Subscription Based Model vs One Time Fee. Thoughts?

Question

Hey PH,

So I work for SigmaOS (ihatemybrowser.com) and we are a productivity browser company focused on making working on the web easier. The current model is to charge a montly fee for the software but I have received some feedback from people that they would much rather pay a higher one time fee. I know there has recently been a little bit of a pushback against subscription based services but yet most services we use today are still subscriptions. What are your thoughts on this?

Alexander Moen · Accepted Answer

typically I would say that it depends on usage. If it's used consistently, then a subscription fee makes sense; if it's used less frequently, then pay-as-you-go/one-time makes the most sense. That being said, listen to your customers. The people who pay you money have the most important opinion of all.

And, as for why so many people do subscription models now, it's mostly because of the extra valuations that get tacked on for subscribing customers vs one-time, and investors and acquirers think of it as more stable. But, it's not only tougher to get those customers, their cash flows tend to be a lot worse too. I'd rather have all my profits upfront and ready to reinvest and have a higher price point, rather than getting pennies per person and need tons of people and tons of customer service issues and more operational complexity, etc.

Ondrej Dobias · Answer

@pablo_fatas On average, even subscription-based users pay a finite amount during their lifetime (you can calculate Customer Lifetime Value for different segments of your customers). You can aim for equivalence (on average, the same CLV in both models) or even maxing your revenue if customers are willing to pay extra for the peace of mind.

Ondrej Dobias · Answer

We have seen customers requesting the one-time fee as a "peace of mind" solution - to know that there are no further costs, to not have to think about cancelling the service. In general, you can tune up your pricing model to ensure you're on the safe side with both models.

Fabian Maume · Answer

Do you have recurrent cost to offer the service? If not you can offer a life time deal in parallel of you subscription based model, without much risk.
Your tools is providing recurrent value so subscription based model makes more sense than one time fee.

Answer

@ondrej_dobias1 Thanks for the explanation. That makes sense :)

Answer

@ondrej_dobias1 What do you mean by tune up your pricing model to be on the safe side of both?

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@fabian_maume This makes sense. Especially since the tool is getting updated and continuously getting better :)

Adam MacEachern · Answer

The browser is an interesting case here because I feel like so many people have been conditioned to expect a 'free' product.

In the case that I was willing to pay for a materially better browser, I think I would be most accepting of a 7-14 day free trial, followed by a one-time fee to get lifetime use.

Subscription Based Model vs One Time Fee. Thoughts?

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