Episode 841 | One-time Payments, Growing a Step 2 Business, Positioning, and More Listener Questions (Rob Solo)

Rob Walling: This is Startups for the Rest of Us. I’m Rob Walling. In this episode, I answer your listener questions, some really good listener questions today about one-time payments versus subscriptions, the positioning and pricing of a Shopify bundle, a question about a step two business, and more. I’m really excited to get back on the microphone today after an almost three-week break, as my wife, kids, and I went to Japan. We had a great time. It was our first trip there, and this is my first episode back recording. Before we dive into the episode, I want to tell you about TinySeed’s SaaS Institute. You’ve heard me say that being a founder means making hard decisions with incomplete information, but for most founders, you’re running a company this size for the first time. And as the decisions get bigger, so do the consequences. That’s where it helps to have a sounding board. 

Someone who can tell you whether you’re on track or about to waste six months on the wrong thing. And that’s why we’ve built SaaS Institute. You get a dedicated coach who scaled B2B SaaS to eight figures, a mastermind of other founders at your stage, and direct access to experts in growth, sales, product, and finance. Everything you need to help break through your next plateau. Just ask James Rose, the founder of Content Snare. Here’s how he put it. “When I joined, we were at around 10 people, and the biggest problem was just trying to work out what was next. When you’re so close to the business, it’s easy to get stuck in your ways and develop blind spots, so I needed fresh eyes. My coach helped me solve that. Every month we’d work out the next most important thing, and when you’ve been going at it alone for a long time, it’s amazing to have a peer group whom you can ask questions of who’ve already solved this exact problem before.” 

If you’re doing a million or more, and whether you’re B2B or B2C, we’d love to work with you. If you’re feeling a bit stuck like James was, head to saasinstitute.com to learn more and apply if it’s a good fit. 

Let’s dive into my first listener question from James [VERIFY: “Gafer” – unsure of spelling]. James actually responded to an email that I sent out to my list, robwalling.com/emails. If you’re interested in getting a mostly weekly essay on thoughts that I have, a lot of which don’t appear in the other formats, don’t appear on YouTube, don’t appear in the podcast. It’s just deeper thought pieces around aspects of building, launching, and growing a startup. It does have a B2C element, but if you listen through it, you’ll realize why I decided to answer it. James says, “Hey Rob, longtime listener of the pod. I love it, and I’ve learned so much. The biggest problem facing me these days is determining how far to take my current business. I run a Discord bot called Apollo, which helps online communities organize events, and that’s at Apollo.fyi. In a lot of ways, this has step two written all over it. 

B2C/prosumer, with perhaps a handful of businesses using it. Freemium, relatively high churn, about 6%, and a low price point, $6 a month, soon to be $8 a month. Despite all that, COVID was kind to my business, demand for online events was way up. I get about 200 people adding the app to Discord a day, and the app has strong virality built in.” He put that in quotes. If you read SaaS Playbook, I talk about strong and weak virality. I appreciated the nod. James says everyone who signs up for an event is interacting with the app, and that’s the viral loop. He tells me his MRR. I’m not going to disclose it here on the show. Suffice to say, it is more than a full-time income in the United States. Usually that mark I put at $10,000 a month, and he is a bit north of that. 

And he says, “With a price hike next week, it should result in another 30 to 40% increase in MRR, as I am raising on my existing customers.” Price increases for the win. James continues, “I have more ideas for growth. I believe there is a market for a higher tier plan at $25 a month, and I know what I want to build for it. Expanding into ticketed/paid events is another idea. Reducing the value of my free plan is another. At the end of the day, I’m making more money than I would in a day job, and I’m primed to increase that even more, thanks in no small part to your excellent advice on navigating pricing. But there’s a not-so-quiet voice in the back of my head that’s always whispering to me about platform risk, consumer churn, and the fact that this vertical is never going to be a massive business.” 

