Monthly subscription vs one-time payment: which do people prefer for being a premium member of a website app?
See my decision below.
With the popular "freemium" membership model for a website app, an introductory free membership is offered as well as one or more pay-for upgraded memberships. Which payment approach is more likely to result in conversion to a premium membership: a monthly subscription (or recurring subscription of other frequency) versus a one-time payment for membership of indefinite length? If both are offered, how many monthly payments should equal the one-time payment to be rational?
Decision: Having read all these thoughtful comments, I have decided to stay with the freemium subscription model, on both a monthly and discounted annual payment basis. The website provides an ongoing publishing service, so it has continuing value to members. The value does not depend on "promised" new features to keep members, but rather offers long term value based on what the prospective member sees up front. One can argue how much the service is worth -- nothing, something, or a lot -- but the ongoing value nature of the website is consistent with the subscription model.
A monthly membership is a win-win. Not only it gives you recurrent revenue, but it is more affordable for the front-end user. Think about the Netflix / Hulu model. Users will sign it because is affordable and they are constantly providing new content. If you keep including new features in this "membership", you can keep recurrent payments. If you still want the monthly payments to be proportional to a one-time payment, then it depends of how expensive is your one-time charge. You can divide the monthly payments in no more than 12 months, as long as you keep each month affordable and small enough not to make a different in the user's wallet.
The one time payment for indefinite membership is not a good option, as it depends on continuously growing your user base in order to bring in revenue. A monthly subscription, with additional one-off paid services, is the best way to maintain a steady income stream.
Never. No one ever pays for this. Do yourself a favor and find other avenues for cash. People will abandon your site and you'd be lucky to have people log in twice after seeing that you are only trying to make money off your site. Too many free alternatives and you're just fooling yourself thinking people are likely to convert. That's like asking someone to change religions. It just doesn't come often... Especially not often enough to think of spamming your site with hidden features and buy membership now. Don't do it. Just don't.
I would go for a SaaS model paid on a monthly basis, which could be scalable via amount of users, etc. This allows for the membership to grow at the rate of their growth, making it responsive to your client's needs
From past experience launching subscription offerings (in both the B2B and B2C space) I can tell you that individuals typically prefer monthly subscriptions while businesses generally prefer annual subscriptions. Offering both is a must. With regard to cost, I have seen significant uptake on the model that provides a baker's dozen for the annual payment (i.e. 13 months for the cost of 12). This is only an 8.3% discount but it improves cash flow and is well worth providing.
On an unrelated note, and an unexpected surprise when I launched my subscription offerings, is the need to take American Express. If your app is used by any businesses you will quickly find that most businesses will require AMEX to pay for subscriptions (and not taking AMEX will severely impact conversions) while most individuals will prefer VISA/MC. Also there seems to be a high rate of declines using VISA/MC from Canada depending on the implementation of AVS by the credit card processor.
Also unrelated, if you are running subscriptions on a global basis you will need to monitor and report on VAT in the EU (you can use http://ec.europa.eu/taxation_customs/vies/ to validate the businesses VAT #) and withholding in other jurisdictions. Also in the U.S. you will need to do state/city taxes depending on where you have nexus.
I hope this helps.
Who is your target customer?
Know that and that will help you determine what it is they will want, what they will pay, and how often.
I also agree with Natalie... you have to determine what 'next' call to action you want from your customer. Do you want them paying once and potentially not buying from you again. Or do you want to keep them coming back to you (in way of a bill coming to them), and therefore have the chance to pull them into an upsell.
Note - whether it is once or ongoing...get someone to buy something, anything from you, even for $.99 cents...and you increase the chances of them buying from you again (as once they go through the process of giving you their CC and info - they often stick). Give it away, and all you get is possibly an entry in your database
Here is a perfect example: Feedly offering monthly ($5), annual ($45), and lifetime ($99). The limited lifetime to first 5000 and quickly sold out. Notice the discounted annual over monthly, and the lifetime equal to about two annual payments.
This is extremely relevant to my case in that Feedly is an RSS feed reader service, and my business, Enfeedia, is an RSS feed publishing service, so we're in market segment.
Would be interesting if anyone knows of another business where all three plans were offered but users predominantly made a choice other than the lifetime plan.
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There are several dimensions to this question that are getting intertwined. First, I want to point out the the freemium model works for both recurring payment and pay-once plans: the user gets to use the basic service for free in both cases, but the for-fee upgrade could be paid on a recurring subscription basis or pay-once basis. I'm using the term "recurring" here to be the more general case of "monthly" ... could be quarterly or annually.
There's the obvious observation that independent of the plan, pricing for the upgrade over the basic has to be carefully thought out such that cost for the features in the upgrade is rational.
There's also the question of the ongoing appeal/benefits of the app. If the app were a mortgage calculator, no one would pick a recurring plan. If a recipe application, there might be a lot of folks who would want that service for a long time (for the same reason they subscribe to food/recipe magazines). So that this question makes sense, assume that the app has enduring benefits.
So, given those assumptions, do you most persons are more comfortable paying on a recurring basis or on a pay-once basis? This is both a financial and emotional question.
Given that the recurring payment will of course need to be much less than the pay-once payment (otherwise this whole discussion doesn't make sense), where do you think the cross-over is between the pay-once cost and accumulated recurring payments? 1 year? 2 years? The shorter the time, the more likely one would pick the pay-once; the longer, more likely one would pick recurring. This question is particularly important if both plans are offered because the customer can do the math. $5/month vs $90 paid-up, for example.
Keep both options, having the year option at a better price than if you would pay for 12 months AND a special gift or benefit available only in the yearly offer, but ensure that your product or service delivers what it promisses. People at first avoids to make the long term commitment and so a monthly payment makes more sense for them (and for you) to let them engage with your Premium offer. When this happens, then it is very important that you show all the best support to build a special relationship with the new Premium member. Also providing a way to upgrade to the year offer on a special price some time before the monthly expiration is a good idea.
A lot depends on the fee and the services offered for that fee. I prefer an annual fee because then its done and i don't have to think about it for another year.
A bigger question is the difference in service between between the free membership and the paid membership what is the value there when you upgrade?
For me a good example is LinkedIn. I keep getting reminders about their premium membership, but when I look at the what i get with the upgrade and the cost of that upgrade, it's not worth it. They are asking far too much for what I deem a minimal upgrade.
Many simply say you can have an ad free experience. Since I ignore ads anyway, it doesn't matter.