Today, subscriptions are everywhere. If you want to watch a movie, you need a subscription. What do you need to listen to music? A subscription! And what about a car? You guessed it, you can actually get a car with a subscription with some brands. But why is that? What made companies switch from perpetual, try-and-buy pricing models to the subscription pricing model for software products?
In this blog, we will answer that question and show you how a subscription pricing model can take your software business to the next level. We have also made a video covering this topic:
Advantages of the subscription pricing model
Firstly, subscriptions are oftentimes preferred over a one-time payment since they significantly lower the upfront cost for your customers. Most people do not have $50.000 in liquid cash to spend on a car, but they might be able to afford $500/month. And although software products are usually a bit cheaper than cars, the logic is still the same.
You can also create different pricing plans to attract different kinds of customers. A basic pricing plan can be sold for a small subscription fee of $50/month for users who will only use the basic functionality of your application. It is then possible to charge extra for an unlimited pricing plan with all features at a higher price, let’s say $350/month. Both newcomers and advanced users can buy your product!
But that’s not all. You can also get more predictability from the cash flow of your business. Instead of having them buy your product and then you never see them again, subscriptions will give your business an MRR – a Monthly Recurring Revenue.
For example, let’s say that you have 10 customers, 8 of them are on the basic plan, and 2 of them are on the unlimited plan. That would give you, in this example, a monthly recurring revenue of $1.000. This is a game-changer for budget planning, you know exactly how much money you can spend on ads each month, for example!
Unless a customer cancels their subscription…
Disadvantages of subscriptions
That gives me a perfect opportunity to cover some disadvantages. The churn rate can indeed be a problem. If you charge customers on a monthly basis, you give them a lot of opportunities to churn. In the previous example, we can see that it would be especially bad for the MRR if one of the 2 customers on the unlimited plan churns since they actually bring in most of the money each month. This highlights a dependence on a few customers that you don’t have if you let customers pay the entire price at once.
You can incentivize people to pay upfront even with subscriptions. A popular way is to offer a slightly cheaper price if customers pay once a year instead of once per month, but that is not always ideal. The churn rate is definitely something to consider before choosing to implement a subscription pricing model.
Implementing subscriptions with Cryptolens
If you sell a software application as a subscription, you need a system that can automatically restrict access to your application from customers who stop paying. The system you seek is a software licensing system, but coding such a system will take significant time and money.
Using Cryptolens and our easy-to-use software licensing system is a lot more effortless! Since Cryptolens is also completely free during the development phase of your application, there is no risk of trying it out. We are trusted by hundreds of innovative and world-leading companies worldwide.
With comprehensive implementation guides in the programming languages you love, you can implement the subscription pricing model within minutes!