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Here at Upclick, most of our merchants are software vendors. So we figured it would be a good idea to talk about the different pricing models for software. There are mainly two approaches to pricing your digital goods, but the key is to know which one is best for your target market. The first approach is the classic one-time sale or price, while the second one is an ongoing Software-as-a-Service (SaaS) subscription. Let's look at both and discuss the advantages and disadvantages.


The first and most traditional way to price your software is the one-time-price, meaning that the customer purchases the license key once and is able to use it as long as he can access his computer. For example, if you decide to purchase Adobe Photoshop CS6, you can use it indefinitely but you cannot have access to the newer versions without spending more money.

This pricing model requires more commitment from the customer because the price is higher and the product is non refundable and non cancelable. For the merchant, this type of pricing model has the advantage of procuring a higher and immediate cash flow and having a low churn rate. The price of the product is based on research conducted by the software company in order to generate revenue that covers the production costs. This higher price tends to lower the demand.

SaaS Subscription Pricing (Sofware as a Service):

Sometimes referred to as "on demand software"; this pricing model consists of selling the software as a service instead of as a product, on a subscription basis. Instead of paying the full amount for the software, the customer pays a small amount every month for the right to use the software, and he can cancel his subscription at any time.

Let's take the Adobe Photoshop CS6 example again. If the customer wants to use the photo editing software to edit a few pictures, he can subscribe, use it for a short period of time, and unsubscribe when he doesn't need it anymore. Whenever there are updates available, the consumer can download them at no extra cost. Plus, he can also have access to maintenance and technical support from the provider.

Therefore, there are also much less privacy and security concerns when being subscribed to SaaS because the provider will address those issues for users that are paying the monthly fee. This lower monthly charge is also a major advantage to attracting more buyers at once, because they are paying a lot less than if they were to purchase the license key for a whole year or more. The software companies also benefit from this strategy because they are able to draw in more customers and have more users try the product.
Usually the subscription model will either charge customers based on consumption (Consumption-based pricing) or based on the number of users (pay-per-user). The more popular of the two pricing strategies is the pay-per-user strategy. Using this model, every user pays a separate cost, which is similar to paying each software copy for each workstation.

While both pricing models provide different benefits for both merchants and customers, the SaaS subscription pricing seems to be on the rise with a revenue growth of at least 20% expected for each of the next three years. While companies always create new upgrades of their products, customers can access those at a lower price and with a lower commitment than if they were to purchase the product once.

Finally, the main difference between the conventional one time pricing and the SaaS subscription pricing is that with the former you are purchasing a copy of the software, and with the latter you are purchasing the restricted license to use the software. Merchants at Upclick are increasingly choosing this method because they can obtain the recurring revenue and form longer term relationships with their customers.