“In other words, it’s not B2B. I think a lot of this comes down to managing my own psychology,” which he also put in quotes. Sometimes I like it when people quote me back to myself. Other times it’s unnerving, when I’m like, “Oh, did I say that?” But James continues, “I think a lot of this comes down to managing my own psychology, and there’s a good chance I’m experiencing a lot of ‘grass is greener’ elsewhere, but it still weighs on me. Thanks so much for taking the time to answer this.” James and I had a little back-and-forth via email, and I got his permission to use his name and the app name on the show. Normally I would anonymize it if he and I hadn’t spoken about it in advance. Here’s the reason I wanted to answer this on the show: I have a pretty strong opinion about it. 

A lot of the B2C/prosumer questions I get are about how to market it, and it’s things where it’s just like, don’t, just don’t do it. But James is onto something here. And so I wanted to take just a minute and give him, and you, my thoughts, so you can hear how I would think about this as a founder. Building something that gets traction is hard. If you’ve never done it, it’s really hard. If you’ve done it before, you forget how hard it is to get something into market and get new customers. Getting people interested from a cold start, no matter how much experience, backing, interest you have, it’s still hard, and it’s harder than you remember. So if I had something that had momentum, even if it was a B2C prosumer business, it was growing, and I still had more ideas, and that was the key sentence in this entire email, James says, “I do have more ideas for growth,” and then listed three ideas that I think are all perfectly possible, perfectly viable, that they might be able to grow this business by 50%, 100% in the next six to twelve months. 

Every idea he mentioned, I was like, “Yeah, I would probably try that too.” So since you have those ideas, that’s the direction that I would lean. As always, you have to make your own choice based on the information you have, but it does feel to me like you want to keep going on this. I guess the worst case, there’s a couple of worst cases. One is you try all three of those things, you spend the next six to twelve months giving it your all, and it doesn’t grow a lick, and it just is flat, and then you get to choose what to do next. That doesn’t sound that bad. To me, that has asymmetric upside, because if they do work, you’re going to grow, and you are going to significantly increase the enterprise value, be generating more profit, have a more stable business that you can then use, if you decide to, to go start or acquire that step three business. 

The other worst case, I think, is that platform risk bites you, and overnight you go to zero. Again, I would just evaluate the likelihood of that, and if it’s extremely low, then that’s a risk that I would learn to live with. So thanks for that question, James. I hope it was helpful. My next question is about one-time payments versus subscriptions, and Rory writes in. “Hey Rob, a longtime listener. I’ve been thinking a lot about pricing strategy for an MVP and wanting to get your take. I’m planning to launch a new product soon, and instead of going straight into a SaaS subscription, I’m considering starting with a one-time payment. The goal would be to test demand, gather real customer feedback, and better understand what users actually need before committing to ongoing delivery and a recurring model. Do you see merit in using a one-time purchase as a validation step before transitioning into a subscription later on? 

Trying to avoid locking myself into a model that requires constant new value before I truly understand usage patterns. Also curious about your thoughts on offering both at the same time. Is there ever a good stage where a one-off option and a subscription can coexist without confusing positioning or cannibalizing revenue? Would love to hear your perspective if this makes it into listener mail. Thanks for all your insights over the years. The show has been hugely helpful.” I used to be extremely black and white about one-time payments, and it was basically 100% a hard no, because, A, I think a lot of early-stage entrepreneurs use it as an excuse. It’s much like a free plan. “Well, I’ll make a free plan just so people will use it and I can get feedback,” and that’s usually a big mistake. One-time payments, when you’re building a SaaS product that does in fact need ongoing delivery, and it is recurring, and it needs to be hosted, and maybe you need to build new features, maybe not, but ongoing support and all that, it just doesn’t make sense. 

My definition of SaaS from seven or eight episodes ago was subscription software where software provides most of the value. This is not subscription. So the desire for founders to do free plans, to underprice their product, hey, nine bucks a month for something that should probably be a hundred bucks a month, and to try to do one-time purchases in the early days, I think, is a crutch. And so my reaction to this has usually been 100%, just don’t do it. The only time I would consider it is when there’s some other benefit to it, like you’re doing an AppSumo deal. That’s a one-time payment, but you get the marketing push and the explosive nature of that email list. I forget how big their email list is, hundreds of thousands. It’s a lot of people, and you can in fact do an AppSumo deal and learn from it. 

