Don't offer lifetime deals!
NOTE: This is a lesson I learned when selling my first software company. It's not theory, it's fact. Today, I am building GapScout, the easiest way to find profitable gaps in your industry.
I don’t know when it happened, but sometime within the past three to five years, “lifetime deals” (LTD) for software really started to become a thing.
Consumers love these. Pay a little extra upfront, lock-in the price, and never have to worry about paying again. The company gets a little extra money, and you get a lifetime benefit.
Win-win, right?
No, not at all.
This is all win for the consumer. While offering customers a lifetime deal is tempting, if you ever want to sell your business, then you better avoid them.
Full disclosure: at one point, I gave a lifetime deal for my first software company (LearnDash), but it wasn’t really planned.
Renewals weren’t a thing in WordPress back in 2013, so I didn’t really know anything different. The industry matured over time, and yearly renewals eventually became the norm. So, for a short time during the beginning of the company, the software was a "lifetime deal".
The only other time I offered lifetime pricing was to satisfy my ego by selling the software for $999 just to prove to AppSumo that I didn’t need to bother with their bogus pricing model after they wouldn’t stop bothering me about listing on their website. I sold ~20 in four days, then stopped the experiment.
All this is to say that the lifetime deal business model was never an intentional, long-term pricing strategy for me.
If you ever think that you one day you will want to sell your company (spoiler: you will), then you are doing your business harm by offering lifetime deals.
My friend Pippin Williamson sold his company the same week that I sold mine. But before he made that big sale, he sold a single product from his portfolio. He wrote a blog post, and in it, he said:
All products and companies will ultimately always meet one of three fates: they will slowly fade away and die; they will be discontinued; or they will be sold or transferred to someone else to carry forward. There are no other possibilities. One of those three things will always happen.
If you are a founder, then this will one day be your fate, too. Hopefully, you will be selling! That is far more fun than closing up shop. 😆
I will cut straight to the point: investors hate non-recurring revenue.
I mean, you wouldn’t either, right?
Let’s say you are looking to purchase a company and last year it did $2,000,000 in revenue and all of it represented lifetime deal sales. Wouldn’t that make you nervous? It should.
First, there is no guarantee that the following year will be better than the previous. With recurring revenue, that becomes highly more likely because of the snowball effect. Growth rules the day, always.
Second, the customers who made up that $2,000,000 can never be sold to again for the product they are using. Yes, in theory you could sell them a complimentary product, but there are no guarantees that they will want that product. Whereas, you know they want the product that they purchased the lifetime deal.
When I was selling LearnDash, I gave many management presentations to prospective buyers. Each one of them asked about the lifetime access that the earliest of customers had to the product (back in 2013)! They disliked it and wanted to quantify the loss of future revenues because of it.
Fortunately, the impact of lifetime licenses was so small at that point, it was not a major valuation factor for me. Still, I had to put their mind at peace about it. Had we offered those every year, I think those particular conversations would have been a lot more difficult.
While there are many reasons why you should not bother with offering lifetime deals, this is one that isn’t talked about enough. To be honest, I wasn’t even aware of this downside until going through an acquisition process myself.
Instead of offering a lifetime deal, think creatively about other ways to increase revenue while simultaneously delivering continuous value to justify recurring payments.
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Do you think occasional sales of life-time licenses are a reasonable way to quickly get feedback?
From my point of view, for something like a template, yes. But for all other things which require some maintaining, updates - no.
Agreed on the maintenance part. In the end it will end up as a cost instead of revenue.
No. Not for established companies. You're better off just soliciting your customers. If you don't have any customers, then a very short time offering a lifetime deal might be worthwhile so you can begin to get real use-cases for your product. Limit either the timeframe, or the number of people (for example, first 50 customers).
Honestly I think you have a very valid point.
But LTD revenues for my product has been growing month-on-month, year-on-year now for 2 years; plus, I'm always careful to price my LTD at greater than LTV of my MRR customers.
I've been adding tiers to my lifetime deal, asking users to purchase additional license for later updates/new features, and -- despite minor initial opposition -- most were willing to support me further by purchasing a 2nd license.
My MRR has also been growing in the same time period.
Would you say that's also still very damaging to my valuation?
LTDs are such a godsend for cash flows, I'm not going to lie.
Perfect for a solo founder like myself.
Yes, it's hurting your valuation. At least your INITIAL one. Remember, during negotiations, investors will point to anything as a reason for offering a little less. They will 100% point to this and adjust their offer accordingly.
Now, assuming you're a good salesman (you have to be on some level, you started a business!) ... then you might be able to put their mind at ease about this and spin it as a positive. I, personally, think it will be a hard battle. I say this because I had to spend more time than I thought justifying LTDs that occurred almost a decade ago.
That sucks.
