One thing that doesn’t get brought up often enough is this:

Does it make sense to charge an ongoing subscription to solve a problem? Is the customer actually receiving value from your product on an ongoing basis - or is it more of a one-and-done type of problem that your business solves?

I get it: SaaS is very appealing as a business model because it provides consistent, predictable cashflow and - especially for B2B - often becomes very sticky and you can keep customers for years.

For bootstrappers, this is fantastic. Investors love stable, predictable revenue too.But just because SaaS is appealing to you as an entrepreneur does not mean it makes sense for your customer.

I’ve seen a lot of situations where people try and shoehorn a SaaS model into a business that really doesn’t fit it at all.

Case in point - years ago I did some marketing consulting with a startup that was offering to switch consumers to a cheaper electricity provider automatically, thus guaranteeing you always got the best price possible.

All their competitors offered their service for free - but only switched you to electricity providers that paid them an affiliate commission.

Sure, there were better deals out there, but as those companies didn’t pay affiliate commissions these switching services wouldn’t switch you to them.

So, my client saw this as an opportunity.

“Consumers are getting ripped off - there are much better deals out there, but most people don’t have the time to shop around and handle the switching manually.”

“What if we created a service that did this for them automatically?”

“AND we could charge them a small monthly subscription - which means stable cashflow for us, and it would still be a lot cheaper for our customers compared to using a competitor which will only switch them to (more expensive) electricity providers that pay affiliate commissions”

Makes sense so far, right?

Wrong.

The vast majority of their customers only switched electricity providers once a year, maybe twice a year at most.Which meant that, for 10 out of the 12 months in a year, customers were paying a subscription but receiving absolutely no value.

Ok, that isn’t strictly true. The value they were getting was a huge cost saving over the entire year, but it felt like they were paying money for nothing.

Worse, all their competitors offered their service to the consumer absolutely free - because they made their money off the affiliate commissions.

And it’s really hard to compete against free.

But they were absolutely determined to make a subscription model work. They’d told this story to their investors, and had raised money to build a subscription-based electricity switching service - so they plowed ahead.

“Maybe people will be happy to pay a recurring fee if we offer more features and multiple pricing tiers?”

So they offered phone support, whatsapp support and a dedicated support agent - and added two more, higher priced subscription tiers.

I don’t know about you, but how often do you want to call an electricity switching service?Do you give any fucks whatsoever about having a dedicated agent you can whatsapp at 3am?Of course not. And neither did their customers.

“But this is price anchoring, Ryan! By having more expensive pricing tiers, it makes the original pricing tier - the actual subscription we want most people to buy - look like much better value!”

Well, *yes…*but adding features no one wants or needs to make something else look like better value is a colossal waste of time in my experience.

Eventually, they ended up offering a free version of the service that switched customers only to those electricity providers which offered affiliate commissions.

And that’s the option the vast majority of customer chose.

I advised them that if they were hell-bent on a subscription model, then they needed to offer a lot more than just electricity. Maybe phone, internet, insurance - stuff like that.

If there was a service that switched everything for you (within reason) while maintaining the same standard of service (same internet speed, same mobile data etc) then I could see people receiving value from that multiple times per year.

And the actual absolute amount of money saved per year would obviously have increased as well.

But that would have required a huge investment in expanding the product and a lot more complexity so ultimately they decided against it. Fair enough.

The other thing they could have done - if they were wiling to be more flexible with their business model - was to offer the free affiliate-based version of their switching product without complicating things by presenting it next to 3 different subscription options.

Just sign up, fill in your details, and we’ll switch you to the best plan available (that pays us affiliate commissions, obviously). Simple.

Then - once people had signed up for the free version and received value from it - they could offer to switch to an even cheaper option (that didn’t pay affiliate commissions), in return for a slice of the money saved.

So if they could send you an email saying "We can switch you to one of our special deals that isn’t available publicly. You’d save $400, we’d charge you a one-time fee of $150, and you’d still be $250 per year better off than on your current plan.

That’s a lot more compelling that phone or whatsapp support, and ironically probably would have increased the lifetime value of their customers compared to charge a few bucks a month as a subscription.

Ah well. They were nice guys and their company is still around, so I hope it’s all worked out well for them in the end.

The reason I wrote this novel of a post is that I’ve seen a lot of people get too fixated on SaaS as a model because it benefits them, the entrepreneur.

But it only makes sense to charge customers every month if they’re receiving value from your product every month. Otherwise you’re going to struggle to convert and struggle even more with churn.

If you liked this post, come check out the SaaSMarketing sub. I’ve just taken over the sub and want to encourage more discussion about all things marketing and SaaS-related.