One-Time Sale vs. Subscription: What Makes Customers Buy?

There’s a lot of information out there on how to maximize your sales — but how much of it is relevant to your business? Sales research is often based on the assumption of a one-time sale and a business model based on selling products.

Sometimes that age-old wisdom holds true for subscription-based businesses…and sometimes, what works for another business can hurt a subscription-based business.

The question for you, then, is what are the key differences for customers between deciding to buy a one-time product and signing up for a subscription product or service? And how can you utilize those differences to get more sales?

Do free trials work?

Free trials can work in non-subscription businesses — samples are a popular sales tactic for a reason. With free trials, it’s a little different, because the customer has to take an action to get the free sample. If you’re a subscription business, there are two points of conversion:

1. Getting the prospect to convert to a free trial user
2. Getting the free trial user to convert to a paying customer

When it comes to the first point, there are no hard and fast rules. Because of that, you should always test your landing pages and copy — depending on your industry and customers, you might find some surprises. For example, Wedbuddy originally had a free trial CTA that emphasized that the no-risk, no credit card nature of their free trial. Putting the “free” in “free trial” makes sense, right?

However, when they tested this landing page against a different version with a few key changes, they increased conversions by 73%. One of the biggest changes was changing the CTA to focus on what users could do with the free trial — create a website in minutes. The lesson is to test everything.

(For more about running successful experiments, head to our post on price optimization, or check out the free guide below.)

Does the trial length matter?

Another factor to think about with your free trials is how long they should be. For monthly subscriptions, 14-30 days is usually the go-to. There are a few things to note here:

• If your trial length is too short, especially if you have a service/product that requires setup and onboarding, people are unlikely to give it a go at all.
• At least some recent research suggests that there isn’t any correlation between free trial length and conversion rate to paying users. That means this is another area where you’ll want to test and gather data for yourself. Make sure to track not just which trial offer (14 vs. 30 days, for example) converts to more free trial users, but which converts to more long-term customers. Head here for more on the importance of long-term data collection.
• Another smaller scale review of SaaS data by MadKudu showed that no matter what length a free trial is, a lot of customers don’t convert until after the free trial is over. In some cases, a significant percentage of customers didn’t convert until a month or more after the trial had ended. This underscores the importance of long-term tracking and testing when it comes to your free trials.
• If you’re looking for more resources, Customer.io has a great breakdown of elements of your free trial process to tweak and test.
• And of course, Rebilly makes it easy to set up a free trial, if you want to see how effective it is for your business.

One last thing to note is that the effectiveness of your free trial will be heavily influenced by your onboarding process. Onboarding — and doing it correctly — is a topic big enough for its own blog post. Just keep in mind that if all you do is send one welcome email and one “Your trial is almost up” email, you’re likely losing customers and it has nothing to do with your free trial length or CTA.

Photo via Hey Beauti Magazine on Unsplash

Are monthly plans the way to go?

A monthly subscription is the default that most subscription businesses use — but is it the most effective?

There are pros and cons to having longer subscription periods available. The second-most common option outside of monthly is annual, but you could also look at offering quarterly plans.

The biggest argument for offering annual plans has nothing to do with the customer and everything to do with your business. Annual plans get you more upfront revenue — when a customer commits to a whole year upfront, you get that money faster than you would if they were paying month by month. Because of that, you can recoup your customer acquisition cost quicker, and reinvest that in your business. To see some graphs comparing revenue growth with annual vs. monthly plans, head to this post from ProfitWell.

However, we aren’t here to talk about whether it’s a smart business strategy or not — we’re here to figure out whether it makes customers more or less likely to buy. If you present annual prices first (and show the total annual price), it can be a form of price anchoring. The idea behind “price anchoring” is that you show a more expensive price first. That makes the less expensive price feel like the more reasonable choice. (The old sales saying goes: “How do you sell a $2,000 watch? Put it next to a $10,000 watch.”)

The biggest thing to remember when presenting annual prices is to be careful not to overwhelm your customer. If you have five different plans and have two different ways of viewing prices, you might give customer so many choices that they don’t make any choice at all.

Can plan length affect customer commitment?

Interestingly, there is some debate about whether the length of subscription affects the customers’ commitment to the product. Harvard Business Review has conducted research which suggests that monthly pricing can make customers more committed. When renewing on an annual basis, the “sting” of the price fades over time. The result: people are less likely to stay committed.

When paying monthly, however, customers are reminded of the cost and more likely to make use of what they’re paying for. And if they’re using it regularly, they’re more likely to renew their membership (and tell other customers about it).

The two takeaways around plan length are that:

• Showing annual plans and/or annual costs can be used as a form of price-anchoring to incentivize people to sign up for a higher plan than they may have normally
• Monthly pricing can increase customer retention/lifetime value, as customers are often more committed with monthly plans

Of course, depending on your target market, these might change. For example, in many B2B cases, the person paying for the product isn’t the person using it, so annual plans might not make any difference in customer commitment. The answer, as usual, is testing and user interviews to double-check your assumptions.

How are you showing your prices?

This is one area where the commonly-held wisdom about pricing can hold true — and in fact, might be more important. When you have several plans available, and then a monthly or annual option for each plan, customers can get overwhelmed quickly.

Here are a few questions to help gauge if you’re potentially losing people because of your pricing plans:

• Can I streamline this more? In an extreme case study for simplification, Groove found that by cutting all of their tiered pricing and switching to a flat per-user per-month rate, they increased their free trial conversions quite a bit and increased revenue by 25%. That might not work for your business model, of course. Still, it’s worth taking a critical look at your pricing plans to see if you can simplify them more, and testing simplified versions.
• What order am I displaying prices in? Price anchoring can come in here, as well, which is why Lincoln Murphy suggests putting your most expensive prices first. You’ll also want to take a look at which plan you’re visually highlighting — if any — and why you’re highlighting it. Is it the most popular plan? The most profitable for you?
• Will my customers immediately be able to see how much this costs? In an interesting counterpoint to the way most companies display prices, RJMetrics increased signups on their pricing page by 310% by nixing a three-column layout and putting the emphasis on a pricing calculator that let users immediately see what they’d be paying.

Of course — you know what’s coming up next — the best way to find out what will work is to test all of this for your business and your customers. While humans are, in general, fairly predictable creatures, there is no “one size fits all” for all businesses and industries.

Want to test some of what you’ve just learned and run some pricing experiments of your own?

Download our Price Optimization Cheat Sheet below: