Exploring SaaS Pricing Models: One-Time-Cost vs. Subscription

Evan Magner January 16, 2024

As you consider purchasing a Software as a Service (SaaS) product, it’s essential to understand how pricing models can significantly impact your experience as a customer. Pricing models not only influence the financial aspect but also play a pivotal role in ensuring your satisfaction and long-term commitment to a SaaS solution.

In this guide, we’ll walk you through the two most common pricing models you will encounter; one-time-cost & subscription. We’ll also put a spotlight on the one-time-cost model and provide insights into the cost savings you can achieve over 3 and 5 years when compared to various subscription plans. Our overall goal is to empower you to make an informed decision that aligns with your unique needs and preferences as a potential SaaS user.

The One-Time-Cost, No-Subscription Model

The one-time-cost, no-subscription model, often referred to as a perpetual license model, involves charging customers a one-time fee for lifetime access to the software.

In this model, customers purchase the software and are not required to pay recurring fees for updates, maintenance, or support. This pricing approach can be appealing for both customers and SaaS companies for several reasons:

Immediate Access and No Ongoing Costs: With an one-time-cost, no-subscription model, clients gain immediate access to the software without the need for recurring payments. This ensures that you have uninterrupted access to the product without any surprise costs down the line.
Customer Ownership: Customers feel a sense of ownership when they buy the software outright, which can lead to higher perceived value and commitment.
No Subscription Fatigue: Some customers prefer not to commit to ongoing subscriptions and appreciate the transparency of a one-time-cost payment.

However, the one-time-cost model has its challenges. Companies that use a SaaS business model must ensure that they can sustain their operations and provide support and updates without ongoing subscription revenue.

Clients could also be hesitant to jump right into a product with a larger up-front investment.

Subscription-Based Pricing Models

In contrast to the one-time-cost model, subscription-based pricing models are the most common type. This model charges customers recurring fees on a monthly or annual basis (generally with a discount for an annual subscription). This approach offers several benefits for both SaaS companies and customers:

Recurring Revenue: Subscription models provide a steady stream of income, which can be easier to manage and predict.
Continuous Support and Updates: SaaS companies can allocate resources to provide ongoing support, maintenance, and feature enhancements, leading to improved customer satisfaction.
Scalability: Customers can start with a lower-tier subscription and upgrade as their needs grow, increasing customer retention.

There are multiple forms of subscription-based models for clients to choose from. While they are very similar to one another, there are some slight differences that I will highlight below:

1. Tiered Pricing:

Tiered pricing offers different subscription levels, each with its own set of features and pricing. Subscribers can choose the tier that best suits their needs and budget. This model provides flexibility for customers and allows businesses to cater to a broader range of users.

2. Freemium:

The freemium model combines free and premium subscription options. Users can access a basic version of the product or service for free but have the option to upgrade to a paid subscription to unlock advanced features or remove limitations. This model is a popular way to attract a large user base while monetizing the premium offerings.

3. Pay-as-You-Go:

In the pay-as-you-go model, customers are charged based on their actual usage or consumption of the product or service. This is commonly used for services like cloud computing, where users pay for the resources they use, making it a cost-effective choice for businesses with fluctuating needs.

4. Single vs. Multi-User:

Single and multi-user subscription options cater to both individual users and groups or teams. Single-user subscriptions are designed for personal use, while multi-user plans are intended for businesses or organizations where multiple users need access. Multi-user plans often come with collaboration and management features.

5. Fixed vs. Usage-Based:

Fixed Pricing: Under this model, subscribers pay a predetermined, fixed price for the subscription, regardless of how much they use the product or service. It offers predictability and is ideal for customers who want to budget their expenses with a regular, known cost.

Usage-Based Pricing: In contrast, usage-based pricing charges customers based on how much they use the product or service. This model is popular in industries like telecommunications, utilities, and cloud computing. It’s a flexible choice for customers whose usage may vary over time. The more they use, the more they pay, and vice versa.

Cost Savings with one-time-cost Pricing

To assess the cost savings of the one-time-cost pricing model over a 3 and 5-year period, we’ll consider our digital signage software with Mvix Core Player with a one-time-cost cost of $350. We’ll compare this to subscription models with a $100 one-time-cost cost for the player and different monthly plans of $10, $15, and $25.

1-Year Cost Comparison

One-time-cost Model: $350 (Initial Cost) + $0 (Ongoing Costs) = $350
Subscription Model ($100 one-time-cost, $10/month): $100 (Initial Cost) + ($10/month * 12 months) = $220
Subscription Model ($100 one-time-cost, $15/month): $100 (Initial Cost) + ($15/month * 12 months) = $280
Subscription Model ($100 one-time-cost, $25/month): $100 (Initial Cost) + ($25/month * 12 months) = $400

When looking at just the first year, you’ll see that the one-time-cost cost is not as cost-effective. However, digital signage is a long-term solution. Let’s take a look at the 3 year comparison next.

