Nowadays, more and more companies wonder which pricing model is the best between subscription vs license. Some companies just switch from perpetual licensing to a subscription-based pricing model. This new trend is a win for the business and can also benefit the consumer. It allows the latter access to the software they previously couldn’t afford, all while allowing the business to fixate on efficient incremental development that earns more money over a longer period of time.
On the other hand, some businesses stuck with perpetual licenses and found success. They claim that they have been able to keep their pricing down for customers and maintain a healthy profit margin. Of course, it is hard to say whether or not this will be sustainable in the long run as the market shifts, but these businesses can at least boast that they were ahead of the curve.
So, which pricing model is right for your business? The answer to that question depends on various factors, including the size and nature of your company. However, if you are looking for a general rule of thumb, it is generally advisable to move to a subscription-based pricing model as the market shifts in that direction.
However, to highlight both sides of the spectrum, this post will discuss subscription vs. license to help you determine which one is better for your business.
Subscription-Based Vs. Perpetual License: What’s the Difference
So, what sets both these pricing models apart? A subscription-based pricing model means paying a recurring fee (usually monthly or yearly) for access to the software. Conversely, with a perpetual license, you purchase the software once and own it forever (or at least until the company goes out of business).
Customers pay a recurring fee to access the product based on their subscription term with subscription-based pricing. If they stop paying their subscription, they will lose access to the product. However, you can gain instant access to your subscription again if you resume paying the fee.
With a perpetual license, customers get hold of the license and the right to access the product indefinitely. That means the customer won’t have to pay a recurring fee to access the product or service that they bought. However, they won’t get access to ongoing technical support or product updates after a certain time.
The Software Subscription Model
With the software subscription model, customers pay a recurring fee for access to the software. This type of pricing is often seen in cloud-based applications, such as Adobe Creative Cloud, where customers can pay a monthly or annual subscription fee to access the latest versions of Adobe products. The recurring price for the subscription model is significantly less than the perpetual license.
At the same time, if a customer subscribes to the software for a longer period, the revenue will be far greater than that of a perpetual license. However, once the customer stops paying, they also lose access to the software. This trade-off implies that customers are paying for ‘continued innovation on the product’ and continuous technical and customer support.
Another example of a subscription-based pricing model is Netflix. You can watch movies and TV shows without ads for a monthly fee. You can cancel your subscription at any time, but you lose access to the content if you do so. However, you can always re-subscribe, and the content you have watched will be available to you again.
The Perpetual License Model
Perpetual license is the older model of the two. Before, subscription costs were too high, and there was no way to handle them without taking significant risks. That’s why the software was always sold for a single, upfront price. That was the core concept of a perpetual license. To keep revenue flowing, companies would need to release bigger and better versions of the software to attract customers and get them to upgrade. Basically, it’s selling the same product again.
Nowadays, you can see this pricing model in desktop applications and games downloaded from app stores such as the Mac App Store or the Windows Store. The customer pays a one-time fee for lifetime access to the software. However, they will not have access to ongoing technical support or product updates after a certain time. It’s also being used in the video game industry, where customers buy a game once and can play it for as long as they want.
A good example is 2K and its NBA game franchise. The company releases a new game every year and sells it for a one-time fee. However, if you want to stay updated with the latest roster changes and new features, you must buy the new game every year. If you don’t want to upgrade and keep playing the older version, you can. The game is yours forever.
How to Choose the Right Model
The software subscription model is ideal for companies that continuously make improvements and innovate on their product. The perpetual license model is better for companies that don’t want the commitment of a subscription but still want to sell their product over and over again. It’s important to choose the right pricing model because it will impact your revenue, customer base, and long-term goals.
When choosing a pricing model, you need to ask yourself the following questions:
- How often do I want to release new versions of my product?
- Do I have the resources to support my customers continuously?
- What is the lifetime value of my customer?
- How much do I want to charge my customers?
- Is it more important to have a large customer base or make more money per customer?
The answers to these questions will help you decide which pricing model is right for your company.
Tips When Choosing Subscription vs. License
In addition, here are a few tips to help you determine which pricing model is the best for your business:
Consider Your Fixed and Variable Costs
Like any pricing decision, it’s important to consider your costs when deciding between subscription vs. license. With a subscription model, you need to account for the fixed costs of running the business and the variable costs associated with each customer. In contrast, the perpetual license model requires only a one-time payment for the product, so your only cost is the initial development and launch.
Determine Your Goal
The pricing model you choose should align with your business goals. For example, if you’re looking to increase revenue and attract new customers, a subscription model may be the right choice. However, if you want to maximize profits from each customer, a license model may be better suited for you.
Know and Understand Your Customer
It’s important to understand your customer base and their willingness to pay for your product. If you have a large customer base that’s spread out across the globe, a subscription model may be the best way to reach them. However, if you have a smaller customer base that’s more concentrated in one area, a license model may be a better option.
Consider Your Competition
Take a look at your competitors and see how they’re pricing their products. If they’re using a subscription model, it may be worth considering for your own business. However, if they’re using a license model, you may want to consider doing the same to stay competitive.
Why the Subscription is the Way of the Future
While we can debate between the two for eternity, it seems that the subscription model is the way of the future. For one, it’s a more predictable source of revenue for businesses. With a subscription model, you can better forecast your sales and expenses on a month-to-month basis. This predictability is especially important for businesses looking to scale and grow their operations.
In addition, the subscription model allows businesses to improve their product continually. With a license model, you sell a product once, and that’s it. However, with a subscription model, you can regularly release new versions of your product, which keeps customers engaged and coming back for more. This continuous innovation is essential for companies looking to stay ahead of the competition.
Better Customer Relationship
Finally, the subscription model provides businesses with a direct relationship with their customers. With a license model, you sell your product and then move on to the next customer. However, with a subscription model, you have an ongoing relationship with your customers that allows you to support them and add value over time. This direct relationship is key for building a loyal customer base.
Why ReliaBills is the Best Subscription Model for Every Business
Businesses, too, are using subscription-based services to help bolster their operations and keep their customers close. ReliaBills is the perfect example of this. It’s a subscription-based invoicing and recurring billing service that helps entrepreneurs manage their invoices and create subscription-based billing models for their operations.
With ReliaBills, your business can create an effective and efficient invoicing and recurring billing system that will help you earn more and get paid one time. Our service offers a wide range of features and benefits, including the ability to create subscription-based billing models, manage invoices, automate payments, and more.
You can start invoicing using the free ReliaBills basic plan. However, if you want additional features like installment billing and recurring billing, you’ll need to upgrade to ReliaBills PLUS for only $24.95 per month. Cancel any time. Click here to learn more about ReliaBills and its pricing.
When it comes to invoicing and payment processing, no other service can compare to ReliaBills. We’re the best in the business, and we’re here to help your business grow. Visit our website today to learn more about how we can help you take your business to the next level.
Now that you understand the two most common software pricing models, subscription vs license, it’s important to choose the right one for your business. The subscription model is ideal for companies that want to continuously make improvements and innovate on their product, while the perpetual license model is better for companies that don’t want the commitment of a subscription. It’s important to choose the right pricing model because it will impact your revenue, customer base, and long-term goals.