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Ask HN: How to Convince Customers to Switch from One-Time Fee to Subscription

12 points by m33k44 8y ago

How would you convince customers from an industry who are used to paying one-time fee for a product to move to a subscription based model? What would be your compelling argument(s)? What approach would you use to nudge them towards a subscription model?

mindcrime 8y ago
Some reasons you can use: 1. Better alignment of incentives. Since your company now needs them to keep renewing a subscription on some regular basis, there's even more of an impetus for you to deliver great value to them. 2. Paying in inflated future dollars, which are less valuable than today's dollars. (This is assuming you let them "lock in" today's price by signing up for a lengthier subscription. Whether or not you require some degree of pre-payment here is a knob you can tune. See #5 below) 3. More predictable costs for the customer 4. May allow customer to move something from being a capex to an opex, which can be advantageous in some circumstances (getting approvals for capital expenditures is often lengthy, difficult, etc.) 5. You can create a lot of flexibility by fiddling with the length of the subscriptions, discounts for pre-payment, different rebate strategies for early cancellation (in the case of pre-payment), etc. So in theory you should be able to compose a model that will be palatable to most customers. I'm sure there are many more, but those are the top ones that come to my mind.
- Wowfunhappy 8y ago
  > 1. Better alignment of incentives. Since your company now needs them to keep renewing a subscription on some regular basis, there's even more of an impetus for you to deliver great value to them. Is this accurate? I actually see it as the reverse. Before, software creators had to improve new versions enough that upgrading was worth the cost. Now that I'm forced to keep paying regardless, the software creator is no longer incentivized to actually improve their product. I think it's notable that Photoshop CC in 2019 isn't all that different from Photoshop CS6 from 2012, at least relative to CS5 etc before it.
  - mindcrime 8y ago
    Hmmm... I don't use Photoshop for anything, so I can't speak to that specific aspect. I'm approaching this from the point of view of enterprise software / SaaS services, and not desktop productivity software. It may be that the dynamics are different in the latter realm.
gknoy 8y ago
Consider adding a new tier of value. As a customer, suddenly having to pay more (forever) for something will feel like a bitter prospect, unless it is positioned as something better I am opting into. I don't know what your product is or your target market (can you share more details?), but consider adding "Pro" features, or a service tier that adds warranty or enterprise support. (I have no personal experience with this except as a customer of things that have subscription vs free tiers.) Patrick McKenzie (known here as 'patio11) has blogged extensively about SAAS-related things, including pricing [0], [1]. If you haven't read his stuff, you may find them helpful. 0: https://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ https://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ 1: https://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick-mckenzie-on-why-your-customers-would-be-happier-if-you-charged-more/ https://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick...
deleted 8y ago
[deleted]
debacle 8y ago
Just do what AutoDesk, Adobe, and Microsoft have done - cost the subscription model so that it doesn't make sense to purchase a one-time license.
mortivore 8y ago
Value added in the subscription model. If it's just the same product, then I'm not going to switch.
waste_monk 8y ago
Do what Jira does - your license is good for support and releases out to one year (or whatever) from renewal, but the core software and the entire ecosystem built around it is constantly moving. Nothing stops working if you don't renew your licensing, but the world moves on without you. Why should your customers subscribe if the current one-time fee gets them everything they need? that's just poor business. But if it brings value, and the cost is reasonable, they'll happily keep renewing.

12 points by m33k44 8y ago

mindcrime 8y ago

Some reasons you can use: 1. Better alignment of incentives. Since your company now needs them to keep renewing a subscription on some regular basis, there's even more of an impetus for you to deliver great value to them. 2. Paying in inflated future dollars, which are less valuable than today's dollars. (This is assuming you let them "lock in" today's price by signing up for a lengthier subscription. Whether or not you require some degree of pre-payment here is a knob you can tune. See #5 below) 3. More predictable costs for the customer 4. May allow customer to move something from being a capex to an opex, which can be advantageous in some circumstances (getting approvals for capital expenditures is often lengthy, difficult, etc.) 5. You can create a lot of flexibility by fiddling with the length of the subscriptions, discounts for pre-payment, different rebate strategies for early cancellation (in the case of pre-payment), etc. So in theory you should be able to compose a model that will be palatable to most customers. I'm sure there are many more, but those are the top ones that come to my mind.

Wowfunhappy 8y ago
> 1. Better alignment of incentives. Since your company now needs them to keep renewing a subscription on some regular basis, there's even more of an impetus for you to deliver great value to them. Is this accurate? I actually see it as the reverse. Before, software creators had to improve new versions enough that upgrading was worth the cost. Now that I'm forced to keep paying regardless, the software creator is no longer incentivized to actually improve their product. I think it's notable that Photoshop CC in 2019 isn't all that different from Photoshop CS6 from 2012, at least relative to CS5 etc before it.
- mindcrime 8y ago
  Hmmm... I don't use Photoshop for anything, so I can't speak to that specific aspect. I'm approaching this from the point of view of enterprise software / SaaS services, and not desktop productivity software. It may be that the dynamics are different in the latter realm.

gknoy 8y ago

Consider adding a new tier of value. As a customer, suddenly having to pay more (forever) for something will feel like a bitter prospect, unless it is positioned as something better I am opting into. I don't know what your product is or your target market (can you share more details?), but consider adding "Pro" features, or a service tier that adds warranty or enterprise support. (I have no personal experience with this except as a customer of things that have subscription vs free tiers.) Patrick McKenzie (known here as 'patio11) has blogged extensively about SAAS-related things, including pricing [0], [1]. If you haven't read his stuff, you may find them helpful. 0: https://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ https://www.kalzumeus.com/2012/08/13/doubling-saas-revenue/ 1: https://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick-mckenzie-on-why-your-customers-would-be-happier-if-you-charged-more/ https://www.kalzumeus.com/2012/09/21/ramit-sethi-and-patrick...

deleted 8y ago

[deleted]

debacle 8y ago

Just do what AutoDesk, Adobe, and Microsoft have done - cost the subscription model so that it doesn't make sense to purchase a one-time license.

mortivore 8y ago

Value added in the subscription model. If it's just the same product, then I'm not going to switch.

waste_monk 8y ago

Do what Jira does - your license is good for support and releases out to one year (or whatever) from renewal, but the core software and the entire ecosystem built around it is constantly moving. Nothing stops working if you don't renew your licensing, but the world moves on without you. Why should your customers subscribe if the current one-time fee gets them everything they need? that's just poor business. But if it brings value, and the cost is reasonable, they'll happily keep renewing.