Ask HN: A company wants to buy me a perpetual license, how can I value it?
8 comments
Here's a wacky idea: say no. Don't offer a perpetual license.
Alternatively, you can price it so high that a 1% money market account earns exactly X in interest in perpetuity.
With a perpetual, you lose autonomy. You will be forever unable to discontinue your product should it stop being profitable or worthwhile or relevant. When that day finally comes (you pass away at the tender age of 108) this client might be ticked off and demand a refund plus interest from your estate.
Alternatively, you can price it so high that a 1% money market account earns exactly X in interest in perpetuity.
With a perpetual, you lose autonomy. You will be forever unable to discontinue your product should it stop being profitable or worthwhile or relevant. When that day finally comes (you pass away at the tender age of 108) this client might be ticked off and demand a refund plus interest from your estate.
I'd say price it higher than that. Price it high enough that they clearly don't want it. But if they do want it, it's a price that you would be deliriously happy with.
One thing to keep in mind, though: If they have a perpetual license, they may want much more of your service. If you have to provide that, your costs may go up.
One thing to keep in mind, though: If they have a perpetual license, they may want much more of your service. If you have to provide that, your costs may go up.
$1,800 per month is $21,600 per year. $64,000 put in the bank or invested without risk, gives you, very optimistically, $6,400 per year ⇒ if you think they will keep using this for years, that $64,000 is too low by at least a factor of 3.
Also, if AWS becomes more expensive, or they start to use the product more, you can increase pricing, but if you took a one time payment, that’s all you got.
I would think you need to ask at least $500,000, and probably something closer to a million. That gives you money to spend on putting the source in escrow, which, if they really are a big company, they should want, and also gives you money to talk to a contract lawyer (e.g. about the feasibility of your idea ”if I release an update after that I will charge for it”) and an accountant about this deal.
They may not want to pay that much, but they shouldn’t be surprised, either, if you explain to them what extra costs you have to make.
Disclaimer: don’t take my word for it.
Also, if AWS becomes more expensive, or they start to use the product more, you can increase pricing, but if you took a one time payment, that’s all you got.
I would think you need to ask at least $500,000, and probably something closer to a million. That gives you money to spend on putting the source in escrow, which, if they really are a big company, they should want, and also gives you money to talk to a contract lawyer (e.g. about the feasibility of your idea ”if I release an update after that I will charge for it”) and an accountant about this deal.
They may not want to pay that much, but they shouldn’t be surprised, either, if you explain to them what extra costs you have to make.
Disclaimer: don’t take my word for it.
Try to offer code escrow (for a fee) instead. Larger companies are worried that small services go out of business. In case you close your business (or get hit by a bus) the customer then has the legal right to get a copy of the code from the escrow.
This is one of the things I want to avoid, I don't want to be out off business and generate a problem for my current client, the service is critical for them
But choice is between, both currently and with a perpetual license, “if I get hit by a bus, my customer is hosed” and, with escrow, ”if I get hit by a bus, my customer at least has a fighting chance, however small”.
With escrow, your customer certainly isn’t worse of.
With escrow, your customer certainly isn’t worse of.
This ask is completely antithetical to how SaaS works.
If your selling them a perpetual license then it is a "shrink wrap" copy of your software, and they get to run it (your not a SaaS any more then)
If they are asking for this, tell them you will sell them a copy of the SaaS for them to run internally - the EULA/contract needs to state that employees and contractors are the only ones allowed to use it, and they can't resell it -
Tell them that you will happily sell it at 5x the 5 year cost and if they need help setting it up/deploy that your hourly rate is $200 an hour, with a 5 hour minimum.
If your selling them a perpetual license then it is a "shrink wrap" copy of your software, and they get to run it (your not a SaaS any more then)
If they are asking for this, tell them you will sell them a copy of the SaaS for them to run internally - the EULA/contract needs to state that employees and contractors are the only ones allowed to use it, and they can't resell it -
Tell them that you will happily sell it at 5x the 5 year cost and if they need help setting it up/deploy that your hourly rate is $200 an hour, with a 5 hour minimum.
A perpetual license to the code or perpetual service contract on the SaaS?
Perpetual license on the core of my service, not the code and not the whole SaaS, I will provide the core service inside a virtual image
Guys thanks for the comments and advice. I'm going to avoid to sell a perpetual license.
Just say no.
Why not? I forget to say my net profit is very low
Large companies routinely screw over small ones.
Perpetual sounds like another way of saying unlimited. Every story I have ever read involving an unlimited contract involved bleeding the company that agreed to provide unlimited service.
People who bought unlimited airline flights for life basically live on airplanes. They soak the airlines for all they can get.
I have seen stories of small shops that died largely due to agreeing to give unlimited service to a single client for a fixed fee.
They are asking you to enter a contract where they pay you one time and then service them forever. If that doesn't sound like a deal with the devil, maybe read up on what a bad deal slavery typically is.
Perpetual sounds like another way of saying unlimited. Every story I have ever read involving an unlimited contract involved bleeding the company that agreed to provide unlimited service.
People who bought unlimited airline flights for life basically live on airplanes. They soak the airlines for all they can get.
I have seen stories of small shops that died largely due to agreeing to give unlimited service to a single client for a fixed fee.
They are asking you to enter a contract where they pay you one time and then service them forever. If that doesn't sound like a deal with the devil, maybe read up on what a bad deal slavery typically is.
Perpetual is just licensed software.
If you sell it for $100/user, you charge $20-30 per year for maintenance annually.
The OP is making no margin on his SaaS already and the client probably knows it. This is an opportunity to actually generate a return.
If you sell it for $100/user, you charge $20-30 per year for maintenance annually.
The OP is making no margin on his SaaS already and the client probably knows it. This is an opportunity to actually generate a return.
A quick skim of articles comparing perpetual and SAAS licensing suggest SAAS is more lucrative. If he's barely making a profit now, this sounds like it only gets worse.
I based my assessment of the scenario in part on this being his largest client. Large companies routinely screw over small ones. It is par for the course. You can basically assume that if a big company wants it, you are likely to lose your shirt if you are overly cooperative with their agenda. They are looking out for number one. They are not looking out for you.
I based my assessment of the scenario in part on this being his largest client. Large companies routinely screw over small ones. It is par for the course. You can basically assume that if a big company wants it, you are likely to lose your shirt if you are overly cooperative with their agenda. They are looking out for number one. They are not looking out for you.
YMMV.
It sounds like he didn’t price it right. SaaS is more profitable in general because you own the customers data, guaranteeing renewals, and it’s cheaper to support an app than support a customer on Amazon.
I made a lot of money selling a little application to an enterprise that did some data transformation. That enterprises policies would have prevented them from buying a SaaS from me.
It sounds like he didn’t price it right. SaaS is more profitable in general because you own the customers data, guaranteeing renewals, and it’s cheaper to support an app than support a customer on Amazon.
I made a lot of money selling a little application to an enterprise that did some data transformation. That enterprises policies would have prevented them from buying a SaaS from me.
It is always humbling to learn the limits of one's own knowledge. You've been very kind about it.
Best.
Best.
Tell them no
Why not? My net profit is very low with the monthly payment
It will get lower still, likely into the negatives, if you agree to charging them once and servicing them forever.
(10x your current cost) x (time till your business expires)
I was thinking to multiply 1.800 per month per 3 years, it is 64.000 with only a year of updates if any (maybe there will be not updates), if I release an update after that I will charge for it with a year update policy, can someone give me any advice?