What I do know is that my monthly cash flow will be much lower without LTD sales.
Or maybe my cash flow would have been just as high (i.e. my MRR has been cannibalized by the LTD offers, who knows).
Because I started it out as a lifestyle business, I optimized for monthly cash flow instead of valuation/sellability.
There's definitely a demand in the LTD business model though.
I always say that subscription is just a "buy now, pay later" version of LTD, LTD is pay all of it upfront. Since every subscriber will eventually churn or at least they have a LTV, there's a set number of how much the average subscriber is worth. LTD just collects all of that upfront.
Golden sentence for me:
Thanks for putting this out there ... always good to think about end-goal when doing your pricing.
Don't mention it, hopefully it's of use.
Great write up. First, I fully agree with your statements on selling the business. Recently we looked at a small MicroAcquire deal but saw a massive number of LTDs. We saw this as a huge negative - the money for the LTDs was gone, why there were selling, so taking on all these customers that needed support with zero revenue was just not feasible.
That being said, if you need the money, ya gotta do what ya gotta do. Even the sites that take 50% of the income might be a necessary evil. Selling your business can seem a far ways off when you're just trying to get the first customers. I would recommend taking a measured approach to LTDs and use it as a tool, but don't build your business around it.
I don't agree.. it depends. Sometimes money is needed and you don't want to sell a share of your company. If you're creating a product you'll most likely launch a bunch of new features that you can release only for monthly paying users.
At https://buildgrowth.co we have a unique LTD that is allowing me to create more useful features and charge a monthly price in the future.
I think LTD motivates beta users to test and give platform feedback. For a limited time, sure!
Thanks! Learned it hard way for one my product.
It happens - but it's not the end of the world. As long as you're not offering a LTD now.
@MrJustinF
Thanks for sharing this amazing information! No doubt lifetime deal is not a good option for 80% of projects because there are multiple factors involved in it.
etc
You've got a good point about LTD customers not being valued by potential buyers or investors. But, this puts the cart before the horse, and isn't enough of a reason to not run a LTD in itself.
For bootstrapped founders, running a LTD promotion in the early days of their product can provide a great source of revenue, customer feedback, motivation, and runway to continue improving the product. Without those things, it's a much harder path towards potentially selling your company down the line, or raising investment.
There are good reasons to not run a LTD - if it doesn't align with your customer type, pricing model, or ability to support a big influx of new users. But I think every founder should make the assessment themselves on the pros/cons, and not count it out for their product just because someone on the internet said so.
Source: I ran a 2-month $50k LTD for my early-stage product, and I don't regret it. It's been a really powerful source of momentum.
I agree that LTDs are good for building initial momentum, and don't disagree that there are some benefits to having them. My experience is just anecdotal, and as I mentioned, I ran an LTD for a little over a year (by accident, but still an LTD). It was a problem for investors and will result in devaluation if a significant portion of users are represented by LTD customers.
Actually justin, it really depends on the product too.
I suppose that's true. For software, never do it. But for other things (like airtable lists), then it's probably fine.
One thing about AppSumo, is that they will run ads on your company name, with the LTD. I wonder how much MRR this is taking away from my business.
I get quite a few trial cancellations with reason: "I'm now going to get the Appsumo deal".
On the other hand, I like the revenue that I'm getting from AppSumo, and I'm hesitating to stop it and see what it looks like without it.
There is a good change both things are largely unrelated, despite the SEO presence of the Lifetime deal, and stopping the deal could mean I lose all that revenue.
Did anyone ever had the same situation or similar, and if so what did you do?
Ouch, they run ads using your brand name?? I'd never agree to those terms personally. It'd be one thing if they did that and you didn't have to give up all your future revenue because of it, but they are cannibalizing your market... that's a crime.
Yes, but also my top competitors run ads on my brand name, redirecting the traffic to their website sometimes at $8 a click. It's a very competitive niche, they don't play around.
In the case of AppSumo, yes I'm a bit worried that that is preventing my MRR from growing, and that is causing the number of trials to stagnate.
The only way to know would be to pause the AppSumo deal, but I have no guarantee that if I reactivate it I will get back the same revenue there again.
It's some nice revenue that I get there, and I suspect most of it is organic in nature.
But, as usual in these things, no way to really know. I'm just guessing here.
I honestly keep a wide birth of any company offering a lifetime plan. It's simply not sustainable.
You sell 50 lifetime deals at $50 each - ok, you've made $2500, that's great. Fast forward a year and you've spent all that money on hosting and other expenses...so you do another 50 @ $50 to cover you for the next year. But now your costs have gone up, so you make less. The cycle repeats until the business is unprofitable.
10 customers paying $5/mo is FAR more valuable than 50 paying a one-time fee of $50.
