Ask HN: A company wants to buy me a perpetual license, how can I value it?
I'm a solo business with a SaaS (It is a software to process data, I prefer not to reveal the name) and one of my clients, the bigger one pay me around $1800 per month for the service, my client wants a perpetual license (they are a large company and need to keep control over it) how can I set a value for it? My net profit for this client is only 15% (I pay AWS costs to keep the service running), because a bad negotiation with a 3 years contract, with a license it is going to be the 100% net profit.
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?
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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.
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.
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.
With escrow, your customer certainly isn’t worse of.
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.
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.
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.
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.
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.
Best.