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Is Subscription-Based Pricing the Right Model for Your SaaS?

Raffy Banks • April 1, 2024

Recurring revenue makes sense if it benefits the customer. You won’t be able to persuade people to pay you month over month if you’re not helping them solve a daily problem, weekly annoyance, or some ongoing issue they’re facing.

If customers get value one time, they’ll expect and want to pay one time.

Think of a data migration tool. This is an event that companies only go through a handful of times. So they expect a one-time cost or a service time fee.

If you’re selling a migration tool to service companies that help companies migrate their data, that’s at least a bit better. Your tool is then more closely coupled to the income the service company generates.

Recurring revenue is incredible for reducing the need to start over from scratch at the end of the month. The caveat is that it needs to be a win-win for you and the customer.

What about Once.com?

Once.com sells their business chat app for a single one-time charge. It positions them at a HUGE savings over options like Slack.

One-time pricing can be a business strategy. It can be a great differentiator.

Of course, since it’s a piece of software you download and install and manage on your servers, more workload is on the customer’s shoulders.

If they can get customers at a profitable pace, then they’ve succeeded.

If one-off pricing gives you an advantage in the market, it may be worth exploring.

A model for treating churn as a feature, not a bug

Another instance where one-off pricing may be worth exploring is when people get value over stretches of time. For example, three or six months.

If you know the average length of time a customer receives value, you can then charge them accordingly.

For example, say you have an app that you sell for $100/month but the average length a customer stays is seven months.

One option may be to start charging $600 for lifetime access.

Then, perceptually, customers will be more inclined to sign up since they know they only need the tool for a short period of time. They then won’t have to do much in the way of calculating costs or have to worry about rushing through their usage to help keep their costs contained. It relieves the pressure.

What this does for you is get the money upfront into your pocket. You then have a six-month buffer rather than a monthly one.

You have to weigh the options here.

If it costs you $100 to get one $600 sale, you get $600 upfront.

If it costs you $50 to get a monthly subscriber, you have to then wait six months to possibly get $600.

Which is the better option - assuming you’ve confidently identified the lifetime value of a customer?

Which pricing model should you chose?

Here’s the main takeaway I’m trying to impart:

When it comes to pricing, you have lots of options. Yes, recurring revenue is incredible, but the pricing model you chose has to correlate to the value returned to customers.