Breaking Down The Subscription Vs One-Time Purchase Debate
- Evaluate immediate value vs long-term commitment
- Customers with one-time purchases only need to evaluate its immediate value in relation to the cost. Subscriptions, on the other hand, require evaluation of the long-term value and can feel like a lifetime commitment.
- Companies rarely encourage users to cancel after just one year.
- Ownership vs renting
- Most people prefer owning over renting at equal prices, the same applies to products.
- If someone encounters financial difficulties but owns a product outright rather than subscribing to it indefinitely, they won't have to worry about losing access.
- Lifetime value vs continuous payments
- One-time purchases offer lifetime value spread across their lifespan while subscriptions require continuous payments regardless of fluctuations in usage patterns.
- Subscription fatigue is prevalent as more software products shift from single-purchase models towards recurring fees.
- Ease of transaction
- Purchasing subscriptions can be challenging in certain countries due to banking regulations limiting card payments on such items.
- Ongoing costs justification
- Many software products charge yearly fees despite minimal server costs for developers. This makes some consumers question whether ongoing costs are justified and prefer alternative pricing models such as major version upgrades instead of annual subscriptions.
- Extracting lifetime value upfront
- Businesses benefit from extracting customer's lifetime value upfront through single transactions rather than spreading them out across years.
- Impulse buyers may be more inclined towards making instant commitments without ongoing obligations that come with monthly payments.
- Limited time deals on lifetime access
- In recent years, startups have gained traction by offering limited time deals on lifetime access in lieu of traditional subscription models.
- As more everyday products become subscription-based, one-time purchases stand out as rare opportunities that consumers may feel compelled to seize while they can.
In conclusion, the appeal of one-time purchases lies in their perceived greater value for money, ownership benefits, flexibility during financial hardships, and simplicity compared to subscriptions. Consumers are often drawn towards these options due to subscription fatigue and the desire for lifetime access without recurring payments.
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Our most recent site, BarGPT, is using a traditional subscription model PLUS provides the option for "tipping". Tipping basically allows premium access for a short duration without a subscription. I think this gives the customer more flexibility. It may cost us some recurring revenue but it aligns cost:value better.
That's another interesting option I think, basically purchasing some kind of "usage credits". I don't see this option often, but I've seen some AI apps with this kind of one-time usage pricing when its not a product you might use often, like https://namemancer.dylancastillo.co/
IMO it's not just life-time-deals vs subscription. There also still is the good old upgrade pricing and pay-per-use.
Things that feel fair to me as a user and as a creator:
But it really depends on the nature of the product.
There is one important question:
How much cost does a user generate?
Answering that will define the range for your pricing.
Subscriptions put all the risk on the consumer side. And people are starting to push back. It feels like many businesses are to set in their ways while consumers are showing subscription fatigue.
Maybe it is time shake things up a little. On this front as well.
Paying for upgrades is the old-school version of selling software in the last millennium. That stopped working when Adobe introduced the subscription-based pricing model to the masses. This pricing model has become obsolete since you cannot get distribution in brick-and-mortar Best Buy stores.
But I agree that pay-as-you-go pricing can be very attractive to a fitting use-case, and I would offer this to our users when it matches the tool functionality.
Not using something because it's "old" isn't a particular smart reason.
Just check how happy people are with Adobe's switch.
I see some people going back to using this model and it works great for them - but it has to fit the product. It certainly doesn't work (easily) in a SaaS scenario - but not everything is SaaS.
Paying based on resource usage is also viable for some businesses; helps derisk from the customer perspective while still providing revenue over time for the business (assuming your customer uses your product)
In my head I kinda subsumed resource and time as usage in general.
But indeed. It all comes down to knowing your cost per user.
If you don't have monthly costs attached to your business and the product you are selling is a one time deal, for example a video game, a image editor, a video transpiler. There is no need to charge a subscription, and that might hurt your business.
But by all means, if you have to pay a single server to host and process customer data. Once you sell a LTD you are certain that if you don't balance that with subscription users that will pay the bill in the long term, or if you don't keep the influx of new LTD users. You will break in couple years.
LTD is the way the world was used to be, subscription models is the balance between costs and revenue, is less risky. I'd no one is buying you should have zero to near zero cost to maintain it as well.
