July 25, 2016
In today’s startup world, not getting a cent from investors can be something to celebrate: Bootstrapping is increasingly essential as VCs lower seed funding in favor of late-stage startup rounds. And companies are scrambling to figure out a workable startup revenue model as they grow.
So when a two-person team explains how they picked up $700,000+ over two years with no outside investment, you’re probably going to want to hear more. The seemly paradoxical startup revenue model that worked? A model that asks for one-time payments, yet turns them into recurring revenue.
Claire Lew, CEO of Know Your Company, offers a software service that lets employees at a company stay on top of that company’s inner insights and interpersonal trends. She also recently explained their weird revenue model:
How It Works
“We charge $100 per employee, one-time, for life. That’s it. So if you’ve got 20 employees, it’s $2,000. You pay that once and that’s it. No recurring costs, maintenance fees, etc. The only time you ever pay again is if you hire someone new. Then it’s $100 for that new person.”
They picked this approach because it makes sense for their service: A business that gets a particular bit of negative feedback might be tempted to cancel a service that they paid regularly for. But they already dropped the money for a life-time service, they’ll keep it in order to get the most value added.
How It Makes Money
The clients, all smaller companies, are growing. They add teammates, and each one is another $100 for Know Your Company. As a result, Lew explains:
“70% of our revenue in 2015 was ‘recurring.’ That’s more than two-thirds of our revenue generated off a business model where we’ve got one-time pricing per user.
So while the pricing model doesn’t inherently feel like there is a recurring component — there is. And it’s directly tied to the value that we’re creating for our customers. We’re supporting them as they grow and become more successful.”
The payments are front-loaded, too: Bootstrapping is easier with money that turns up sooner rather than later. And since individuals at the client companies stick around an average of 19 months, the long-term value still comes out in Know Your Company’s favor: Monthly payments would take 30 months to deliver the same revenue.
It’s a startup revenue model that might not work for you, of course, but it’s a great example of the outside-the-box thinking that brand-new startups need to use in order to survive and thrive.
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