An Introduction to Lifecycle Email • Hacker News Board

Re: An Introduction to Lifecycle Email

#31

Post by dennisgorelik » Mon, Jan 12, 2015, 1:53 AM UTC

patio11 wrote: post #18

gojomo wrote: post #13

I don't quite get the supposed-earnings math on the "$200-an-email" example. Sure, you get cash up front - but at the cost of one month's fees (the prepay discount). Whether that's a win would seem to depend on other variables never discussed, for example what your cost of cash is from other sources, and whether the year-prepay has other benefits (like preventing mid-year lapses due to payment problems or customer se…

The answers to these questions, and why they're not addressed at length there, is: 1) The typical SaaS company has no meaningful ability to raise capital at cheaper terms than pre-pays offer. If you could get a bank loan for 5% a year, then you actually have to do math here, but you can't get a bank loan for 5% a year as a SaaS company. It's virtually impossible. Not only can my business not get a bank loan, large, s…

That explains why switching to annual plain is beneficial. It does not explain $200 gain per email.

20% of $200 - quite possible. That translates to $40/email, which is still quite significant.

But still not $200.

Re: An Introduction to Lifecycle Email

#32

Post by gojomo » Mon, Jan 12, 2015, 7:32 AM UTC

dennisgorelik wrote: post #31

patio11 wrote: post #18

Earlier quoted context omitted.

The answers to these questions, and why they're not addressed at length there, is: 1) The typical SaaS company has no meaningful ability to raise capital at cheaper terms than pre-pays offer. If you could get a bank loan for 5% a year, then you actually have to do math here, but you can't get a bank loan for 5% a year as a SaaS company. It's virtually impossible. Not only can my business not get a bank loan, large, s…

That explains why switching to annual plain is beneficial. It does not explain $200 gain per email. 20% of $200 - quite possible. That translates to $40/email, which is still quite significant. But still not $200.

I see how "$200" works strictly as a cash-in-door number – though at the expense of later profits.

Toy setup matching the post's parameters:

  STARTING SITUATION:
  10 customers at $200/month
  = $2,000 cash this month and next 11 months
  over 12 months = $24,000 expected revenue

  BUT INSTEAD:
  send 10 emails, 1 customer prepays $2200 (instead of $200) 
  = $4,000 cash this month
  then $1800/month next 11 months
  over 12 months = $23,800 revenue

So, this month, the 10 emails brought in $2,000 extra cash – hence, "$200-per-email".

But of course it's just pulling revenue forward (borrowing from customers). And, it's at a rather steep effective interest rate: over 17% per year.

So while it's cash-flow positive, it's only profitable if there's some combination of (1) productive places to invest that money; and (2) improved mid-year retention of the prepaid customers – that together return more than the ~17% cost.

Re: An Introduction to Lifecycle Email

#33

Post by hawkice » Mon, Jan 12, 2015, 5:08 PM UTC

gojomo wrote: post #32

dennisgorelik wrote: post #31

Earlier quoted context omitted.

That explains why switching to annual plain is beneficial. It does not explain $200 gain per email. 20% of $200 - quite possible. That translates to $40/email, which is still quite significant. But still not $200.

I see how "$200" works strictly as a cash-in-door number – though at the expense of later profits. Toy setup matching the post's parameters: STARTING SITUATION: 10 customers at $200/month = $2,000 cash this month and next 11 months over 12 months = $24,000 expected revenue BUT INSTEAD: send 10 emails, 1 customer prepays $2200 (instead of $200) = $4,000 cash this month then $1800/month next 11 months over 12 months =…

It actually leaves you with more money, due to churn being reduced to 0 for that customer for a year. Assuming a somewhat idealized 5% churn, you'll get numbers floating in this ballpark:

No Yearly Discount Offer: Month 1: $2,000 Month 2: $1,900 Month 3: $1,805 Month 4: $1,714 Month 5: $1,629 Month 6: $1,547 Month 7: $1,470 Month 8: $1,396 Month 9: $1,326 Month 10: $1,260 Month 11: $1,197 Month 12: $1,137 Total: $18,385

Yearly Discount Offer Month 1: $1,800 Month 2: $1,710 Month 3: $1,624 Month 4: $1,543 Month 5: $1,466 Month 6: $1,392 Month 7: $1,323 Month 8: $1,257 Month 9: $1,194 Month 10: $1,134 Month 11: $1,077 Month 12: $1,023 Total: $18,747

This works for churn = 2% and churn = 3% as well, but the difference is smaller (still favors the yearly discount, though). If you have a churn of 1%, then the yearly discount costs you money, but you still get the cash immediately, which is so useful I'd do still do it.

EDIT: It should be noted that the churn rate you care about here is the churn rate of people who would be willing to make a year-long precommit (more loyal customers in general), but I don't see them as being 1% churn level, as 'patio11 alluded to above.