I strongly believe if you need to sell LTD to acquire new customers, they are not buying your solution they are buying your price. And this is a run to the bottom.
Well said, today there's very few products that don't have server costs. Once you've sold a lifetime deal you're on the hook for life as well.
I'm not so sure about this. For me, when there's a product I plan to use for a long period of time, a lifetime deal is enticing as I never have to think about paying for it again. This might be true in case of someone selling a LTD for super cheap, like some apps I've seen on appsumo, selling cloud storage for life, yeah I'm not storing any important or private info on there.
You've completely missed the customer's context and world they live in. You briefly mentioned ownership but the real point of Lifetime Price vs Subscription is deeper.
A subscription price model is a new-ish thing in the whole scheme of "business" overall. And helps a seller show a smaller price even though the lifetime value is much higher.
But when the world is in chaos, as it can be in a recession, then a customer is looking for clarity.
People do the math. The price at $5 a month is actually $60 a year, or can be well over $100 soon-ish. A $15 a month price is actually: $180 per year.
A lifetime price is clear. Pay this and never pay again.
A lifetime price, no matter the actual number, can be quite calming and can be much better than subscription if the world is in chaos.
My experience with this is pricing Better Sheets in 2020 as a lifetime price.
In addition to being good for the consumer who can pay once and get unlimited access, I found it great for my mental health at the time.
I wanted a side project I could add to at any time. Since then it's grown into more than a side project but at the time I wanted to offer it and not have to keep adding if I could not.
So by offering a lifetime price I was able to build with the idea that I could stop adding to it and nobody would LOSE value. They bought what they had, and there was the promise of access if and when there were updates.
To this day I still have early members who paid a much lower price and still have access even though now I'm continually adding more tutorials and tools and templates.
If I didn't do lifetime pricing when I started, I probably would not have started Better Sheets.
And you can always change your options. I did add a monthly price as I saw that access was limited to only those who can afford my lifetime price up front.
Thanks Andrew, this is pretty insightful. For certain products (info products especially), a lifetime price is also simple to calculate for the creator, but I feel like if I'm building a ChatGPT app for instance, it's very tricky and improper calculations can actually lead to losses as well.
I see for Better Sheets you still do lifetime pricing and annual, how do you find the uptake from the users between these two options? I also see your lifetime price is only $9 higher than your annual, I guess this is intentional too? But as a business, and now that Better Sheets is a stable and continuously improving product, wouldn't you be better off having people on an annual subscription?
I have zero (0) yearly members. Either they are on Free/Monthly/Lifetime.
I'd be better off if they pay monthly and eventually pay for lifetime price.
For UXWizz (after years of experiment) I went with: perpetual license + paid updates and support.
I wrote a post here a while ago about this too: https://www.indiehackers.com/product/usertrack-analytics/updated-pricing-structure-pricing-is-hard--MMChQB9Yn2A1QY3L6H0
A very one-sided view of the topic. It all falls apart from the other side when viewed from the founder's perspective instead of only focusing on the buyer. Lifetime deals are not sustainable. Simple fact. There is not a single arguing point that can contradict this simple fact.
This industry is not a pet shop. Founders need to pay their rent too. If the tool is not perceived as valuable enough to justify a subscription, then the market will cleanse itself by not allowing such shitty tools to survive.
That said, there is a big difference in a Lifetime Deal that reflects the actual lifetime customer value and pulls that in with just a one-time payment versus an insanely discounted platform deal, like Appsumo, that then takes away 80% of that revenue for themselves and leaves the founders with only 20% of the margin. How is that justifiable at all? And why should any founder agree to that if they know they have built a valuable tool?
Even a 9 USD monthly subscription would give you a better profit than this BS.
So the question is not how you want to justify Lifetime Deals in the eyes of the customers. The real question is, how can you help founders better sell their subscriptions and become sustainable? If you can help with that, then it´s possible to lower the costs of the subscriptions, as it´s easier to pay the rent when you have more users.
Think about it like this: Would you or (anyone you know) willingly accept a job where he has to work 160 hours a month without knowing what he earns at the end of the month and if he can even pay the rent or buy some food? And then the next month, start from Zero again and again and again? No, of course, no one would do that! But this is precisely what you DEMAND from us SaaS founders.
I like to make a bargain as much as anyone, but you guys need to stop crying about subscriptions and start respecting the value of a product again!