When to charge one-off payments and when to use a subscription model
Previously, we saw that one of the most effective ways to earn money through your app is with in-app purchases. People can pay to unlock features or buy digital content using their account on the Google Play Store on Android or the App Store on iOS.
When setting up an in-app purchase, you have a choice of whether to make it a one-off payment or regularly recurring subscription. In the long run subscriptions will always earn you more, but they aren’t appropriate for everything.
Sometimes there is a grey area — a feature that could be a one-off fee to unlock, or if handled correctly, could be reasonably presented as a subscription. In this case, there’s a clear advantage to going down the subscription route.
So how can you maximise your revenues by building your app around a subscription model?
When customers expect a one-off payment
It might seem like stating the obvious, but users expect to pay only once for things they will use once or unlock once. A single bucket of lion food for a virtual pet lion should be paid for once. A translation to Japanese of a document should be paid for once. Unlocking a special kind of paintbrush in a drawing app should be paid for once.
When customers expect a subscription
Subscriptions, by contrast, can only be justified if they are seen to be providing a service, not a feature. Want 10GB of cloud storage? That’s a service, and you can charge monthly for it. When the user stops paying, they lose the storage space, just like if they stopped paying to rent warehouse space in the physical world. Want access to a library of content, like Netflix or Spotify? That’s a service too.
Maximise revenue by thinking in terms of subscriptions
Consider the case of Microsoft Office, circa 2010. Various Office editions were available, mostly for more than 100 of your local pound, euro or dollar equivalent. You bought a specific version, say, Office 2010, and were stuck with it until you paid to upgrade to a later version.
And people did stick with it. Many businesses ran versions of Office ten years old or more, because it was “good enough”. So Microsoft would never earn any revenue from those users.
So, in a historic move, Microsoft began offering Office on a subscription basis. How did they do this despite the fact that customers expected to pay once? Well, by re-framing Office as a service. Not only was it a software package, but you automatically received all the new version updates. And there were extra services thrown in such as OneDrive, Lync for video conferencing (now Skype / Teams) and on-demand support. Individuals now paid upwards of 6 pounds/euros/dollars per month for essentially the same software. After 2 years, you’d already paid Microsoft more than if you’d bought outright. And you were continuing to pay.
So how can we apply this thinking to mobile apps? Well, think in terms of services not features.
Let’s take the one-off payment examples above. In the virtual pet lion app, instead of charging €2 for a month’s supply of lion food, offer unlimited lion food for €1/month. Perhaps throw in some lion toys for fun. It’s a service: the food will keep coming as long as you keep paying.
Services should be unlimited where possible. In the case of document translation, you could offer an unlimited translation service for say €10 / month instead of €10 to translate a single document. (This assumes of course that these are machine translations, so the cost to you of providing that service is very little once you’ve spent the money setting it all up.)
Where services have to be limited because of high cost of provision, it works well to offer usage tiers. For example €5/month for 10GB cloud storage, €10/month for 30GB. As in this example, the tiers should be clearly better value for money (lower cost per GB) as you move upwards; this pushes people to climb the tiers and ultimately pay you more.
How about unlocking features?
I gave the example of a single payment for unlocking a special kind of paintbrush in a drawing app. That doesn’t quite fit the service model — even if paid monthly, it doesn’t feel like a service and so will probably be met with resistance. So what can we do to earn recurring revenues?
One option is to take a leaf out of Microsoft’s example and bundle it up with other service-like things. Can you add a hosted online gallery that users can share with their friends? How about cloud storage options, or collaboration tools, or a regular stream of new kinds of paintbrush? All these things feel like services.
As with all changes like this, make sure you test them out with your audience. If there’s limited acceptance of the new service model, then rethink it.
Subscriptions to a library of content
If you have a library of content — say for example parenting videos or scientific papers — it’s very natural to offer access to it via a subscription. But such services come with their own set of expectations. For it to be justifiable as a subscription, the library has to either be vast or regularly changing.
Vast is like the census data offered by genealogy sites. There’s so much data in a census, and the subscription is justifiable because you can query and use it without limit. The service isn’t the data itself, it’s access to the data.
Regularly changing is like a crossword app which has a new puzzle each day. The subscription is justifiable because the user has something new delivered to them on a regular basis. That’s a service.
The very best services, of course, are both of these things. TV services like Netflix, Amazon Prime and Now TV have huge catalogues of things to watch which are updated regularly with new content, and their hundreds of millions of subscribers bear witness to the fact that people find them good value for money.
So to summarise, if you’re interested in building a subscription service into your app, think in terms of services, not features. Think about what you can offer on a recurring basis. Make services unlimited where you can, and offer subscriptions to content libraries if they’re big enough or regularly updated. Don’t fall into the trap of trying to foist a subscription on your audience where it doesn’t belong. More often than not that’ll have the opposite result. Remember, a great app experience will grow your audience and revenues too.
Tom Colvin is CTO of the Basingstoke App Development Agency Apptaura.