You get a big chunk of cash from it, a big chunk. It can be tens of thousands of dollars, and you then get to have folks use it and get feedback. Ruben did this with SignWell, and as far as I remember, he does not regret it, and he had a ton of learning from that. But he didn’t just go out and do one-time payments and post on Twitter and build a launch list and do it himself, because there was no other benefit. So that’s been my traditional stance. However, I have, over the past several years, as I like to do, taken in new data. I’m not a politician who needs to never change their mind because they get called a flip-flopper. I take in new information as it comes, and I try to adjust my thinking based on what I’m actually seeing in TinySeed companies, in MicroConf companies, in listeners of this podcast, and in the broader, mostly bootstrapped ecosystem. 

And I have seen examples of this working. Youform.com. I sat and watched Davis Baer and his co-founder start Youform as a one-time payment and build it into a successful subscription product. And they still have a free plan and a $29 and an $89 plan, and I was skeptical at the start, and then they made it work, and I was like, “Well, good for you.” And maybe there have to be rules of thumb. You know when Ruben comes on the show and talks about his rules of thumb for when freemium might actually work, right? When it might be a good idea. There are probably some around this, and I just haven’t done enough one-time payments, or had enough exposure to them, to know what the “rules of thumb” are for when you should probably use them. But I think one of them might be that it’s kind of like freemium, where you probably should have a huge market, probably should have some virality built into it. 

And likely, this is the third one I’m a little iffy on, I’m coming up with it on the fly, but I feel like if you’re already in an extremely competitive space, which Youform of course is, it’s a form builder and there are hundreds of these, so that one’s maybe, maybe not. But I do think of a one-time payment, if you think about it, it’s kind of like a free model. You just happen to get a payment upfront, and then you have free users for the rest of your ever-loving life that you’re supporting, which is one of the reasons I don’t like it. What if you could go from an idea to your first real user in 30 days? Not a prototype, not a promise, but an actual working app. Today’s sponsor, Designli, will put that in writing. Here’s their CEO, Keith Shields. 

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Rob Walling: As I look through the reasons that Rory mentioned for doing this, Rory said the goal would be to test demand. Maybe, but can’t you do that with a subscription? It feels like you can test demand with a subscription. Gather real customer feedback, which, can’t you do that with a subscription? I did it with Drip. Most people do it with a subscription, right? And better understand what users actually need, which I still think you can do with a subscription, before committing to ongoing delivery and a recurring model. But you are committing to ongoing delivery in a recurring model, not a recurring payment model, but ongoing delivery. This has to be up next month, or else you’ve scammed those people. So just because they paid you once doesn’t mean you can shut it down in three months and be okay with it. I tell you what, it’s more kind to the users if they’re paying you monthly and suddenly you disappear, because at least then they haven’t paid you for a year’s worth of usage, or two years, or whatever you wind up charging for that one-time fee. 

So those reasons, I don’t agree with. And if you have a launch list, which, look, most people don’t, because they don’t actually listen to the advice that we give, the grizzled, jaded SaaS veterans talk about, “You should do this,” and at least consider doing this, and go B2B, and raise your prices. And we write books, and do podcasts, and just, the amount of… and learn marketing, and do sales, and the amount of new folks coming in who just don’t listen, is extensive. It’s the vast majority. And so it’s unlikely you have a launch list. But if I had a launch list of 500, or 1,000, or 5,000 people, I would have a really tough time doing a one-time purchase model. Why not go recurring there? But Youform made it work, and I’m sure they’re not the only one. Now, is Youform survivorship bias? 

