There’s such a variety of billing models, that when choosing one you’re only limited by your imagination (or what your tools let you do). Let’s expand on the factors that’ll help you decide which model is for you. We’ll also look at whether a hybrid model would suit your business.
One-off, Subscription or a Hybrid Model?
To determine the right billing model for your launch, analyze the following factors for each of your customer personas:
- How will they use your product?
- How often can you ship value-driving updates?
- What costs will you incur from their usage of your product?
- How easily can they commit to using your product?
For further reading, check out our customer personas guide, where we illustrate how you can define these personas.
How will they use your product?
Will they use the product on a daily basis, or very punctually? Subscriptions tend to work best if there is a frequent (one might say recurrent) use.
Will they use a strictly defined set of features, where only minimal improvements will occur? If so, they’re more likely to be seduced by a one-off purchase, rather than a subscription model justified by new features of which they don’t see the value.
If on the contrary your product can expand in scope, add lots of new features that will be desired, a subscription model can be more appropriate.
Zeplin is a product that helps designers hand off their work to developers. It is used on a daily basis with a large scope: for example, as part of an ecosystem of designer tools, it could integrate or start competing with other tools, focus on more and more parts of a designer workflow, etc. It’s therefore perfectly adapted to a subscription model.
On the other hand a tool to create a logo within 2 minutes may be used a couple of times only, unless its focus is on professional designers. A subscription model would not make sense and an one-off purchase, potentially with a free trial or in-app purchases, would be more appropriate.
How often can you ship value-driving updates?
A corollary of the frequency of your customers’ usage is the frequency at which you can ship updates that add a lot of value to their usage of your product.
If you ship constant updates that add no value - for example because that customer persona is happy with a basic set of features - or ship very few updates to a product that encurs no real recurring cost to you, you won’t be as able to justify a subscription model as customers may feel exploited.
If on the other hand you ship regular updates that keep adding more and more value for you customers (this is the case for SaaS for example), a subscription model can be a solid option.
What costs will you incur from their usage of your product?
Are there significant costs such as storage costs, that are derived from their usage of the product? Subscriptions with metered billing, or a one-off price with in-app purchases, are more appropriate. This is for example the case for Dropbox or Twilio.
Do you need to support customers for their ongoing use of your product, or do you focus on purchase and billing queries? The former favors subscriptions, whilst the latter tends to indicate a one-off model.
It’s important that your billing model is sustainable. Ongoing support costs make it much easier to justify a recurring model, as users can understand the reason why you charge them on an ongoing basis and can feel that they are supporting a product they love.
How easily can they commit to using your product?
How expensive is your product? If you need to charge thousands of dollars, subscriptions can be a good way to lower the perceived cost of the solution. If on the other hand you’re aiming at impulse purchase, one-off will convert much better than the feeling of commitment that comes with recurring billing.
How long will it take for customers to be convinced to pay for your product? There are a couple of ways to give a taste without much commitment or decision making, until customers are convinced: a freemium subscription plan or a one-off purchase with a trial based on time or features are the best options.
How easy is it for them to stop using you? If there’s a high churn risk, for example if your product is a gadget app, go for a one-off purchase to capture all of the value instantly. If your customers are in it for the long haul, you can consider subscriptions.
How About A Best Of Both Worlds?
We haven’t yet talked about the hybrid models. They’ll be a good fit if you find yourself in one of these 4 scenarios:
- You want to derive value from both types of models: the predictability of subscriptions and the ability to ship often, whilst appreciating that some users don’t want to commit to yet another recurring cost or don’t care about frequent updates (these are arguments that Sketch and Agenda made eloquently).
- You’ve asked yourself all these questions and come up with good reasons for both one-off and subscriptions.
- There’s no clear answer either way and you’re going to need to test to figure it out.
- You simply have a strong opinion on what pricing should be like - in our experience this is typically the case if you dislike the concept of subscriptions but find one-off purchases too limiting.
If that is your case, there are two main hybrid models you should consider:
- Offering both a subscription plan and an expensive one-off perpetual license, like Pinegrow. A/B testing them is not a bad idea.
- The so-called “Dutch Model” where customers buy a one-off license, with free updates for a specific period (typically one year), pioneered by the like of Sketch and Hedge.
Your Billing Model
When choosing a billing model, you’ll neded to determine the value that you and your customers will derive from it. You’re also not limited to just one and can operate with a hybrid model, if you feel there’s a oppurtunity to expand from it.