Subscriptions vs. one time purchases - which is better?

Subscriptions aren’t just for Fisherman’s Monthly or your daily pint of milk anymore - they

haven’t been for quite some time, in fact, but nobody could have predicted the extent to which they would creep into almost every aspect of day to day life. Over the last decade or so, and particularly in the last few years, subscription models have become commonplace as an alternative to, or a replacement for buying outright.

From Photoshop to toilet roll, buying month to month rather than all at once is more popular than ever, and that poses an important question - is this subscription surge good for the market, and is it always beneficial to offer a subscription option as a business? Subscriptions certainly wouldn’t be the first trend to end up in the ‘seemed like a good idea at the time’ pile, and that’s not a pile that many businesses - especially smaller businesses - can afford to be taking ideas from.

With that in mind, we wanted to take a moment to briefly consider some of the highlights and lowlights of both models and, hopefully, get you thinking about what might be best for your business.

Spreading The Cost

Now, there is plenty to love about subscription models - spreading the cost of our purchases is something that we do now more than ever, both in a B2C and a B2B context; especially with the rise of services like Klarna. ‘Credit’ is no longer a dirty word, and the average consumer of today is far happier to sign up for a subscription than they might have been 10 years ago.

Subscriptions work especially well when you’re selling a service or software, especially one that - to many people - would be prohibitively expensive to buy all at once. Photoshop is the perfect example; it’s easy to see why £19.97/mo represents a much lower barrier to entry than the hundreds of pounds that it once cost to buy a licence outright. That’s just one of many reasons that Adobe switched to subscription-only, dumping the one-time payment option altogether.

It may not have been a popular move at the time, but by switching to a subscription, their customers get the latest and greatest version of a gold standard piece of software for less than the price of a few cups of coffee each month. It’s simple, it’s easy to understand, and it works well for their business customers too.

Another major draw for many businesses is the peace of mind that comes from that guaranteed subscription income that trickles into their accounts each and every month. While it is true that having that ‘guaranteed’ income can be a blessing, it can also be a curse - especially for a smaller business with less cash to spare for future development.

No market in the world ever stands still, so it’s vital to keep moving forwards to stay competitive. With a subscription model, it takes time to recoup the cost of gaining a new customer, and it takes more time still to turn a profit on it. While you’re waiting, a competitor using a one-time purchase model is already hard at work outpacing your development using their instantly available profits.

Settling Things Up Front

On the flip side, one-time payments aren’t all sunshine and rainbows in this department either - where subscriptions are predictable, one-time payments are chaos; you’ll never quite know what’s around the corner in terms of revenue, and that can make it difficult to plan ahead or commit down to the bone when reinvesting in your company.

However, as mentioned above, when you sell your products with a one-time payment model you immediately receive the full value of that sale. With a subscription, subscriber loss is a constant worry, especially if they drop off before you turn a significant profit or, worse still before you’ve broken even. As with everything else mentioned so far, losing subscribers can be especially devastating for a smaller business with more invested in each individual customer.

Churn simply is not a factor if you insist on being paid upfront, and neither is draining away much-needed resources on subscriber management.

Is There An Answer?

The answer to the subscription vs. one-time payment question is going to be different for everyone, not to mention the fact that there is plenty to be said for combining the new with the old in a hybrid model - Peloton being just one, enormously successful example; you buy their exercise bike for £1,000+, then sign up for a membership to get the most out of it.

While we’ve by no means gone into exhaustive detail in this article - in fact, we’ve barely scratched the surface - we do hope that we’ve made a point; what works fabulously well for one business may not work for another. Subscription models can be fantastic, but while they could add enormous value for both you and your customer base, they could just as easily do the opposite.