Jun 16, 2013
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.
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Nov 7, 2013
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.
Jun 16, 2013
The majority of websites seem to use the monthly model instead of a one time payment and I think this is the right thing to do. Unlike something you purchase at a store, a website is constantly evolving and isn't something you can just sell a new version for people to buy.
If you were set on using a one-time payment model, the questions you should ask yourself are, "How long will my website be around for and how long will people find it valuable after purchasing?" If your answer to both is for more than a short period of time, you'd likely want to set a very high rate. American Airlines didn't do so for their lifetime air passes and they're still regretting it: http://articles.latimes.com/2012/may/05/business/la-fi-0506-golden-ticket-20120506
But one problem with setting this high rate is less people will likely want to pay that high price. For that and the other reasons I mentioned, I'd most likely recommend you go with the monthly subscription model.
Jun 21, 2013
You should rather ask yourself if you want loyal users or a sliver of a chance at having them pay you. The payment comes once and then reviews are posted, not always nice and then you have to deal with that. Not worth it to beg your users for money.
Jun 19, 2013
Ken,
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.
Jun 19, 2013
Excellent comments, Scott.
You compared two recurring subscription plans but did not mention the paid-up plan. Unless you see no place for a paid-up plan, could you comment on the annual subscription rate vis
-a-vis the paid-up plan?
Jun 25, 2013
Ken: I had approximately an 8% take-rate on the annual plans but these plans generated approximately 30% of the on-hand cash so in my opinion it is well worth doing for the improved cash flow that it provides your business. It also minimizes labor and processing fees.
Jun 17, 2013
I think it depends on what you're wanting the subscription for. When you have a monthly subscription based model — it keeps you top of mind monthly and you have that touch point. When you have a one-time payment — it's a lot upfront and you might not be able to have that touch point with your customer.
I'd prefer monthly subscription.
Jun 17, 2013
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.
Jun 18, 2013
I cancelled my linkedin paid-for membership after they more than doubled their fee without telling me - I was furious. I'm still on linked-in, but I will never again pay for membership. That trust has gone.
Jun 21, 2013
This is all part of that greed that cares away users. Sure I have a LinkedIn but I don't use it.. Ever. I only have it for search engine optimization on my name because other people junked up my search results with lies they didn't fact check. No real need for it. No real use. Just another tool asking for me to pay it. No thanks
Jun 18, 2013
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.
http://www.pcmag.com/article2/0,2817,2422740,00.asp
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.
====== previous posting follows =====
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.
Jun 19, 2013
In general, I'd be much more comfortable paying on a one-time basis. Recurring payments are a nagging thing I have to deal with a month or year later. However, what influences me stronger is the price. Even if hypothetically the one-time price was roughly the same as the up front price, there's definitely a negative psychological effect associated with the higher price.
Jun 19, 2013
And that doesn't even take into account the practical benefits of a lower price. Maybe I feel like I can get most of what I need from it in a month. The pain of canceling billing is definitely offset by the much cheaper price. Or maybe I want to experiment with the product. If I'm not familiar with a product, I'd be far more likely to try it out for a month.
Jun 16, 2013
I agree with Chris, setting a one-time payment is generally a bad idea. The freemium model is just fine. If you're offering a real value for money service then you should get paying customers. The trick is finding the cut-off point in your feature list where free becomes pre.
Jul 2, 2013
A one-time payment and a subscription plan can both be "freemium" meaning either way, the free site offers certain features. You pay (one-time or subscription) to get access to advanced features. The free part of the site can show by example what the advanced section offers.
Jun 17, 2013
Depends on the service and the website. In general, consumers do not like recurring bills unless if necessary.
Jul 2, 2013
Except that a customer could start with a subscription plan to inexpensively try the service to see if they want it long term, and if so, convert to a paid-up membership that breaks even after ___ months. If you only offer a paid-up plan, that asks customers to make the leap before they've experienced the periodic offerings of the site.
Jun 17, 2013
My company just released a new web app (businessplanelite.com) that offers both options, so users can choose a monthly subscription price or a one-time payment for lifetime use. We don't have a ton of users just yet, but so far people seem to like the subscription model best.
Jun 18, 2013
Nicely designed website you have there Brandy. It's a good idea to offer both, but how do you reconcile one-off payers receiving the same level of on-going upgrades and support as subscription payers?
Jun 19, 2013
Ken - Monthly is $4.95, and the one-time purchase is 19.95.
Clive - Thanks! Interesting question, and honestly, we hadn't talked about that. For one-time payment users, I guess it's just a really great deal for them. We thought about pricing the one-time payment quite a bit higher, but part of the idea was to offer a really good quality product at a much better price than our competitors, which made the lower price point seem more appropriate. Thanks for the great question!
Jul 2, 2013
Let's bound this question so we can focus on plan tradeoffs.
Assume the service is a really good recipe service, recipes like Bon Appetit. You get new recipes periodically (once a week for example). Assume how-to videos are included. And a chefs' blog.
Consider three payment plans, and discuss which plan(s) you'd recommend.
(1) Monthly subscription, $5/month.
(2) Annual subscription, $50/year
(3) Pay once, $150.
Which one(s) do you think will get the most success?
Jul 2, 2013
It seems to me the value to the customer depends on how long that customer believes they will want to use the service. If my car dealer offered me a $50/month, $500/year or $5000/lifetime to cover all possible costs of maintaining the cars I'm ever going to own - I'd slap $5,000 in his hand so fast...
Jun 17, 2013
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.
Could not have said it better myself!