3-Year Cost Comparison:

One-time-cost Model: $350 (Initial Cost) + $0 (Ongoing Costs) = $350
Subscription Model ($100 one-time-cost, $10/month): $100 (Initial Cost) + ($10/month * 36 months) = $460
Subscription Model ($100 one-time-cost, $15/month): $100 (Initial Cost) + ($15/month * 36 months) = $640
Subscription Model ($100 one-time-cost, $25/month): $100 (Initial Cost) + ($25/month * 36 months) = $1,000

In this scenario, the one-time-cost model remains cost-effective over a 3-year period compared to all subscription models.

5-Year Cost Comparison:

One-time-cost Model: $350 (Initial Cost) + $0 (Ongoing Costs) = $350
Subscription Model ($100 one-time-cost, $10/month): $100 (Initial Cost) + ($10/month * 60 months) = $700
Subscription Model ($100 one-time-cost, $15/month): $100 (Initial Cost) + ($15/month * 60 months) = $1,000
Subscription Model ($100 one-time-cost, $25/month): $100 (Initial Cost) + ($25/month * 60 months) = $1,600

When examining a 5-year timeframe, which is typically the average lifespan of digital signage players, the one-time-cost pricing model clearly demonstrates its cost-effectiveness in comparison to all subscription-based models.

Final Considerations: Scaling Impact On Costs

Now that we’ve examined the cost comparisons for the one-time-cost pricing model versus various subscription prices, let’s take a closer look at the total costs for different quantities of software licenses purchased: 1, 5, and 10 players over a 36-month period. This perspective will provide valuable insights into the potential cost implications as your needs grow.

1 Player Purchased:

One-time-cost: $350 (Initial Cost) + $0 (Ongoing Costs) = $350
$10/month with a $100 player at 36 months = $460
$15/month with a $100 player at 36 months = $640
$25/month with a $100 player at 36 months = $1,000

5 Players Purchased:

One-time-cost: $350 * 5 players + $0 (Ongoing Costs) = $1,750
$10/month (with $100/player) at 36 months for 5 players = $2,300
$15/month (with $100/player) at 36 months for 5 players = $3,200
$25/month (with $100/player) at 36 months for 5 players = $5,000

10 Players Purchased:

One-time-cost: $350 * 10 models + $0 (Ongoing Costs) = $3500
$10/month (with $100/player) at 36 months for 10 players = $4,600
$15/month (with $100/player) at 36 months for 10 players = $6,400
$25/month (with $100/player) at 36 months for 10 players = $10,000

As you can see, the one-time-cost model consistently offers cost savings, and these savings become even more pronounced as you scale up the number of models purchased.

Ultimately, cost savings can have exponential effects for enterprise clients.

However, it’s essential to balance these cost considerations with the fact that the one-time-cost model will require the entire cost at the beginning instead of spread out year over year. This of course requires capital investment on hand that you might not have ready for your current needs.

Ultimately, your choice between one-time-cost and subscription-based models should align with your budget, growth plans, and the unique requirements of your business.

Subscription Cancellation and Renewal Policies

As you navigate the decision-making process for choosing a pricing model for your Software as a Service (SaaS) solution, it’s essential to consider the subscription cancellation and renewal policies. These policies can significantly impact your experience as a customer, and they differ between one-time-cost and subscription-based models. Here are the pros, cons, and important notes for each.

One-Time-Cost Model:

Pros:

No Cancellation Hassles: With a one-time-cost model, there are no subscription cancellations or renewals to worry about. You purchase the software outright, and it’s yours to use indefinitely without the need for ongoing payments.
Ownership: Customers own the software, giving them full control over its usage, making it easy to customize and adapt according to their needs.

Cons:

Higher Upfront Investment: The major drawback is the significant upfront investment required, which can be a barrier for some organizations or individuals.
Buyer’s Regret: As the cost is higher upfront, if the final product is not to your liking, it will cost more in the short term to switch. Be sure you trial the software extensively.

Subscription-Based Model

Pros:

Flexibility: Subscription-based models offer the flexibility to start, pause, or cancel subscriptions as per your requirements. This can be particularly advantageous if your needs change over time.
Regular Updates: Subscribers typically receive ongoing updates, support, and feature enhancements, ensuring that the software remains current and competitive.

Cons:

Ongoing Costs: Subscriptions involve recurring payments, which can accumulate over time and may pose budgetary challenges, especially if you need to cancel for any reason.
Vendor Lock-In: Depending on the subscription terms, switching to a different provider can be complex and costly.

Important Final Notes

For the one-time-cost model:

Consider the long-term use of the software, as the initial investment may offer cost savings over time.
Ensure you are purchasing the correct package, having to upgrade could cost you again.

For subscription-based models:

Familiarize yourself with the provider’s cancellation policy, including any penalties or fees associated with early cancellation.
Carefully assess your long-term commitment to the software, as the cumulative costs may outweigh the benefits of flexibility.

Conclusion

As you navigate the world of Software as a Service (SaaS) and weigh your options, it’s crucial to consider how pricing models can impact your experience and your organization’s bottom line. Pricing isn’t just about numbers; it’s about aligning your needs, preferences, and budget with the right model.