Are there 99 others that tried one-time payments and never got anywhere? Well, maybe, I don’t know. And we can’t run a split test to say, “Would Youform be better off today if they hadn’t done the one-time payments?” We don’t know that. But I do know that they made it work, and it’s an interesting approach in the early days. I like doing things sometimes just to experiment. There’s a reason I did a book Kickstarter for The SaaS Playbook. A lot of people said, “Why are you doing a Kickstarter?” Almost nobody does nonfiction books that way. Very rare. I think Eric Ries has done two on Kickstarter, but very few examples of folks making it work. And I wanted to see what it was like, if there was asymmetric upside to it, if it would expand my audience, et cetera, et cetera. It was a fun and interesting experiment, and we did it for the exit strategy as well. 

And I think for my next book, I’m probably not going to do a Kickstarter. It’s still in the works, but I think I’m going to just do pre-orders. But I learned what I wanted to from that experiment. So today, if you were to ask me, if I was launching a product, would I do one-time purchases? No, I would not. I would build something that had value that was ongoing, that I could charge people on a recurring basis, monthly or annual. Maybe they could prepay for something, but I want to gather that real customer feedback from people who are paying me on a recurring basis, and I want to test demand from people who are paying me on a recurring basis. And that’s probably a harder way to go in the early days, but I think you’re going to learn so much more, and so much faster. 

With that said, Youform made it work, and I have seen other examples of folks specifically who offered both at the same time, which was something Rory proposed: one-time and subscription. And I’ve seen, I think we’ve even had some TinySeed companies come in and apply, and we told them the first thing was like, “You’ve got to get rid of that one-time deal.” They had a lifetime deal. We’ve had a few, and they had learned what they came to learn, but they left the one-time deal on. And we were like, “You’re already at 5K MRR, 10K MRR. By the time you get there, cut the lifetime, cut the one-time deal.” But it becomes addictive, because it’s a lot of cash, because you’re getting your whole lifetime value upfront. So I have seen folks do it and make it work. If I had a launch list of 500, or 1,000, or 5,000, and I was thinking about this one-time payment, I would maybe consider offering both, meaning one-time and subscription. 

And the model that I think I’ve seen was, if it’s monthly $20 a month, then your lifetime is like two years, so maybe it’s $500, maybe slightly more, maybe it’s like one to two years. I’d have a tough time charging one year, for like $240, for a lifetime deal, but you get the idea. That’s just what I’ve seen in a handful of examples of this. So would I lean towards it? Would I advise entrepreneurs to do it? No, I think it’s probably an excuse, or a reason not to just do the hard work upfront. But as I said, I like to update my mental models. I’ve seen examples of this working, and I think it’s interesting today to think of it as a potential path, given how hard it is to get things off the ground and get noticed in the age of AI slop apps being slung out there by indie hackers all the time, and not just indie hackers, but just anyone AI-slopping and vibe-coding apps and throwing them out there. 

It’s intriguing to think that this might be a tactic that could be an advantage. So thanks for your question, Rory. I hope that was helpful. And for my next question, comes from Robbie. Robbie asks, “I built a SaaS app that in most cases requires some custom development work to implement. What’s your recommendation in terms of pricing strategy and positioning? Do you, number one, position the app as the high-priced, premium, customized solution? Number two, cast the wider net and be the lower-priced solution anyone can use, and offer a consulting service for implementation? Or number three, some mix of both?” And Robbie actually did a good job of providing a bunch of context. It’s specifically a Shopify app, and he kind of summarized it with these questions. So I do have a bit more context, and even some proposals that Robbie gave. He said, “My gut instinct was to charge $49 a month across the board, which is what I’m doing now, and then charge a separate quoted project fee based on the specs if the client wants a custom front end. But I’m thinking about potentially using a higher-priced model, like $249 a month, and it’s more of a consultative selling proposition. 

Like you said in your SaaS Pricing 101 section of the SaaS Launchpad course, SaaSLaunchpad.co. That way I can justify more cold outreach to agencies and merchants, and position it as a higher-end, more custom solution. Or I can provide two options, like one developer tier, $49 a month for just the tool, and an enterprise or agency tier at $249 a month. But I worry there isn’t enough differentiation between the two tiers, especially if I’m doing the front-end work as a quoted project fee.” So really it’s, do you do $49 a month and have the upfront fee, which, usually if it’s one-time work, I’m charging $500 to $5,000, some kind of mostly fixed price? Or I guess maybe you could also do custom quoted project fees, and if it’s one-time, then you do that, and then you have the price of the product. I will admit, though, I like this idea of having a $49 and a $249 tier. 

