Detailing Know Your Company’s most unusual business model… that works! We’ll go behind the scenes and share the numbers to show you exactly how we’ve done it.
“Can I ask you a weird question, Claire?”
“Sure,” I reply.
“How do you make any money?”
I get asked this question fairly often. People hear about the pricing model for our software, Know Your Company, and they’re a bit perplexed.
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.
It’s weird, I’ll admit. With software, you typically see a subscription-based pricing model. Say, $5 per user per month. Or maybe just $100 per month for unlimited usage.
To most, a one-time, per-person fee sounds like we may be leaving money on the table.
Why would we ever price something this way? Does it work?
We’re now two-and-a-half years into running Know Your Company as our own separate company (we spun off from Basecamp in December 2013) and I want to share the answers to those questions. Here’s the nitty gritty on the reasoning behind our business model and how it’s been going. Read on and I’ll share our revenue numbers, customer retention numbers, etc.
First off, why did we price the software this way?
The biggest reason we went with one-time pricing, versus a subscription model, is because it best aligns with the value we’re trying to create.
I believe that a business owner should get feedback from an employee for the entire time that she or he is at the company. Not just for a few weeks or months — but for how ever many years an employee is with you.
A subscription model doesn’t encourage this. It’s easy to go for a few months using a product, paying, say, $50 a month, and then turn it off. In the case of Know Your Company, it’d be even easier. It’d be convenient to get a piece of feedback you don’t particularly like, and say, “Ahh I don’t need to hear this right now,” and turn off Know Your Company.
But for me, that’s not good enough. If you’re truly invested in creating the best environment for your employees, you’re getting feedback from your employees for life. Our pricing model encourages CEOs to start to see getting feedback in this way.
Our one-time pricing model also brings an advantage a subscription model doesn’t have: It encourages a high commitment from CEOs when they use the product. When you’re putting in $3,000 one-time upfront, versus $30/month or $300/month, you’ve got some skin in the game. So now you’re more determined to see that value returned to you on the other end.
As a result, CEOs put more energy behind Know Your Company when they roll it out. They talk it up to their employees, and they act on the feedback that comes from the software. Know Your Company becomes an initiative, a program — not just another web app they’re playing around with. And these CEOs see meaningful outcomes in their company because of it. For us, it’s been extraordinarily helpful that our pricing model helps influence the outcomes we want our customers to have.
So do we make money doing this? Let’s pull back the curtain on our numbers…
Since becoming our own standalone company in January 2014, we’ve generated $712,076.64 in revenue. We’re profitable — our average monthly profit margins are at a healthy 30%.
More than 200 companies have purchased our product, and 12,000+ employees use Know Your Company every day in more than 15 different countries across the world.
We do this all as a two-person company. It’s just me as the CEO, and our programmer, Matt De Leon.
We’ve never taken a cent of funding from outside investors. When we spun off from Basecamp a few years back, they didn’t give us any cash or team members — just the product and the existing customer base the product had acquired at that point.
Our customers are companies who typically have between 25 and 75 employees. The average size is 31 employees. Our smallest customer has six employees, and our biggest has 380 employees. (They were at around 70 employees when they first started using Know Your Company.) The industries of companies range across the board — from software to retail to hotels to ad agencies to nonprofits. We even work with a few churches.
The biggest surprise though: where our revenue has come from. Last year, 70% of our revenue came from existing customers adding new employees to the system, as their companies have grown. About 50 new employees were added every week by existing customers. The remaining 30% of our revenue resulted from new companies signing up for Know Your Company.
In other words, 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.
How this one-time pricing model has been helpful for us
Over the past two and half years, we’ve built a solid, profitable, bootstrapped company with just a two-person team. And our pricing model has absolutely enabled that.
I didn’t realize it when we started, but our pricing model has played a large role in helping us become profitable as a bootstrapped company early on and continue to stay profitable.
Our one-time pricing has allowed us to see cash a lot sooner than if we were operating on a monthly subscription pricing model. As a bootstrapped company, cash flow is the lifeline we depend on. On average, an initial $3,100 invoice is paid out to us the first week a new customer comes onboard. That’s significant. With a subscription model, how many months would we have to wait until we see that same $3,100?
Some might argue, though, while we’re able to capture a large portion of cash upfront, we’re missing out on the entire lifetime value that a monthly subscription model would capture. I initially had concerns about this, myself. However, the math proves something different.
For us with our current one-time pricing model, the average lifetime value of a customer is about $4,600 per customer. Companies add an average of 15 employees to our software during the time they use Know Your Company. The average amount of time a customer stays with us is 19 months.
To attain that same average lifetime value of $4,600 with a subscription model (let’s say we were to charge $5 per employee per month), we‘d need a customer to stay with us for about 30 months.
Thirty months is a much longer time than 19 months. And while I’d love for a customer to stick with us for two-and-a-half years, right now the average customer uses us for one year and seven months. Plus, with a one-time model, we see 67% of that lifetime value upfront. No waiting on our end required.
