This transcript was generated from the episode audio and may contain minor errors.
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If you have not heard the acronym SAS, or S-A-A-S, S-A-A-S, it stands for Software as a Service. I guess it stands for that whether you've heard of it or not, but just to be clear what we're talking about here, SAS, Software as a Service, it's the most common revenue model of many of the online tools and services that you already use. So if you think about, perhaps think about all the different subscriptions you have, all the things that you're paying for each month, or some of them come around with annual billing, or maybe don't think about it because I actually started to think about it myself and realized, man, I'm paying for so much stuff. Like I have so many different subscriptions, most of which are useful and make my life better in one way or another. But these days, so many online tools have these monthly or annual charges.
Even the most common design software from companies like Adobe is now sold on a recurring price model instead of a one-time fee, like the way it was done for decades. And there's a good reason why so many companies price this way and why it's become so ubiquitous. And for anyone thinking of starting an online service, most likely you're gonna look at this model, at least consider it. But here's our question. Is it the only way?
Is it the only option? That's what today's listener wants to know, should she use this common SAS model for her new service, or are there alternatives? We're gonna jump into that after this message from our sponsor. [Music]
Hi, Chris, this is Diana from Columbus, and I've been listening to the show since episode number one. I'm starting an online service and I'm wondering about my pricing.
As you probably know, over the past few years, the SAS model, software as a service, has become increasingly common, where the pricing is always monthly or annually instead of just paying a one-time fee. But I'm put off by the idea of forcing people to get another subscription. It seems like it's harder to convince people to commit to that instead of just paying a one-time fee. Don't get me wrong, I like the idea of recurring revenue. I just think that maybe I should go the other way when everyone else seems to be doing the same thing.
What are your thoughts on this? Thanks, Chris, and I look forward to hearing what you have to say. [Music]
Hey, Diana, thank you so much, and congratulations on your new service. I look forward to hearing more about that. And this is a great question because I think anybody who is starting a service, an online service, especially a service that's not just one-off, it's something that people will continue to access, this is something that they're facing.
Like, how do I decide about my pricing? And so to Diana's point of where she says, maybe I should go the other way when everyone else seems to be doing the same thing. So overall, I'm a big fan of that philosophy. I think there's a lot of things you can do in life by constantly asking, okay, everybody's doing this one thing. What is either the opposite or just a third way, something that people are missing, et cetera.
But I would say when you're thinking about your online service, keep in mind why so many companies do this. Why do they price that way? Because it works. It allows them to be less dependent on the sales of any particular period. Like if you have a down month, well, you still have this money coming in from customers who signed up long ago.
It allows them to forecast revenue far into the future. It allows them to pay for upgrades, features, and for customer support. I think that's one of their main arguments. A lot of these companies is, well, we have to actually support this software. So we might actually be losing money on someone who pays once, but then requires a lot of support, for example.
So for a lot of businesses, pricing on some kind of recurring basis, whether it's monthly or annually, like Diana mentioned, sometimes there's an option for either. You can get a discount if you pay annually. That's very often a good decision. But of course, let's be fair. That's not what she's wondering.
She's wondering, is it the only way? And my answer to that is no, of course not. Like if you want to sell your service with a one-off fee, you could argue that that might actually be attractive to potential customers who are just like she says, tired of all the subscriptions. I totally get it. So this is not a perfect analogy, but whenever I'm looking at the app store on my phone, I see different games available.
I'm thinking, oh, maybe I'll try out this game. One thing that I'm really put off by is like all of the in-app purchases. And so many games these days are like, oh, it's $1 or $2 to buy the game, or maybe it's even free, but you're gonna be bombarded with all these requests for in-app purchases. I would much rather find a game that's $10 or $20 pay once and not have to deal with that in-app purchase thing. So as I said, not a perfect analogy, but there definitely would be people who are attracted to the idea of the one-off fee.
Just be aware of all the benefits of the SaaS model. So lots of compelling reasons to use that model, but there is certainly no requirement to do so. You always gotta do what works for you. All right, I hope that's helpful. Listeners, if you have a question of your own, come to SaaS School.com/questions.
I am enjoying this back and forth, all these different updates and such. We'd love to know what you're working on and what your challenges are, and hopefully we can help some other people with it as well. Here on the podcast, we have a different episode every single day. You can subscribe wherever you get your podcasts. My name is Chris Guillebeau.
This is "SaaS School." [Music]
