Technology

Subscription Vs One time purchase

By Denn Mokaya, Published on January 06, 2022

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Subscription Vs One time purchase

Why Subscriptions is more profitable

Simply put:

  • One-off purchases - a single transaction and the consumer gets a product permanently
  • Subscription models - monthly/weekly/daily transactions and the consumer gets the product for only as long as they keep paying.

We are going to look at the advantages of having a subscription model for your online business over the one time purchase model.

Disclaimer

You must have a product of substantial and incremental value to offer a subscription option to your customers.

Advantages of the subscription model

We'll keep it short and straight to the point.

Regular income - Generating subscribers can be a powerful way to build a regular income. For example, new business models like Netflix and Hulu have developed impressive revenues from the monthly subscription.

Plan for the future - your small business can forecast future revenue patterns and cash flow distribution better.

Reduce customer acquisition cost - Another advantage to small business is that while it enables a continued revenue stream, it also reduces the need to always make new sales. By using a subscription model, you continue to generate money from your users long after they first sign-up. This prevents the expensive process of continually acquiring new users and profitably retains existing ones. After all, it costs 7x more to acquire a client than to keep one.

flexible billing options - Many customers prefer subscription models because they choose to pay for only the services that they consume on demand at lower prices. They can also easily upgrade as their need increases or cancel when they choose to.

drive more revenue - by reducing the gaps in billing cycles and making provision for more flexible billing options for consumers; subscription model helps businesses drive more revenue.

Makes marketing easier - Take for example, to buy a suite of software products, could cost about $699. A price that could put off many consumers. By contrast an annual subscription could come in at less than $120 a year that’s about $9.98 a month. When marketed as a monthly payment $9.98 it is a psychological effect of appearing affordable.

Subscription encourages consumption - Evidence suggests that if people make subscriptions it can actually encourage customers to consume more to get the most out of their membership. An increased consumption encourages brand loyalty and makes consumers more likely to purchase more products or subscriptions from you. Research shows that when customers pay for something, they want to use it to feel that they got ‘value for money’ and that they didn't waste money. The idea is that getting consumers onto subscription payments will remind them to use the product and get value from it.

Effects of Inertia - You see, once one subscribes to a product or service paid directly bt debit, it is easier to keep the customer paying. Why? Because the consumer may not want to make an effort to change. A phenomenon called consumer inertia.

Brand loyalty - Because consumers are already subscribed to a product or service, they are more likely to continue buying from that brand or business because of ‘Effects of inertia’ or ‘Increased consumption’ effect.

The main disadvantage of the subscription model for small businesses is:

It requires a product with continual advantages - With a subscription, there is greater need to add more services. As a small business you need to produce more content to keep your customers engaged. This may be more demanding than it seems.

Conclusion

For small business, this model works best for products with:

  • Longterm value to the customer
  • Merchants that have perpetual value to offer or passion and commitment to continue creating value.

If you have a small business e.g a Shopify shop you should try it.

Denn Mokaya

Software engineer at InflowKit. A family man that Loves and lives life. Loves nature and the out doors. Loves writing and DIY stuff.

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