Research has found that subscription models are 217% more profitable for businesses than a one-time payment model. With subscriptions, you can provide greater efficiency and get your customer to associate with your product better and receive a higher payoff. 70% of businesses feel that acquiring new customer is more expensive than retaining existing clients, therefore with a subscription model, you continue to make money from users after you acquire them.
For products that require continuous servicing and updating, a subscription is better suited for periodic sales. But, would you choose a Subscription Model or One-Time Sale?
For technology firms, SaaS or Software as a Service has become a popular form of subscription for businesses. Unlike a one-time product, you only purchase a restricted version of the license. SaaS has become increasingly popular due to the cost of SaaS being market-driven with a set profit margin. The SaaS subscription method will enable your business to manage hosting easily, provide easier payment options and security.
On why businesses should opt for a subscription model, Collin Timms, Founder, Guardian Bank explains, “Subscription models allow for a host of costing and product specifications that can be customised based on the need and purpose of your clients. There are several businesses that opt for this since newer clients can subscribe to your services more easily and pay as per demand and usage.”
Unlike a one-time product, subscriptions allow a business to drive more revenue and reduce the gaps in billing cycles and enable more flexible billing options. This allows customers to pay for only the services that they consume on demand at lower prices. Similarly, your small business can forecast future revenue patterns and cash flow distribution better. Most customers prefer subscription billing based on their requirement and customers can then opt to upgrade or cancel subscriptions.
Subscription Model software usually takes care of all the background work like setting up the billing and delivery through third party channels. This gives room for your small business to allow customer discounts and pricing changes for those that pay for additional support and usage.
Your subscription will work only with clients that pay up front for the service and hence there would be no contracts and greater sales. This enables your business not to lock your business with contracts and enable your small business to reach out to more customers and free up time lost to service your new subscribers.
On the advantages of a subscription model over a one-time product, Aroon Raman, MD, Telos Investments & Technologies said, “Subscription-based models introduces a sense of regularity instead of dependence and unpredictability. This will enable new subscribers to simply sign up for new services and also help improve your billing cycles. In time, your business will have a steady income from an on-demand product especially for businesses that look for a higher conversion rate.”
One-time payment products have the advantage of not having recurring payments. But, there could be several essential product and security updates that can leave your business vulnerable to external threats. The cost of servicing a one-time product over several years would be dearer as opposed to subscription model that suits all hardware and industry platforms.
In effect, the Subscription Model allows for a better user experience and an a more up to date service. These services are based on usage and hence customers use these products to cut down on their overall cost. Your business should look at the pros and cons of both business models before deciding which model is more profitable and popular with your customers.