History
When you bought your last laptop, chances are, you paid a one-time fee to download a software onto your computer—think Microsoft Office or Adobe Photoshop. And now, you simply use your applications without worrying about paying for them again.
A few years down the road, you may want to upgrade to the newest version. In this business model you’d pay another one-time fee, essentially buying the newer product.
The movement
But the business model used by most Software as a Service (SaaS) providers is a subscription-based model.
And this model is different. Instead of one large upfront payment, companies generally charge a small monthly fee. If a customer wants to quit using the service, they simply notify the provider and stop paying the fee when the contract is up.
There are plenty of examples of pay-as-you-go models, in large part because the entire industry is experiencing a mass transition to this system. Netflix, Salesforce, Slack and Microsoft Office 365 all use SaaS subscription models. Even Adobe has switched over to a subscription plan.
Advantages
The advantages of a subscription model are:
Better Cash Flow Management
A subscription business model offers much better cash flow management for your business. A small monthly fee is much better cash flow then a large upfront payment every three years.
Regular Updates
Software subscriptions provide your organization with always up-to-date software taking advantage of all the current options.
Ability to Scale
If client needs change dramatically, a subscription will give them the ability to scale work up or down, without worrying about contracts. For instance, if a client is in the middle of a website redesign, and they suddenly need to invest funds into a special product initiative they are rolling out, they have the ability to decrease their subscription for a few months. Work will still continue but at a slower pace.
On the other hand, if the client just closed a round of funding and needs to accelerate the launch of their SaaS site to satisfy investors, they can increase their subscription to increase the pace. Or let’s say a client is opening another location and is in need of more design work, the graphic artist could increase their service subscription to meet the needs for that month. Subscriptions allow clients the security of knowing that everything is month-to-month, and nothing is set in stone — especially scope.
As a company, subscriptions also allow you to scale if you continue to add value to the client and impact their bottom line.