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It is not uncommon now for companies to charge money for software every month. Not all of them do this, though. Sports bookies and casinos that offer bonuses like the Vulkan Vegas 50 free spins do not charge subscriptions. Why are companies doing this and why is it growing in popularity?
Well, money is the simple answer. Monthly subscriptions guarantee that the company earns something regularly. However, there is more to this than meets the eye. In this article, let us look at why subscription-based software is becoming the norm.
1. Predictable Cashflow
A subscription-based model allows a company to make reasonable projections about how much it will earn monthly or annually. For example, if 1,000 subscribers pay $99 monthly, it is reasonable to presume that the monthly earnings are around $99,000, probably a bit lower or higher.
On the other hand, companies that charge a one-time fee, commonly called a lifetime license, do not earn money from that same customer anymore. They have to rely on new sales, and the revenue from that is difficult to predict.
A predictable cash flow is important because it’s easier to manage expenses and make business decisions. Without a predictable cash flow, the company won’t have any guarantee that they earn money next month or not.
2. Reducing Customer Churn
Customer churn refers to the number of people leaving a service. A subscription-based model helps reduce this kind of abandonment.
Here are some reasons customers leave a company:
- Service is too expensive.
- The service is inaccessible.
- The customer found a better software program.
All these can be addressed with the subscription. If a customer pays monthly, the amount is low enough that they think this cost is negligible. A subscription-based model is also usually online-based. It means you do not have to install a program on a PC to make it work. In this case, the software can be accessed from any computer. The only thing a customer has to do is log in, provided they have internet access.
Technological advancements are also a driving force for subscriptions. Software programs evolve so quickly. Because of this, new programs must be released. If the customer has lifetime access, they will have to buy a new license, which might not be accepted well.
With a subscription, consumers are entitled to use the latest version of the software, regardless of updates made. This makes the customer happy and also ensures the company that the customers have something to look forward to.
3. Piracy Prevention
Piracy is a problem that will never go away. For as long as a software program’s code is accessible, there will be pirates who will access this code, reproduce it, and sell it.
So, how can companies prevent financial losses from piracy? The answer is to keep the code and make it run only on the website. Another solution – is to install just a few parts of the software on the phone and then let the servers run the rest.
This approach only works through a subscription-based model. As long as the customer is paying for a subscription, they can use the account online to access the software. If the customer stops subscribing, they will also lose access to the software. However, they can’t copy the code of this software because it is not accessible anywhere. This code is in the software company’s servers.
4. Customer Acquisition
It is easier to find new customers through subscriptions. With it, a company can charge a very low amount of money monthly, making the product financially reasonable for the customer.
On the other hand, selling a one-time license means that the customer has to pay a lot of money. They typically avoid this and resort to buying cheaper versions of a similar product. Worst, these customers may even buy a pirated version.
The solution is to give customers an option to pay a small monthly subscription, and only use the service they need. Sometimes, a customer does not need all the features of software. In this case, a company can offer a lower monthly subscription rate but with fewer features.
In addition, companies can offer their basic services for free. Then, they can charge a monthly fee, so a user can access premium services. An approach like this is what you can see in programs like Shopify and Canva.
One of the drivers of the subscription-based model is piracy prevention. Another driver is money—it puts a customer in a position where they have no other option but to pay for a subscription. Is it evil or is it the way the world should work now? At best, companies must provide an option for users to get a one-time license, even if the license does not qualify for the upgrade.
