The Paddle team and I recently went to WWDC, Apple’s annual WorldWide Developer Conference in San Jose, California to catch up with the thousands of independent developers present.
One challenge kept being repeated: should I move to subscriptions? And how could I do that? Many indie developers have moved to subscriptions, or have been thinking of doing so - but it’s neither an easy decision, nor an easy rollout.
After chatting with those we knew had gone through this - some our sellers, some not - we took advantage of Altconf and assembled a panel of some of the smartest minds in the space with the founders of Sketch, Ulysses, MacPaw, Flixel and Readdle, with both strong opinions and battle-hardened experience of subscriptions, to answer 2 main questions:
Should your product use recurring billing, and what are the criteria to decide?
If yes, how do you figure out the pricing, what are the mistakes to avoid and do you roll subscriptions out as smoothly as possible?
Some of the key insights we heard:
The decision is absolutely linked to your product, your market, your types of customers… Each panelist had a different approach linked to their unique situation. B2B or B2C, daily use or sporadic intense use, highly differentiated or commodised… All of these factors play a role.
There are many reasons to want to move from a perpetual license to a subscription model, among which:
The sustainable cash flow.
A greater simplicity in access management (as opposed to handling which features are or aren’t accessible which can become a huge engineering nightmare).
Being able to ship features faster and focus on what makes sense, rather than bundling everything and waiting a year to have a compelling upgrade you can sell.
But not everything should be a subscription - especially with subscription fatigue kicking in, the syndrome where everything’s a subscription:
Offering recurring value is very important, as a daily use app lends itself really well to a recurring billing.
But subscriptions can also work well when there’s a high infrequency in usage and customers may not be convinced instantly, or would not pay a high one-off fee. This offers greater flexibility (pay when you use it, cancel when you don’t, renew when you do again).
Professional apps are much easier to offer as a subscription business (hence the rise of SaaS), as the value they provide is much clearer than to a consumer.
The single biggest way to grow your revenue is often to increase pricing. Not better marketing, or nicer features. But by constantly A/B testing by channel, geographically; by increasing the price until you start seeing a significant decrease in conversion. As opposed to lowering the price until you hit the floor and can’t go any lower.
Your revenue will drop significantly when you switch to subscriptions, as people who used to pay everything up-front start paying each month or year. It can take 18 months to get back to the revenue you had previously - although you will be in a much better state financially in the long run. There are ways to switch progressively, by offering licenses in parallel and progressively reducing their exposure until 99% is subscriptions - although that takes more work.
Communication to your existing customers is key: don’t spend too much time explaining why it’s important to you, focus on what that means for them. There was a big debate about whether people should be told they are paying for constant feature updates, or for the product they buy as is. Offer something special to your existing customers who’ve just paid a one-off price.
To read further on the topic, see how Ulysses, Sketch and MacPaw wrote about their move to subscription:
On our side, we have written extensively about determining the right billing model based on our experience accompanying hundreds of software companies as they transition to a different billing model, or iterate on their billing and pricing.
We’ve made it easy for Flixel to move to subscriptions and MacPaw to A/B test their billing model and pricing in any geography or channel they like. If you’d also like to spend your time growing, not billing with our checkout, subscriptions, taxes, licensing, and insights in one unified platform, just get in touch 😃.
Paddle's Mac Software Trends Report 2018
The shifts from 2018 that will inform your Mac software launch strategy in 2019.