside, what a launch like this can do for your business is to create an instant user community. The exposure created by such a launch is powerful, and it creates this group of people who really want your business to succeed. That kind of reach is unattainable for most SaaS founders; it might just be worth the hefty revenue cut.

Guillaume Moubeche from Lemlist looked into AppSumo launches to find opportunities to make his launch better. He decided to involve himself personally as a founder and to create engagement opportunities. He also set up several features to be launched right after their lifetime deal launch to keep people excitedly talking about the product. Community engagement is at the center of a lifetime deal launch success.

You'll find that the most successful businesses who used Lifetime Deals have understood involving that community throughout the journey. They know that these early users are the perfect candidates to become evangelists. They're early adopters, adding belief capital to actual capital.

But not all lifetime customers are the same.

Customers, Expectations, Limitations

Devan Sabaratnam, the co-founder of HR Partner, talked to me at length about the experience of the deal, the aftermath, and how his business profited from the onslaught of eager customers. Before the deal, their business had 50 customers. Once the sale was over, they were looking at 1500 additional customers! They had to quickly scale up their customer service team to deal with the volume of questions and issues that came rolling in from this avalanche of new users. But in the end, that forced the business to improve their internal documentation, processes, and how they segmented their customers.

Why did they segment their customers, you ask?

Well, it turned out that the Lifetimers were quite demanding, particularly when compared to the regular subscription customers they already had. It's not surprising: you're looking at very price-sensitive customers, always on the lookout for a discount. At the same time, they see the term "lifetime" and expect the impossible.

What does "lifetime" mean anyway? Is it the lifetime of the customer? The lifetime of the business? Might it be the lifetime of the current incarnation of the product? This version? All versions?

Well, it seems like you'll need to clearly communicate what "lifetime" means for you when you offer a deal that conveys "forever." Most customers understand that there is no infinite consumption for digital products. They care that the feature set they receive from this deal will be useful enough for them over the long term.

That's why I believe it's paramount to communicate the limitations of your deal clearly. You need to have restrictions in place. Even all-you-can-eat buffets have rules.

If you struggle to come up with such limits, here are a few things to consider. You can justify talking to recurring customers every week since they pay you repeatedly. When do you stop talking to a lifetime customer? Is there a way for you to encourage them to get on a paid plan to receive full support again?

How will you deal with feature requests? Will you treat lifetime customers differently? Devan from HR Partner has a solid process for that: whenever a Lifetimer asks for a feature that's easy to implement, they ask for a testimonial in return. They also encourage their lifetime customers to reach out into their industries, attracting more subscribers.

Daniel Kempe, the founder of Quuu, a content creator platform, points out an interesting psychological effect: subscribers value a product differently than one-time-purchasers or free users. Subscribers understand that they are paying for the maintenance and improvement of a service. Lifetime Deal customers paid for a product that might be very different from the product you currently offer, but they will likely expect to be treated just the same.

This is a matter of process. You can preempt this problem by setting up ways to deal with different kinds of customers differently. Having different processes in place for different types of accounts is commonplace, and it's vital in the early phase of your business when you're notoriously understaffed. You'll eventually find a way of providing maximum value to all your customers. The path to that outcome involves prioritizing those who keep your business afloat financially.

Feedback vs. Runway

For many founders, the goal of a Lifetime Deal launch was to gather as much feedback as possible. The user influx would speed up this process and allow them to quickly create a product that would attract subscription customers that could sustain all those lifetime customers.

This sounds like the most audience-driven way of using a Lifetime Deal for your business. By focusing on getting access to an early user cohort with skin in the game, you can do in a few weeks what would otherwise take years.

But this influx of users comes at the cost of the revenue ceiling. If you don't use the feedback you get to build a better business quickly, you'll risk depleting your cash funds. That's why this initial cash flow has to be invested into the business. It has to make you more money than you're losing on lifetime users whose usage exceeds the deal value.

Sabotaging Your Revenue Model

That's usage that you can't charge for. SaaS has an ongoing cost because value needs to be delivered constantly. One-time-purchases circumvent this revenue model. You're creating a cash runway within your recurring-revenue company. Your subscription revenue has to outgrow this runway quickly, or your lifetime deals might cause your business to implode.

If you build your whole business on an initial Lifetime Deal, you will have to work much harder to compensate for that with subscription customers than you would have if you had grown your business slowly over time. The risk here is obvious: if you don't generate recurring revenue quickly enough, your business will run out of money and die. So much for "lifetime."

Entrepreneurship is always risky. Lifetime deals are no exception.

Lifetime Deal, The Reduced-Risk Edition

But there are ways to manage the risk and potential negative impact on your business. Here are a few risk mitigation strategies if you absolutely want to offer a lifetime deal:

• Offer limited amounts of Lifetime accounts. Limit the potential financial stress on your future business by capping the maximum number of one-time-payment customers. Make sure the majority of your revenue is recurring — eventually.
• Communicate and enforce hard usage limits. No "infinite usage." Visibly track and display usage quotas and have a pricing strategy ready for over-usage. This might need some engineering, but it prevents users from abusing their deal.
• Price Lifetime Deals high enough to equal a reasonable Customer Lifetime Value (LTV). If you need a 12-month runway, price it at 14-16 times the monthly fee. Consider that a customer who doesn't buy your product won't incur maintenance costs, but a customer who buys your product for half its value will incur twice the maintenance costs.
• Don't overpromise. If you intend to charge your Lifetimers eventually, make this clear. Tell them that they will have access to the version as-is (or include the subsequent few updates), but they will have to migrate over to a paid plan for significant changes. You can offer price-reduced subscription options available to Lifetime Deals owners only. The folks over at HeySummit did this, and they converted 35% of their Lifetimers into monthly paying customers. Give people options, and be clear about your limitations.
• Consider annual pricing first. Try selling an annual plan to people before you offer them lifetime access. Likely, this will create similar cash flow, but without incurring future costs.
• Treat Lifetime Deals as a limited paid promotion, particularly if you have a highly shareable product with a viral loop built-in. This way, the cost incurred from this deal is a growth spend, not lost revenue.

Using these strategies still won't guarantee success. But you'll sleep more soundly knowing that you have taken precautions.

So, should you do a Lifetime Deal? Do the math. Read up on the experiences shared by founders who went through this before. Ask around in the community. Make an informed choice, and weigh the benefits against the drawbacks. For some businesses, particularly with highly sharable products, the Lifetime Deal is a very good idea. For others, not so much. Making this choice can propel or capsize your business.

Lifetime Deals are not a guaranteed win. They can provide you with a significant influx of cash and a stampede of eager customers hungry for your product. Still, they will also create unanticipated costs and complexity if you're not prepared for it. Choose wisely.

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.

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See you next week!

Warm Regards from Berlin,

Arvid