Subscription or One Time Payment?

Posted by admin on January 08, 2015  /   Posted in Business, Online Platform

The Question

When it comes to funding an online business systems that implements your business processes and ideas, which one is the better way to go? Pay every month (or year) or cough up a larger sum in the beginning and never pay again?

The first option is the Subscription model, where the cost of the development is spread over a period of agreed time (most often ongoing).

The second one is the One-time Payment model, in which the company decides on a budget and the system developers are given a certain period of time to design, code, and test the system. Notice something missing in that list? Correct, maintenance and modifications. A business system has to be maintained and also modified to suit the changes in the business. After all, the system is created to support the business, not the other way around.

What is the consensus?

Whenever I asked this question to a business owner, in seven out of ten the answer leans towards a One-time Payment (usually upfront and a much larger sum). Except those who has tasted the experience of a properly-planned and properly-executed Subscription model development.

In a sense, this is not surprising, it is human nature to prefer a one-time purchase rather than subscription, unless the benefits of paying subscriptions is clear (or if they do not have a choice in the matter).

The reality is, building a system to help implement a business process has a lot more parameters and is prone to changes, both from inside or outside factors. Therefore, and the statistics agrees, it is rare that a custom business system can be developed in one iteration. The successful ones are built in several iterations with some that takes care of the inevitable changes.

The Comparison

Subscription Model

  • The company pays a subscription periodically
  • The developers are motivated to continuously enhance the system because doing so will make their job easier. As the result, the system is getting more stable and robust over time
  • The system can be built to follow the changes in the business processes. This is very important when the company is trying to train and organize their employees in phases
  • There is time to build measurement functions into the system, enabling the company to know exactly how effective the system is. This is a key feature for those answering to a board of investors
  • Everybody wins in the end

One-time Payment

  • The company pays one time
  • The developers are motivated to do their best, but more often than not, the requirements collected upfront is not complete, therefore the system cannot be as stable and robust as it needs to be, before the time or the money (or both) run out
  • The system is highly susceptible to changes in the business processes
  • Everybody loses in the end

Can We Not Pay Later for Modifications?

Certainly, you can hire the same system builders or someone else to do the modifications to the system later on, but this does not solve the problem of whose responsibility is it to monitor the performance of the system and make sure that it is still aligned with the business process it is supporting?

If the business owner is willing to take on this responsibility, then the risks are:

  1. The business owner may not have the time to do it because he is busy running the business (as he should be)
  2. The business owner may not have the necessary skills and experience to determine when the system needs to be modified

The better candidate for fulfilling this role is actually the system builders. They are in the position to setup automated monitoring system (which in itself, an evolving sub-system) that can notify the business owner when certain events are detected within the system.

The cool thing for the business owners are: They are not wasting time monitoring the system, but they are notified so they can make the decision where it matters, at the business process level. The best way to get this benefit is to adopt the Subscription model.

Can One-time Payment Ever Be a Good Choice?

The answer is yes, if the following conditions are true:

  1. The system’s requirements can be defined clearly upfront
  2. And, more importantly, those requirements do not change a lot as time goes

A good example would be a well-known system like a shopping cart, or an accounting system. Unfortunately these systems alone are rarely sufficient to help a company serve their customers and grow at the same time. Most companies seeking to build their own system has way too many customized rules and a lot of unmeasured assumptions.

In Summary

In business today, you can’t survive without taking advantage of what technology has enabled us. From remotely scanning documents, to SEO marketing, to a full-blown employee resource tracking and management system, to a data-analysis system capable of evaluating the quality of customers, we have so many technologies that a custom business system can take advantage of, that also changes rapidly.

The only way to keep up with it is to have a team of developers who are always on the ready to make the necessary changes to the system. A subscription-based arrangement is designed to fund this kind of project because as they say: Time is on our side.

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