Remember when you used to buy movies, music, or software, not just access to them?
I cherish my vinyl collection but I must admit that I rarely get to listen to them. It’s much more convenient to use YouTube and Spotify when I want to listen to music.
Businesses know that and they encourage us to subscribe because recurring revenue is the backbone of any solid company. On the other hand, consumers aren’t that keen on adding yet another subscription to their monthly expenses.
Today, we’re exploring the subscription economy and its apparent decline, along with what that means for your business.
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The average consumer spends $219/month on subscriptions but is aware of only 40% of them.
Business consumption of SaaS is even more staggering: an average organization uses 130 apps!
How did we end up here?
Everyone wants your loyalty
It started with media companies and SaaS companies. The latter had just cause: it’s easier to push firmware upgrades and other updates via the internet than to convince people to update their software.
But now everyone wants you to subscribe rather than buy once:
- Streaming services
- Restaurants — a trend that started during the pandemic and is here to stay. Even Taco Bell has a subscription!
- B2B and B2C creators — you can pay for access to their newsletter, social media content, or communities (more on that below).
- Pet toys and food come in recurring bundles.
- Car washes charge non-subscribers more
- The same goes for hotels that might restrict some perks (like room cleaning) to paying subscribers.
Who stands to gain from the subscription economy?
You’d be tempted to say everyone’s winning:
- Businesses get recurring revenue
- Buyers get to drip their payments rather than pay a larger lump sum in advance.
In reality, however, consumers aren’t that happy with this model, as a Deloitte research report shows:
Yes, convenience is an important factor but not as important as the perception that you’re saving money. You’re actually spending more, so this is just a perception.
Businesses do win, though:
- Most people forget about their subscriptions and sometimes they keep paying for years for services they don’t use at all.
- Business users pay for features they rarely or never use because they don’t control which features SaaS companies build and how they set usage thresholds.
- The subscription economy boosts brand loyalty — you’re bound to keep using the service you’re paying for, especially if you pay for a year in advance.
The creator economy borrowed this model from SaaS and media
Yes, subscriptions are a good idea for business — any business. But I’ve started seeing the first signs of trouble with this model in three different instances
1. Netflix cracked down on shared passwords
But they also introduced a plan that includes ads. It is, of course, cheaper but it was the first sign that subscription-based companies are struggling to go back to the profit margins they had during the pandemic.
This is especially true for the streaming and media industries. Since users aren’t bound to their homes anymore, they don’t consume that much content.
2. Basecamp is launching an open-source, pay-once product
Basecamp is a popular project management tool that just turned 20 years old. It’s widely popular because they’ve always done things differently.
When they first launched their solution, they stood out through their clear, uncomplicated pricing tiers. Basecamp has always been the go-to solution for companies who don’t need bloated software with tons of features they’ll never use.
They were visionaries 20 years ago and they might be visionaries again.
They just launched ONCE, a software suite for which you pay once (hence the name) and use forever. The first tool in this suite is Campfire, a chat app, a direct competitor to Slack and Teams.
In the launch announcement, this phrase caught my attention: “It’ll be interesting to see if we’re early again.”
I don’t think I’m the only one who started to see a bit of a revolt brewing against monthly/yearly payments from consumers and businesses alike.
They’re also not afraid to call out their direct competitors, Slack and Teams:
Savagely call them out:
3. The HeyCreator summit also had a single-payment option
The HeyCreator summit took place in January 2024. It was an online conference with a great line-up: Nathan Berry, Terry Rice, Amanda Goetz, Justin Welsh, and a bunch of other heavy hitters.
When the summit ended, they opened the doors to a creator community for a limited time. This offer is no longer live, you can only join the waitlist, but I snagged this screenshot for you from an older email:
You have the usual monthly and yearly tiers BUT also a lifetime option.
This is a powerful signal. It means two things:
- The creator economy is coming of age. Typically, it was a reactive industry that piggybacked on trends and borrowed a lot from the tech space, especially startups. Now, they’re ahead of those trends — lifetime pricing hasn’t been as validated yet as the subscription model.
- Consumers and businesses need an out from the subscription economy. There are more and more buyers who prefer to pay once and own forever. Interestingly enough, this goes even for something you’d expect to pay monthly, like a community.
This doesn’t mean you should stop using subscriptions to generate recurring revenue
These are a few signs of trouble, not an epitaph for the subscription economy. In service-based, SaaS, and creator businesses, recurring revenue = survival.
Plus, people prefer smaller payments, especially in the beginning, rather than a huge initial investment.
This model also works because
People have more money than time (for now)
This is why you see buyers pay for courses they never complete or memberships and SaaS tools they rarely, if ever, use. Money is still cheap in most countries and humans are really bad at planning for the future and at imagining a worse future.
So they’re willing to pay for sub-optimal resource usage.
However, Iet me remind you that most of the world’s population will vote this year. In election years, the economic situation is always made to look better than it is.
I made this prediction last year and I’d like to remind you of it: after the elections, a lot of bubbles might burst and some of the world’s strongest economies might go into recession.
Even if they don’t, it’s still a good idea to future-proof your business for the trouble the subscription economy may face.
How do you leverage the subscription economy AND the pay-once model?
Basecamp’s strategy is very easy to emulate: they still get monthly/yearly payments for their biggest product but they also introduced a new product.
The best part about their strategy is that some of their existing Basecamp customers will also pay for ONCE. They already trust the company and its innovative approaches.
While that may be harder for you to replicate, here are some things you can do:
Create digital products
Email courses, PDFs, recordings of your webinars/workshops, eBooks — all of these are things people can pay for once and use forever. Most of your buyers will forget about them a week after they bought them.
Pro tip: you can remind them to use what they bought and get their money’s worth by emailing them later on to ask if they need any help with using the product.
Add a “forever” tier to your subscriptions
If I had a paid newsletter or a paid community, I would tier it this way:
- Monthly: $20 (just an example, it can be more or less)
- Yearly: $200
- Forever yours: $700 → call it something catchy like “Founding Member”
A quick note: if you add this third option, ensure you will keep the product active for at least 4 years (based on the example prices above), so that it’s worth the higher price.
Discounts for subscribers
You can sell a yearly/monthly membership that includes a “founding member” discount on all or most of your products, including what you’ll launch in the future.
It might be more complex to set up but it will get you recurring revenue and some revenue upfront. This only works if you have a large audience, though.
Here’s how you could set it up:
- Use a tiering system similar to the one above
- If people pay for a membership they get something new every month (a bonus newsletter issue, a Q&A session with you, a webinar) AND 20% discount on all your products.
Make it make sense for THEM and YOU
Reconciling dissonances like this one is a delicate balancing act. You don’t want to lose money but you also don’t want to rip your buyers off.
Also, adding too many options can be confusing. If you decide to add a “forever” tier to your pricing, make sure that’s not the fifth or sixth option. Ideally, you should have no more than four pricing options.
That’s it from me today!
See you next week in your inbox
Here to make you think,
Adriana
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