An ad for a 24 pages/minute laser printer priced at $55 caught my eye the other day. It made me think about how many other industries can give us powerful insights when it comes to software pricing strategies.
How could any printer manufacturer make money on a retail price of $55 when the factory price might be $25 or so? The answer is in the laser cartridges of course.
For the manufacturer to meet their financial goals, CLTV (Customer Lifetime Value) must be greater than the cost of product delivery and customer acquisition — just like a SaaS business. But the laser printer business is like a SaaS software business in another way: the printer is the one time up-front fee and the cartridges are the recurring revenue stream.
Pricing Strategies from Other Industries
To people who focus on software monetization, like we do, it’s helpful to learn from other industries and non-software transactions.
Here’s what we think SaaS companies can learn from laser printer monetization.
- Understand where the risks are in CLTV. When a payment stream includes an upfront payment and an ongoing revenue stream you need to decide how much of the revenue and profits will come from each. The printer manufacturer decides how much of the printer cost to recover upfront versus in the price of the cartridge. A SaaS vendor needs to decide how much of the setup or onboarding costs can be recovered upfront versus as part of the software subscription.
- Not all consumption models are time-based. A software subscription is a time-based consumption model. The software subscription is consumed when a known number of months are consumed. A laser printer can also be thought of as a consumption-based “subscription” model based on how many pages it takes to (literally) consume the toner. Since the printer usage is unpredictable, the customer can buy the ability to print a certain number of pages that they can consume as they like.
- Recurring revenue doesn’t mean predictable revenue. Just as software subscription and the laser printer subscriptions can be recurring, both can be unpredictable. Just as software subscription and the laser printer subscriptions can be recurring, both can be unpredictable. The software subscription is recurring as long as the subscription is renewed — just like the printer “subscription” is renewed when the customer purchases a replacement cartridge. Recurring revenues only occur when the customer makes a series of purchases — and these transactions are not 100% certain.
Perceptions of Value
In the end, any purchase transaction comes down to the value of the product or service. If a customer chooses another vendor before you can recover your CAC or the expected CLTV is realized, you are in trouble.
Sometimes changing the structure of the revenue stream or the type of consumption model used can change the customers’ perception of value.