To me lifetime deals (i. those constantly posted on places like AppSumo) are just a big sign saying 'we cant get any customers so this is our last ditch attempt to make some money'.
If you are in desparate need for customers and a cash injection first you need to figure out why. And if you absolutely must do something like this, do not make it a lifetime deal. Give them 50% off for the first year if you have to, and make sure your product is so good that they'll be sticking around at full price after that.
Great points. I think LTDs are only worthwhile to get actual people using your product. It's a good way to get an influx of initial customers, but at the same time, these customers are often more high-maintenance and less likely to actually use your program - they're just looking for a deal.
1 day ago I launched an LTD on appsumo for osabox.co , this write up has really give me somthing to think about. When I get a few clients, am stopping the deal. So far, I have 15 clients who are on trial for the monthly charge.
Congrats! AppSumo is solid when starting out. Nothing wrong with getting a little traction to begin. Just make a plan for when you will stop offering it.
I respect your work and your thought too.
All said,its much better to say that Lifetime Deals work better with some product category rather than saying that all of that is non-profitable/not worthy.
Unless it is something to sell & run away - never should offer lifetime deals.
Even the oldest companies who sold softwares for lifetime have switched to a recurring model.
This post reminds me of the book "Built to Sell" by John Warrilow.
I never sold a company but it's certainly on the road map for what I am working on right now.
What are the things that you found investors look for? I'd assume they'd want recurring revenue, a diverse user base, clear and reliable internal processes, and a team and marketing that can operate without the original founder being present?
Investors care most about:
The first two are numbers based, obviously, and the last is what gets them excited. If you have low churn and every year get 15% more customers, then they think, "Oh, i can buy this and it'll already make more money, and I can predict how much"...
You then close the deal with #3... "hey investor, do this tiny thing and we project new sales to go up an additional 7%".
EDIT: I stayed on for 1yr as an advisor and my role after 5mo was pretty much nonexistent. I wanted out, so that was part of the terms. If that's made clear from the get-go, then deals will be structure accordingly.
Very insightful, much appreciated!
Agree with you, if a company can be sold, only then it is valuable (irrespective of whether we plan to sell or not)
Thanks, that was very valuable!
Q: What would be your opinion on lifetime deals that would carry a limited cost, and still allow for possible revenue?
For instance we run an AI video editor called Nuro.video and our software edits the user's video, and then allows them to either host it with us or export it.
I am considering doing Lifetime Deal in the future where a user gets an account with a fixed number of "credits" (they can edit and export x minutes/hours of video). It would still enable us to get expansion income via the sale of more credits or the upgrade to our standard recurring billing models (which allow to edit and host large/unlimited amounts of video).
In this case (limited, known downside cost of the LTD user) would your opinion still be the same, @MrJustinF ?
Any liftetime deal should only be for a small amount of time, or limited number of people. If you want to sell, your LTDs will devalue your future value.
Its a bolt statement and I can find many cases its necessary.
It's not bold. It's just sharing a reality that I lived. If you ever want to sell your business, you devalue it by offering LTD. That's not me saying this, it's the investors.
yes, affiliate marketing also help
Hey Justin,
I really like the article thanks for sharing.
What are your thoughts on revenue with ads/endorsements/affiliate marketing?
I'm all for them. I ran Google Ads and made $10 for every $1 spent. Here's my post on IndieHackers about paid ads.
Also, affiliate marketing is great when done correctly. I wrote about that here.
Thanks for sharing this. I actually contemplated lifetime deals just recently. This puts into perspective. Especially the "there are only 3 outcomes for the business" part.
Cheers
Is it okay to offer lifetime deal on a beta product? I don't even know whether or not to charge for a beta product.
If it were me, I'd offer the beta for free (and make it clear that it is free/limited for that time) but give ppl the ability to "upgrade" to a lifetime deal if they want. Only open that up for 24-72hrs and then pull it.
Could be a good way for a cash influx from early adopters, assuming you have a healthy beta user base.
Thank you for postings this. I was considering lifetime deals for my app, and now I changed my mind.
No problem! They can still be good (if you are just starting out) but only for a very limited time.
Really interesting post. I have interviewed people that are in favor of LTDs because it helped them "raise" money, therefore, buying them the time to continue working on the project, and as well people that think it was a mistake... Your reasoning is really valid and people should consider it before doing a LTD
Glad you liked it. It is indeed a good way to raise interest and to get new users (when first launching). I think that's the only time when it's okay, but it should be extremely limited.
Valid point about "creating cash flow" ... but like you said, if you're using it to gain traction - there are probably better uses (limited time offer for the next 72 hours, only 100 available at this price, etc.).
So if it's about raising money - then figure out how much you need - then figure out how many customers that is (along with the "opportunity" cost in lost revenue). It might be worth it.
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