With 37Signal announcement of ONCE, there was been a lot said about the sustainability of charging once vs recurring billing. I think it actually helps to being clarity for anyone selling software, and trying to build a sustainable business.
There are a lot of metrics thrown around in the software as a service world, but my my experience there are 3 key metrics:
CAC - How much does it cost to acquire a customer.
COGS - What is the cost of the good/services you sell.
LTV - What is your customer's lifetime value
CAC: Customer acquisition cost
No real difference here, but lets not forget that a lot of people are getting subscription fatigue. The endless monthly fees hitting your credit cards is starting to feel like death by a thousand cuts.
Is it being becoming easier to acquire customers with a single payment, even it is larger, than a smaller long billing cycle? Only time will tell.
COGS: Cost of Good Sold
If the software is hosted, and if there is an upstream API/data cost, there is an ongoing monthly cost to provide this service to the user.
As a provider you don't have build large infrastructure to support all your users. Yes there are benefits at scale, but rarely do companies reach that level of scale. The human cost to run/maintain this is often the most expensive.
In the ONCE model with self hosted software, this is shifted to the customer, they are able to build and maintain the infrastructure that make sense for their needs. Often they have the spare capacity from their own operations to support this.
LTV: Lifetime Value
In recurring billing this is often very difficult to calculate. The monthly (or annual) customer can cancel at anytime. Often you don't have clear idea of what your LTV is until you've been in business for a few years. Even then that can change dramatically over time.
With ONCE billing you know this number immediately. They payment you receive is the LTV. Yeah you can discount this time to time (Black Friday sale anyone?), but as you think about your business you can make budgets/plans with confidence.
One of the main arguments of going with recurring billing I've seen is that you can ship a quick MVP and then continue to add functionality over time.
While this is true for newer software products, one tenant of ONCE shift, is the idea that software can be finished (or as close as we can get to finished in the digital world).
Whilst Campfire has seen a handful of updates since it's release (mainly for bug fixes), we are not expecting to see any additional features. They beauty of the model however, if a customer needs a new feature they are free to implement it themselves.
All things considered, which is better? I'll go with my favorite answer...it depends.
Until recently however, most times there hasn't been an option. As a customer you got stuck with recurring billing.
As the ONCE movement continues, the customer is allowed to choose which option is best for them.
Looking for ONCE tools, remember to checkout my site once.tools.
