Reasons why Subscription Model Pricing is Better than Perpetual Model

Is Subscription Model Pricing is Better than Perpetual Model ? Well I am sure we can argue it either way, but let me give probably some non-obvious reasons why Subscription is better.

Well before that let me define what each is. Subscription Model Pricing is where you charge the customer a specific amount for using your services or product every year or month. In SaaS Services monthly billing ius very common.

Perpetual License Model or "License Model" usually default Licnesing Type and more popular one in traditional software, is where you pay one time for using the software and never have to pay again. This normally does not entitle you for upgrades and support. That comes as an additional.

It is common to have a formula like
Perpetual Model Price = 2.5 Times Subscription Prices + 20% Annual Maintenance & Support

Now what are the not so obvious benefits of Subscription Model ?

1)If you are a product company, by embracing a Subscription Model, you are making yourself ready for the movement to Software as a Service. Normally in a SaaS model, Services are offered in the Subscription Model as seen in Zoho and other services.

2) Since customers pay you monthly, renewals or "subscription money" will bring in a more steady revenue stream in the long term.

3) Since you are paid only monthly or yearly, you do not get access to the whole loot in one go :-) You tighten your spending in the begining itself and hence will eventually have a better run business. This is because lesser money comes upfront and it gives you that discipline in keeping expenses in check.

4) You make a more useful service. You earn the renewal money by making your customer happy. This is really critical as when you see users dropping off, you know your service is lacking. You can take immediate action. This added advantage helps you creating a better product in the end.