Difference Between Subscription and SaaS
by Anna K. on Nov 3, 2022
Subscription and SaaS, two cutting-edge software trends, are developing side by side today, so the difference between them may seem illusive. While users may stay in the dark, developers and testers know recognize and value those disparities. What is the difference between subscription and SaaS? In this article, we will offer you several takes on the matter.
What is the Subscription Business Model?
Before the detailed discussion starts, we need to give a subscription business model definition. It is a model where people regularly pay fees to use the software. Users can make such contributions once a week, a month, or even once a year. Both subscribe and unsubscribe options are available in a few clicks.
The subscription business model allows companies to generate stable income. This approach is likely convenient for both the company itself and its users. Such a business model helps to create a successful brand that will actively develop, as the subscription concept is close, dear and clear to users worldwide.
How a Subscription Model Works
To understand how subscription services work, imagine subscribing for a morning paper by mail. So, users can find out in advance what services your company provides and how much they need to pay for the use per month. After people order this service, they must regularly pay a predetermined fee, but at the same time, they consistently receive the necessary assistance.
It has existed for many centuries, so understanding the subscription business model should not be a brain cracker.
Benefits of the Subscription Model
Here are the most crucial advantages of the subscription model you should consider when making your choice:
- Convenient for customers. People often forget to pay for services or do not want to spend time on them, so, conveniently, the system can write off money automatically.
- Discover new products. It allows you to buy goods or services that were not available before.
- Accurately predict revenue. Users contribute regularly, it will be easier for you to calculate the estimated income.
- Attract more customers. A regular subscription allows you to get a good discount, which attracts many users.
- Decrease customer acquisition costs. People are interested in using your services, so you do not need to spend time and money attracting them.
- Businesses build stronger relationships with their customers. If users have bought a subscription, they will use your services for longer compared to if they have had to make a decision every month.
As you can see, both business owners and users can appreciate the benefits of such a business model. So, if you want to establish subscription businesses, you can enjoy all the advantages of such a solution. This will allow you to invest money in a company that is developing steadily.
What kinds of businesses use a subscription business model?
Practice shows that this business model is used in a variety of industries.
Access to content: video, music, books, membership sites
Users are happy to buy a subscription if they want quality content. It usually allows you to watch videos, listen to music, or read books for much less than buying them individually.
Access to services: SaaS, utilities, insurance, leasing
Today, almost everyone has mandatory payments; for example, we all have to pay utility bills or insurance. There are two payment options: spend a significant amount once a year, or pay a little each month. Often, users only have the opportunity to immediately pay for part of the service for the year, so a subscription suits them.
Access to products: personal care, food, pet care
The life of a modern person is built in such a way that they do not have the time and desire to re-order food or care for animals every day. If you subscribe, you can continuously receive services and not worry about paying.
What is the SaaS Business Model?
Understanding SaaS business model is only possible by deciphering this abbreviation – Software-As-A-Service. It means that software creators host their products in the cloud infrastructure and provide access to it for a fee. So, customers can download the application and access the software via the Internet. You need to register and get access to all the functionality.
How does the SaaS business model work?
The main reason why we distinguish SaaS from other pricing models is that it has several significant differences.
Users regularly pay to use your software, making it easier to predict future earnings. Payment can be weekly, monthly, or yearly. Users can demand money back anytime if they prefer something else to the services.
Heightened customer retention
After your users buy a subscription, you will be confident that they will continue cooperating with you (at least until the subscription ends). Practice shows that regular customers spend much more than new ones.
The SaaS business model is explained by the fact that you can constantly improve your product. If you’re selling software, it’s much more challenging to make changes, offer new features, and stay competitive.
The Pros of the SaaS Model
Now we want to discuss the benefits of the SaaS business model. Among the most important are the following:
- Loyalty to your product;
- Increase in the number of clients;
- Ability to make changes to the software to improve the quality of service;
- Regular income.
Many users cannot immediately buy expensive software, so the option to subscribe will be an excellent solution.
The Cons of the SaaS Model
To better understand what the difference between subscription and SaaS is, it is worth discussing the disadvantages of the second business model.
The cost of developing any software is usually high; at the same time, your project will only be able to get a stable income and fully pay off in a few years if you choose the SaaS business model. You will most likely have to reinvest all the profits in promoting your project and improving it.
In addition, you need to maintain a permanent staff who will monitor the operation of your software and eliminate possible failures. Since your product is entirely in the cloud, you need to spend more time on security issues and constantly increase storage.
Ensuring the performance of such software is a challenging task that requires specific knowledge, skills, and immense patience from the owner and team members.
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