In fact, this one-time pricing model is what has gotten us to profitability so quickly as a bootstrapped company. We became profitable during our first month of running Know Your Company as a separate company because of this pricing model.
Allowing us to capture a larger chunk of the lifetime value upfront has also afforded us to take our time. We’re not in a rush to scoop up as many customers as we possibly can, regardless of whether we’re a good fit for them or not. Rather, we can focus on taking on customers we believe we can actually help, ensuring we’re truly solving their problem and serving them well.
Our one-time pricing model gives us room to treat each customer with thoughtfulness and personal care. Whether that’s sharing data on the best questions to ask employees, providing questions that other CEOs have asked through Know Your Company, or adding them to a Basecamp Project where there are hundreds of other customer CEOs — we’re able to pour ourselves into making sure our customers get the most out of Know Your Company. And these investments for our customers have paid off. Last year, we had a 98% retention rate. (Unfortunately, we had one company decide to stop using the product.)
This isn’t to say that a subscription model and solving your customers’ problems are mutually exclusive. Instead, I just want to share how for us, a business that’s getting off the ground, trying to get its legs under it, this is something that’s worked well.
It’s still not easy
Let’s be clear: A one-time pricing model doesn’t make everything easier. Running a business is still tremendously hard for us, even with this pricing model.
While we can capture a large chunk of lifetime value upfront, we still run a very, very lean business in order to be profitable. One of the ways I try to reduce overhead is that I don’t pay office rent. Basecamp is kind enough to let me work out of their office a few days a week over in the West Loop in Chicago, free of charge. I use a table in a conference room they don’t use very often, and I try to minimize getting in anyone’s way. It’s generous of them and an arrangement for which I’m grateful. You might be able to propose something similar and borrow an unused table at a friend’s office. (It never hurts to ask.) Or, you can always work from home to save on office rent — which is what I do about 50% of the time.
Another way I’ve reduced overhead is that I’ve only hired one other person (Matt, our programmer, who I mentioned earlier). Perhaps we could afford to bring on another person, be it part-time or full-time. But I’m highly cognizant of the costs — in salary dollars, and also in time and training. I’ve watched fellow friends who are business owners hire too quickly, and I’ve seen the strain that puts on the business. Get too big too fast, and it’s hard to rewind.
It’s also taken us an arduous, painstaking two-and-half years to hit $700K in cumulative revenue. Up until two months ago when we moved to self-signup, if a business owner was interested in purchasing Know Your Company, she or he had to do a 30-minute in-person demo with me via GoToMeeting, Skype, or WebEx. Not a demo with a salesperson — but with me, every time. In fact, I’ve done almost 500 of these in-person demos over the course of two-and-a-half years!
Every single Know Your Company product feature we shipped was conceptualized, designed and engineered by Matt and me. Every single article written, marketing site redesign, social media push, conference talk (I’ve spoken at more than 30 conferences, CEO groups, company events, etc.), and conference partnership was something the two of us executed. All the support requests, account setup, account management, invoicing, billing for 200+ companies with 12,000+ employees in 15 countries — were handled by just two people.
Matt and I have pushed ourselves to do everything we can as a two-person team, ever mindful of staying profitable each month. And we’re still wary about bringing someone else on board. When we do, we want it to be measured and truly, truly needed. (We only recently brought on a part-time data intern for the summer.) Yet it works for us.
I prefer our slow, intentional, in-control growth. It gives me the time, focus, and energy to feel we are doing right by our customers, creating the best product possible, and building company that lasts for the long haul. (My goal is to run Know Your Company for the next 10, 20 years, if I can!) And our pricing model supports that.
As a two-person company, with more than 200 customers, $700K in cumulative revenue, less than three-years-old, profitable, and bootstrapped… I’m proud of how far we’ve come.
Plus, with our recent move to self-signup, things are looking up, more than ever. Last month, we had our biggest month of sales to date… and we’re on pace to hit $1 million in cumulative revenue by the end of the year (fingers crossed!).
Will it work for you?
Who’s to say that this exact pricing structure will work for your business.
But here’s what I will say: if you focus on helping your customers get the outcomes they want and keeping your overhead low, there’s a clear path to profitability.
What matters less is if the pricing model you’ve decided on is “popular” or not for your industry. Who cares if the way you price something or the way you sell something or the way you run your business is unconventional. Who cares if people are saying to you, “Can I ask you a weird question?”
What’s most important is that you’re running a business on your own terms and providing real value to people by making some aspect of their lives better.
I hope by sharing our numbers — and making ourselves a bit naked — it’ll help you reach your own conclusions as to whether this one-time pricing — or another model — is something that will work for you.
So, to anyone out there who’s starting a business and trying to figure out how to make money and have an impact on others: Charge people what you think it’s worth, do what you can with what you have, and focus on doing a really damn good job.
Big news! We’re now Know Your Team. Check out our new product that helps managers become better leaders, and get the full story behind our change.
P.S.: If you did indeed enjoy this piece, please feel free to share + give it ❤️ so others can find it too. Thanks 😊 (And you can always say hi at @clairejlew.)