Of course I do, because that 249, it’s a bit of a dual funnel. It’s not… normally dual funnels I think of the higher end starting at, say, a thousand a month, so that you can justify cold outreach, because at 249 a month you cannot. But my rule of thumb is about 300 a month is the minimum for a one-call close, and somewhere around, what is it about, it’s about 800 a month, it’s about 10K ACV, is my minimum for thinking about cold and warm outreach. And so obviously neither of these are going to work for outreach, but to do one-call closes and more of, as you said, a consultative selling process, that 249 feels interesting. So I think my default would be to charge a consulting fee upfront, a separate quoted project-based fee, and also have that 249 tier. And the thing is, if you’re going to be doing custom quoted project fees for a $49 a month product, A, that needs to dramatically improve retention, which it probably will because it’s a custom design, but B, I want to be making good margin on that project fee. 

Typically, with consulting services built on a SaaS, I’m fine to break even if I’m charging enough on the monthly recurring. If my annual contract value is $5,000 a year and up, and I have net negative churn because of the work I did upfront, am I willing to do a thousand dollars of work for $1,000? Yeah, I am, because I want to build the recurring SaaS revenue, and that’s where the real value in the business is. But if I’m selling a $49 a month product, I have a really hard time doing project work at breakeven. I want to probably double or triple my money. Meaning, if I were to pay a reputable contractor who I’ve worked with, who’s doing really good work, so they’re not some $10-an-hour resource, and if I’m paying them $500 to do a project, yeah, I want to charge between $1,000 and $2,000 for this, because there’s project management, and there’s client expectations, and there’s all the headache that goes along with this, if it’s for a $49 a month plan. 

When I start thinking about your agency tier of 249, I’m a little bit more like, well, that’s decent money, it makes me more willing to do things a little cheaper, I guess. So, all things being equal, I really like having the 49 and 249 plans across the board, and figuring out a way to differentiate the two tiers, just whatever it is, through talking to customers and seeing use cases. And for every feature you build, think to yourself, “Should I only put this in the agency tier, the 249 tier,” and lean towards yes, unless you really need it as a kind of baseline product feature. So I like that. That’s just the business that I would want to build in this case, and then I would have the front-end work quoted as a project fee. Just having it at 249 with no $49 plan is also an option. 

You do seed the bottom end of the market to folks, and in the early days I would be curious as to, well, do they churn at outrageous rates? Are they a pain to support? Do they need a lot of support? Is it worth it? I would be willing to experiment and try for a month, or three, or six, until I had enough data that I could make a decision to be like, “This is for the birds, I’m done with this.” Given it’s a Shopify app, I haven’t heard of many, and I’m not super versed in the ecosystem, but to start at 249 feels like a chunk of money in Shopify specifically. And so I don’t mind that lower-end plan of 49, as long as it’s not cannibalized by your 249. That’s a big if. 

And as long as it’s something I’d be willing to cut if no one’s upgrading from 49 to 249, and the churn of the 49 is high. And if I deem that it’s just not worth it, I need to be able and willing to just cut it, and then I have a 249 and a 499, right? That’s what the business becomes. So I think you’ve got my general gist of how I’m thinking about it. I really appreciate you sending that question in, Robbie, with all the context. Hope it was helpful. So that’s it for another episode of Startups for the Rest of Us. Thanks so much for joining me as I get back on the microphone after a couple weeks on the road in Japan. Obviously the podcast kept going, because we ship every Tuesday since 2010, 52 shows a year, and I just had to record ahead a little to keep those in your earbuds every week. 

Thanks for listening this week and every week. This is Rob Walling, signing off from episode 841.