how to move from a once-off software payment to a subscription revenue model?


2

We have a fairly new product (v1.x) that is installable software, and which is charged as a once off payment with free upgrades to further 1.x upgrades. There is no 'annual maintenance' construct.

For version 2, we are planning some service components (including web delivery components) which would lend themselves to a more subscription-based model, and provide a neater way of creating plans (eg different segments, multi-user, more resources, more features, etc).

So my question is, from people who have done it (or considered doing it) are there any lessons on how to manage that with your existing customer base, primarily from the perception of "I've already paid up front, so why should I pay again?"

Ideas we have are if you have bought 1.x and want to take up 2.x, you get a (heavily) discounted rate for the first 12 months, etc - but we fear that we're still asking for them to get their CC out again and at the same time committing to a new recurring payment model, so it would be a harder sell than just another $X up front (that they are already used to).

Any thoughts?

Business Model

asked Nov 21 '11 at 12:01
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Marcin
96 points

2 Answers


1

If you've built a good product at adds value, then your current customers probably won't hesitate to pay for the next release. For example, I love IntelliJ. They charge $300 for each major release. I am glad to pay it and glad to get the next version. Its a fantastic product that adds significant value over any substitution.

Also, technically, they purchased version 1 and they got version 1, so you delivered.

Can you grandfather in version 1 buyers? If not, I've read that offering 50% off the next purchase or 12 month subscription is considered good etiquette.

answered Nov 21 '11 at 12:58
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Mike Nereson
411 points
  • Thanks Mike. It's a good point - keep delivering what the customer wants, and the value should be apparent. I just know (from feedback) that some of my customers like the idea of a 'once-off' payment rather than a SaaS-style subscription. – Marcin 9 years ago
  • BTW, I support your move to subscription. – Mike Nereson 9 years ago

1

I think it is a great idea to move from a purchase model to a subscription model. Here's why:

  1. Upgrading to a new version of a software is a huge hurdle. Most people don't want new features, and they don't want to pay.
  2. A subscription model makes it easy for new clients to try your service. There is a minimal investment of time and money.
  3. It keeps you honest. You have to provide a good service that adds value to your customers every month. If you don't, they will cancel.

Now, to answer your question, how to handle "I've already paid up front, so why should I pay again?"

There are many reasons:

  1. The new service is better. It is going to improve the lives of your V1 customers in ways that they never dreamed. It has new and better features that will do all sorts of wonderful things. These new features are not part of V1.
  2. The new subscription service is much better for them. Instead of making a big up front investment, they can try out all the new features and see if they are really worth it. If they don't love it, they can go back to V1.
  3. Since they have been such great customers, they get special treatment: The first 6 months are free and they get 50% off the remaining 6 months in the first year.
answered Nov 21 '11 at 16:39
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B Seven
234 points
  • Good points, esp #2 - that makes the messaging somewhat easier I think. Sorry I can't upvote yet. – Marcin 9 years ago
  • You'll get there soon! – B Seven 9 years ago
  • Got the upvote privilege! – Marcin 9 years ago
  • Congrats. Please keep us updated with what you do and how it works out. – B Seven 9 years ago

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