Advantages and Desantvantages of subscription based pricing models vs one time fee licensing. Return on Investment Calculation Sample
Advantages of Subscription-Based Pricing Models:
- Predictable revenue: Subscription-based models provide more predictable recurring revenue streams than one-time fee models. This can help businesses forecast revenue and plan accordingly.
- Lower upfront costs: Subscription-based models usually require lower upfront costs, making it more accessible to customers who cannot afford a large one-time fee.
- Continuous value delivery: Subscription-based models encourage businesses to continuously improve their products to retain subscribers and deliver ongoing value.
Disadvantages of Subscription-Based Pricing Models:
- Dependency on customers: Since subscription-based models rely on retaining customers, businesses must monitor customer satisfaction and retention rates to ensure continued revenue streams.
- Potentially higher lifetime costs: Over time, subscription-based models can be more expensive than one-time fee models since the customer must continuously pay for the product.
- Lack of ownership: Customers do not own the software with subscription-based models and, therefore, cannot use it after the subscription ends.
Advantages of One-Time Fee Pricing Models:
- Lower lifetime costs: One-time fee pricing models may be more cost effective for customers who only need the software temporarily.
- Ownership: With one-time fee pricing models, customers can own and use the software indefinitely.
- Predictable costs: With a one-time fee pricing model, customers know exactly how much they will pay and can budget accordingly.
Disadvantages of One-Time Fee Pricing Models:
- Higher upfront costs: One-time fee pricing models require a high upfront cost, which can be prohibitive for some customers.
- No continuous revenue stream: One-time fee pricing models do not provide a recurring revenue stream for the business, making it more difficult to forecast revenue and plan accordingly.
- Potential for outdated software: Customers may not receive updates or support for the software after the one-time fee is paid, which can lead to outdated software and decreased customer satisfaction.
- Another big disadvantage of subscription-based pricing models, particularly in the case of SaaS-based solutions, is the lack of flexibility in making changes to the software. Providers often use the same feature set for all clients, meaning customizations like adding custom fields or flows may not be possible. This lack of flexibility can limit the ability of businesses to tailor the software to their specific needs and can be a significant drawback for some customers.
In summary, businesses must carefully consider the advantages and disadvantages of subscription-based and one-time fee pricing models when deciding how to price their products. Ultimately, the decision depends on the needs and goals of the business and the preferences of its customers.
Calculation sample Return on Investment (ROI) for a subscription based vs One time fee Licensing model
Return on Investment Calculation Sample
The company has 100 Desks. And want to use the solution for 3 years.
Option 1: Subscription-based,
15$ per desk per month, with no additional costs like Support and implementation costs.
Total cost over 3 years:
Cost per desk per month: $15 Number of desks: 100
Duration: 3 years
Total cost = $15 x 100 desks x 12 months/year x 3 years = $54,000
Benefits over 3 years:
- Improved desk utilization, saving 10 desks on average per month: 10 desks x 12 months x 3 years = 360 desks
- Reduced overhead costs for manual desk booking and management
Assuming a conservative $150 cost savings per desk per year, the total benefits over 3 years would be:
360 desks x $150/desk = $54,000
ROI for Option 1:
ROI = ((Benefits – Costs) / Costs) x 100
ROI = (($54,000 – $54,000) / $54,000) x 100
ROI = 0%
Option 2: One-time fee.
Software License costs: USD 15’000. Plus Support and Maintenance for USD 4’000, recurrent every year.
Total cost over 3 years:
Software license cost: $15,000
Annual support and maintenance cost: $4,000 x 3 years = $12,000
Total cost = $15,000 + $12,000 = $27,000
Benefits over 3 years:
- Improved desk utilization, saving 10 desks on average per month: 10 desks x 12 months x 3 years = 360 desks
- Reduced overhead costs for manual desk booking and management
Assuming a conservative $150 cost savings per desk per year, the total benefits over 3 years would be:
360 desks x $150/desk = $54,000
ROI for Option 2:
ROI = ((Benefits – Costs) / Costs) x 100
ROI = (($54,000 – $27,000) / $27,000) x 100
ROI = 100%
Conclusion:
Option 1 has a zero percent ROI, meaning that the cost of implementing the software is equal to the benefits it provides.
Option 2 has a positive ROI of 100%, indicating that the benefits of implementing the software are twice the costs of implementation and maintenance. Therefore, Option 2 may be a better choice for the company as it has lower total costs and a positive ROI.
However, this calculation does not consider any additional benefits or drawbacks that may be unique to the company’s situation.
Room Manager Explained in 5 Minutes Video
In this video, we walk through the system’s key features, including desk and room booking, visual floorplan booking, and efficient workspace management.
Watch the Room Manager Explained in 5 Minutes video YouTube Video.
